Margin pressures, private label growth reshape food sector competitive landscape

As we move through the second half of 2025, food and beverage companies are navigating a challenging economic environment shaped by rising inflation expectations, tariff uncertainty and a cooling labor market. These macroeconomic pressures are prompting consumers to become more strategic in their spending, particularly in the grocery aisle. While food and beverage companies focused on domestic sourcing are somewhat insulated from significant tariff exposure, tariff uncertainty will undoubtedly continue to weigh on consumers’ spending habits, including their grocery purchases.  

Further, recently enacted tariffs and future uncertainty may lead to higher inventory levels as companies try to stave off future supply chain disruption.

According to Bloomberg, the median inventory of the North America packaged food peer group has been rising since 2020, initially due to the pandemic-induced pull-forward, and most recently due to inventory stockpiling to ward off further supply chain disruptions resulting from the imposition of tariffs and trade negotiations. Maintaining higher levels of inventory will require additional working capital, challenging critical infrastructure investments and further stressing cash flow.

The shift in consumer spending habits is creating a challenging balancing act for middle market companies. Many food and beverage businesses had anticipated a rebound in volume growth in 2025 to help offset inflation-driven cost pressures, but that recovery has yet to materialize. Instead, consumers are trading down—seeking value without compromising quality—making it harder for companies to raise prices without risking volume losses. For the better part of the past 18 months, the consumer price index for food at home has trailed producer prices, suggesting that producers are absorbing more of the cost burden to maintain pricing strategies. 

Private label products gain ground

One of the most notable trends in today’s food and beverage market is the continued rise of private label products. Once viewed as lower-tier alternatives, these offerings have evolved in both quality and branding. Retailers are rapidly expanding their private label portfolios, and consumers are responding—drawn by competitive pricing and increasing confidence in product quality. This shift is eroding national brand market share, especially in categories with limited differentiation. For middle market food and beverage companies, this presents a dual challenge: defending brand equity while managing tighter margins.

Large retailers have not only broadened their private label assortments but also enhanced their quality. A key advantage lies in their technological capabilities, with many now offering robust mobile apps and digital infrastructure. These platforms enable retailers to leverage transaction data for deeper consumer insights and to promote store brands more effectively over their national brand competition.

The competitive pressure from private labels is no longer just about price—it’s about perceived value, trust and availability.

Strategic imperatives for middle market companies

While challenging in tighter economic conditions, to remain competitive, middle market food and beverage companies must rethink their approach. Relying solely on pricing strategies to protect margins is no longer sustainable. Instead, companies need to embrace a more holistic, data-driven strategy that includes: 

• Enhanced consumer insights: Leverage advanced analytics to understand evolving preferences, price sensitivity and product performance based on internal data.
• Technology investment: Build a resilient technology ecosystem that empowers real-time decision making and accurate forecasting through advanced AI capabilities. Prioritize investment in critical infrastructure—such as robust data warehousing and stringent data hygiene practices—to form the foundation for reliable, high-impact analytics. By leveraging AI-driven tools, organizations can automate complex data processing, uncover insights rapidly, and generate predictive and prescriptive analytics that drive smarter, faster business decisions. This strategic integration of AI enhances accuracy and efficiency while also enabling both technical and nontechnical users to make data-informed decisions throughout the business.
• Targeted innovation: Invest in product development that aligns with the consumer demand of the target market for value, health and sustainability.
• Operational efficiency: Design flexible supply chains and optimize cost structures to preserve profitability.

The path forward

The current economic climate demands strategic agility from food and beverage companies. With consumers increasingly focused on value, brands must adapt by refining pricing strategies, enhancing product differentiation and embracing innovation. Those that can respond effectively to the rise of private labels and shifting consumer expectations will be best positioned for long-term success.