Amid declining shareholder returns, consumer products companies must accelerate digital transformation to regain lost ground
Sales of consumer products on a global scale saw a deceleration in growth during 2024, as price hikes leveled off and volume expansion remained limited. With a year-over-year sales increase of 7.5 percent in 2024—down from 9.3 percent in 2023 and 9.8 percent in 2022—the industry continues to encounter challenges as shifts in consumer spending habits and economic pressures intensify. Bain & Company explores these dynamics and more in its Consumer Products Report.
Pressure on major CPGs
“The challenging dynamics of 2024 have placed disproportionate pressure on the biggest CPGs,” said Richard Webster, head of Bain & Company’s global Consumer Products practice. “As inflation recedes, it’s clear that the old, large-scale CPG growth model is not fully fit for the new normal that’s emerging. The industry is at a turning point and the traditional reliance on price-driven growth is no longer enough to sustain long-term growth. For those CPGs ready to embrace the opportunity, this is the time to sharpen their agendas and make strategic choices that will enable them to thrive in the generative AI era.”
Emerging markets account for most volume growth
In developed markets, consumer product sales growth fell from 7.7 percent in 2023 to 4.5 percent in 2024, with volumes remaining disappointingly flat despite more moderate price increases, according to Bain’s findings. This subdued growth reflects the cumulative effects of many months of elevated inflation: prices in the U.S. and the European Union at the close of 2024 were over 20 percent higher than those in the first quarter of 2020. Bain’s Consumer Lab revealed in its latest consumer surveys that the cost of living remains the top concern for consumers in the U.S. and Europe, with around 80 percent of respondents indicating they are reducing their spending.
Conversely, emerging markets have continued to serve as the primary engine of growth, showcasing an 11 percent year-over-year rise in retail sales value. This performance aligns closely with recent years and exceeds the growth rate of developed markets by more than double in 2024. The reported 3 percent volume growth in emerging markets—set against a backdrop of modest price increases—accounted for nearly all the volume growth documented by the global consumer products sector.
Consumer preferences shift away from mass-market offerings
The challenging dynamics of 2024 exert significant pressure on the largest CPGs, especially as insurgent brands gain ground and consumer preferences increasingly shift away from mass-market products. The world’s 50 largest CPGs recorded a mere 1.2 percent revenue growth in the first half of 2024, while insurgent brands captured up to 40 percent of total U.S. consumer product growth, according to Bain.
Simultaneously, consumer health trends—such as heightened concerns regarding ultra-processed foods and the rising acceptance of GLP-1 medications—have the potential to instigate enduring disruptions within the industry. Major shifts will likely arise from the intersection of evolving consumer behavior with macro trends, including migration, the redefinition of family structures, and aging populations.
Rapid evolution of the consumer goods industry
The consumer goods landscape is transforming swiftly, driven by both changes in shopper behaviors and the evolving retailer environment. Consumers are displaying more polarized spending habits, with some prioritizing value and affordability, while others are ready to pay a premium for high-quality products. Our recent study also suggests that consumers are busier and increasingly favoring convenient consumption methods (such as on-the-go snacks). The retail environment is becoming more modern, consolidated, and diverse, spurred by the rise of value formats, the expansion of e-commerce platforms, and increased spending in foodservice. For CPGs, minor adjustments won’t suffice to recover lost ground. They must overhaul their portfolios, enhance their digital capabilities, and integrate AI throughout their operations,” noted Faisal Sheikh, partner and leader of Bain’s Consumer Products practice in the Middle East.
AI remains a missed opportunity for many CPGs
Despite 90 percent of CPG executives recognizing AI’s significance, only 37 percent include it among their top five priorities. Merely 6 percent report having a plan for leveraging AI to generate business value, underscoring a critical execution gap.
Innovations in enterprise resource planning (ERP) and AI are redefining the capabilities of digital technology. For numerous CPGs, this represents a once-in-a-lifetime opportunity for transformative change driven by technology. Bain indicates that advanced retailers are already utilizing AI to optimize supply chains, automate content creation, and hyper-personalize marketing; however, most CPGs have yet to catch up.
AI adoption is imperative; however, many CPGs are lagging in their efforts to implement digital tools on a large scale. Companies that fully incorporate AI into their business frameworks will spearhead the next wave of industry growth, and successful CPGs won’t be hindered by perfectionism; they’ll cohesively build toward significant initiatives through near-term digital applications while continuously testing and learning.
Opportunity for reinvention
To regain the confidence of investors, leading CPGs must focus on the fundamentals, rediscovering volume growth to reclaim market share lost to smaller insurgents and local competitors that have effectively attracted consumers. They should also invest in productivity initiatives that enhance margins and generate cash flow to support further investments in key areas such as technology, advertising, and promotions. To achieve meaningful transformation, CPGs must:
- Rethink their sustainable growth strategy by optimizing current profit pools through superior execution and making bold portfolio decisions that expand categories or create new profit pools;
- Reinvent themselves for continuous productivity improvements by streamlining existing portfolios and operations to drive growth while establishing a distinctive focus for the future; and
- Redefine a model driven by AI and technology by enhancing their ability to deploy value-generating digital tools at scale today while reimagining their entire business for tomorrow.