In the rapidly evolving consumer packaged goods (CPG) industry, companies are navigating a complex landscape marked by heightened price sensitivity and shifting consumer expectations. To help sustain growth and remain competitive, CPG leaders should move beyond traditional pricing strategies and embrace a multifaceted approach.
Since 2020, CPGs have driven impressive growth, partially through well-managed pricing strategies to respond to massive inflation in materials and increased labor costs. We’ve seen US shelf prices for consumer goods surge by about 30%, leading to revenue gains despite slight dips in volume. During the same period, CPG-delivered costs rose by about 25% — driven primarily by mid-2022’s peak inflation, led by increases in ingredients and packaging costs, but with rising energy and labor costs also contributing significantly (see chart below). Wages in CPG, for example, have risen by about 30% since 2019.
By 2023, the landscape shifted. Consumers became more price-sensitive, deteriorating brand loyalty and allowing private labels to regain market share. This year, brands face a tougher pricing environment, with many holding prices steady or experimenting with reductions as total CPG costs stabilize at roughly 20% above pre-pandemic levels.
Heightened price sensitivity has made it harder for many brands to justify further pricing actions. Currently, consumer shelf price increases are slightly higher than the increase in modeled costs. Private labels, after adjusting prices in 2022 and early 2023, have stabilized and gained market share as consumers increasingly turn to lower-cost alternatives. Categories such as general food, frozen food and paper products have seen some of the largest price increases since January 2020.
The gap between price increases and cost growth indicates that relying on pricing alone for growth may no longer be sustainable. With stagnant incomes and declining savings, consumers are less able to absorb further price hikes. This dynamic creates risks for CPGs, especially in case of potential future commodity cost increases which could be sparked by geopolitics, including the risk of new import tariffs after the US election.
In today’s pricing landscape, executives should consider the implications of K-curve demand. This phenomenon can put pressure on brands across categories, demanding targeted strategies. Premium brands may still grow among affluent consumers, but mass-market products will likely face shrinking demand. Sectors like travel and entertainment, which cater to higher-income households, maintain better pricing power, while housing-related industries (like home improvement, furniture and appliances) struggle. Discretionary and services sectors are expected to show stronger revenue growth this holiday season compared to staples and goods.
The path forward involves a blend of:
To succeed in today’s challenging pricing landscape, CPG leaders should shift their focus beyond pricing and embrace a mix of longer-term strategies. Prioritizing innovation, digital transformation, value stream optimization and strategic M&A can help businesses meet consumer needs and continue driving sustainable growth.
Consumer packaged goods (CPG) companies are execution-focused as they plan to stimulate stagnant volumes and lure back budget-constrained consumers.
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