The situation: Consumer packaged goods (CPG) companies are in turmoil as shifting food trends, cuts to government benefits, and inflation challenge their share of grocery spending, while organizational headwinds compound the pressures.

The strain is forcing bold actions and inviting scrutiny.

• Kraft Heinz will split into two companies, spinning off its slower-growing grocery unit—home to Oscar Mayer, Kraft Singles, and Lunchables—to give faster-growing products like Heinz ketchup and Philadelphia cream cheese more room to expand.
• PepsiCo is under fire from activist investor Elliott Investment Management, which is pushing the company to reevaluate its beverage and food portfolio and potentially sell off underperforming assets.
• Nestlé has its third CEO in a little over a year after Laurent Freixe was fired following an investigation into an undisclosed romantic relationship with a subordinate—complicating its recovery efforts following years of sluggish sales.

A challenging landscape: These changes are occurring as shoppers become increasingly price-conscious, and consequently less brand loyal. The MAHA movement and rising use of GLP-1 drugs for weight loss is also reshaping what consumers put in their grocery baskets, to the detriment of brands like Oscar Mayer and Lunchables.

Rather than looking for new ways to engage shoppers, most CPGs are becoming defensive. Many are following the strategy that Elliott wants Pepsi to take: reducing the number or range of items they sell, either by offloading noncore assets or engaging in SKU rationalization. Those moves could help cut costs in the short term but risk alienating consumers who want variety and innovation.

• Though value is crucial to winning over shoppers, consumers want more than just the lowest prices. Just 1 in 3 US consumers say they look for the cheapest product, according to the Q2 edition of Kearney Consumer Institute’s Consumer Stress Index, while 48% look for a balance between quality and price.
• By narrowing their assortments to products guaranteed to sell, CPGs are opening the door for retailers to use innovation to drive customers to their private labels—an opportunity that Walmart, Kroger, and Albertsons are taking full advantage of.
• 3 in 4 shoppers say private label products are just as good as name brands, while 49% actively seek out store brands, per a February Ipsos survey.

Our take: Kraft Heinz’s breakup makes clear that size and brand recognition alone are not enough to ensure consistent growth—even for a company whose portfolio contains such household staples as Kraft Mac & Cheese and Heinz ketchup. While cost cutting is paramount as tariffs add millions to companies’ operating costs, CPGs must balance efficiencies with product innovation to recover some of the sales lost to private labels.

In that respect, PepsiCo is better positioned. The company has been tightening its cost structure for years, while also making strategic acquisitions and launching products to ensure its portfolio aligns with changing eating habits. Its clear-sighted strategy could give it confidence to resist Elliott’s suggestions, although market pressure could still force concessions.