Unlocking sustainable CPG growth: PwC

Consumer packaged goods (CPG) companies are under extraordinary pressure to address pricing and affordability. With shelf prices up 30% since 2020, companies are confronting mounting public criticism of their pricing practices amid high-profile retailer-manufacturer disputes, deteriorating consumer trust and volume losses for branded manufacturers in some categories. As costs stabilize at 20% above pre-pandemic levels, the time has come to shift from tactical fixes to holistic affordability strategies. While affordability pressures can impact the entire CPG sector, the effects vary slightly by category.

This challenge represents a structural shift in CPG market dynamics. Brand loyalty appears to be wavering as private labels gain share and a significant number of consumer segments abandon categories they can no longer afford. As government investigations into pricing practices intensify, companies often face risks that extend far beyond immediate sales impacts, threatening their core market positions. These risks are heightened by the fluid tariff situation, which could introduce new cost pressures amid geopolitical tensions or policy changes.

Traditional response tactics — shrinkflation, reformulation and temporary discounts — are now less effective in preserving brand value and addressing core affordability issues. Surviving this market shift demands operational transformation and business model reinvention, such as portfolio renewal, ecosystem strategies and/or end-to-end operating model redesign enabled by emerging technologies like AI. At the same time, as business and consumer ecosystems increasingly overlap, partnerships are blurring traditional industry lines and creating new affordability opportunities — in PwC’s 28th Annual Global CEO Survey, consumer markets CEOs tell us that, on average, only 6% of their revenues in the past five years came from new businesses.

To help capitalize on these shifts, organizations should centralize decision-making processes, focus on engaging more directly with customers rather than just collecting data, and adjust incentives to deliver true value, not just affordability. This approach can help turn affordability from a challenge into a competitive advantage.

Restoring affordability could require price reductions (or increases in perceived consumer value) of 5% to 10%.

Strategic levers for the future

To help navigate the affordability challenge, executives should rethink how products are developed, priced and delivered. The current environment shows the risks of treating affordability as a short-term tactic. Instead, companies should embed affordability as a continuous capability, making it an integral part of operations ready to adapt dynamically to market shifts. Success rides on aligning the C-suite around affordability as a strategic imperative and building the cross-functional teams required to transform affordability into a competitive advantage. Given that CPG shelf prices have risen about 10 percentage points more than costs and overall inflation (CPI) since 2020, restoring affordability could require price reductions (or increases in perceived consumer value) of 5% to 10%. The path forward involves choreographing key affordability initiatives into a cohesive strategy.

Companies can enhance revenue growth and further their competitive advantage by understanding the impact of key affordability levers on underlying growth drivers.

Affordability strategies can also be adapted based on category-specific price elasticity, competitive dynamics and brand strength — where investment in brand equity can serve as a key lever.

To start, companies should position affordability as a core brand value while maintaining transparency with their stakeholders. This includes engaging proactively with consumers, customers and government bodies to demonstrate commitment to accessible pricing. Affordability strategies can also be adapted based on category-specific price elasticity, competitive dynamics and brand strength — where investment in brand equity can serve as a key lever. Technology can be leveraged to provide clear rationale behind pricing decisions, thereby building trust through transparency. Successful strategies often emphasize open communication about value and pricing decisions.

Your next move

Build brand narratives that help establish affordability as a core value proposition.
Shape dialogue with government stakeholders by showcasing consumer-centric affordability initiatives.

As part of a holistic affordability framework, commercial levers work in concert to help deliver value across the consumer journey. The approach combines strategic pricing through temporary retail reductions, promotional activities, targeted marketing campaigns and points-based loyalty rewards programs. Some brands use promotions to target price-sensitive consumers, while others reinforce affordability through base pricing and perceived value — different mechanisms that ultimately serve the same goal of price segmentation. Either way, this coordinated activation strategy reinforces broader portfolio and cost initiatives to enhance affordability while maintaining profitability.

Your next move

Consider what mechanism(s) make the most sense to deliver perceived value to your consumers:
- Value-driven loyalty programs that reward and retain price-conscious consumers.
- Targeted marketing campaigns that highlight value propositions for price-sensitive segments.
- Reassessing base pricing to become a perceived ‘value’ brand.

Product simplification and value tiering are becoming important tools for managing affordability. Companies are rethinking their innovation approach by focusing on cost-effective formulations and packaging that can meet consumer needs without compromising quality. For instance, several food manufacturers have developed alternative ingredient formulations that help address both cost and health considerations. Consider whether portfolio enhancement and investment choices should include a category’s lifecycle, availability of ingredient supply and sustainability factors. Success requires careful portfolio management to maintain distinct value tiers while helping prevent the complexity that doesn't add consumer value.

Your next move

Conduct portfolio review to identify opportunities for product simplification, or even reduction of brands, categories or SKUs that are less accretive to the portfolio.
Develop value-tier innovations that maintain quality while aligning product positioning with lower price points.

Supply chain enhancements, procurement efficiency and packaging innovation represent key opportunities for sustainable cost reduction, even as international trade dynamics grow increasingly complex. Although productivity improvement has been a multi-year priority for CPG companies, incorporating postponement strategies, segmented supply chain solutions and design-to-value concepts can help create a fundamental shift of the cost curve, not just a one-time reduction along it. Leveraging an ecosystem of partners can also lead to mutually beneficial costing structures while accelerating time to value.

Companies are leveraging innovative product design and cost-improving materials to significantly lower their cost base. With CPG costs rising roughly 20-25% since 2020 — driven primarily by peak inflation in mid-2022 — structural cost reductions remain central. Businesses should prioritize supply chain efficiencies and economies of scale, as rising manufacturing costs are making consolidation more integral than localized production shifts in the current cost environment.

Your next move

Drive cost efficiency through enhanced sourcing, supplier partnerships and scaled production strategies, incorporating dynamic modeling to account for policy and tariff changes.
Redesign processes and flows for value with minimal waste, including scenarios for alternative supply sources, materials, production and distribution.

Enhancing distribution models and service delivery can significantly impact product affordability. To that end, companies need to evaluate their coverage models, service enhancement opportunities and partner incentive structures to reduce costs while maintaining market access.

Your next move

Review distribution network to identify opportunities for service model enhancements.
Develop incentive structures that align partner rewards with affordability goals.

Different strategies — from temporary price cuts and special promotions, to targeted marketing and loyalty programs — can work together to provide value for customers.

Leveraging AI and advanced analytics for affordability enhancements

Technology and data underpin many affordability levers, with AI-powered tools supporting key decisions across pricing, portfolio and commercial strategies. Revenue growth optimization (RGO) systems, for instance, help companies fine-tune pricing and trade investments while managing costs with greater precision. Outcomes achieved by companies deploying holistic RGO solutions include trade spend improvements of over 5%, annual revenue growth of 2% to 3% and a six to 10 times increase in ROI on annual software as a service (SaaS) fees.

Many companies are using these tools to help simulate market conditions and forecast consumer behavior. Scenario planning, which has delivered 2% to 3% profit lifts, has become a key element in pricing strategy, allowing companies to anticipate competitor reactions and incorporate those scenarios into their pricing simulations. Additionally, RGO, offering a potential 4% to 5% profit lift, uses these insights to refine strategies further and influence pricing decisions to improve profitability.

Imagine this: An industry-leading consumer goods company wants to successfully navigate today’s volatile market and integrate AI into its pricing strategy processes. This video shows how AI can inform real-time adjustments based on up-to-date market data and supply chain insights, maintaining agility and a competitive edge. It’s one example of how advanced technology can help address affordability challenges and position a company to be a leader of tomorrow.

By leveraging stronger datasets — such as point-of-sale data, retailer-provided performance metrics and competitive behavior — companies can generate forward-looking recommendations that account for potential market shifts, with greater precision and predictions of 90% or better. This proactive strategy has demonstrated measurable impact, including up to 730 basis points in trade efficiency increases and 100 basis points in sales activity margin improvements.

Companies are rethinking their innovation approach by focusing on cost-effective formulations and packaging that meet consumer needs without compromising quality.

Preparing for growth in a new era

Affordability is now a strategic necessity for confronting today’s market pressures. No longer effective as a piecemeal or optional approach, companies should embed affordability into their operations as they position themselves for long-term growth. The path forward lies in leveraging technology, innovation and strategic foresight to help deliver value to both consumers and businesses.

Author: Ali Furman, CM Industry Leader

Contributors (by solution): Growth Strategy, Paul Blase; Pricing Strategy, KB Clausen; Supply Chain Optimization, Carla DeSantis; Customer Loyalty, Samrat Sharma; AI Pricing, Sudhanshu Shekar