Consumer Spotlight: CPG in 2025 - Trends, Tech Innovations, and Growth Strategies

Samad Masood:

Hi, I'm Samad Masood from the Infosys Knowledge Institute. Thank you for joining another Infosys Consumer Spotlight, our webinar series that takes a quarterly look at trends in the consumer packaged goods, retail, and logistics sectors. Today we're going to talk about where the global CPG sector is headed in 2025. Look at the financial outlook, the growth areas, and technology trends that will impact this industry. Joining me for the conversation are three senior executives from Infosys', consumer goods retail and logistics division. First, we have Mayank Ranjan, the regional head for Americas. We have Sachin Jangam managing partner at Infosys Consulting in Europe. And Rahul Ubgade, vice president based in London. Welcome all. Thanks for joining.

Sachin Jangam:

Thank you.

Samad Masood:

So I'm going to kick us off just by asking a bit about your views on how consumer spending is looking in 2025, and how we think that spending is going to affect CPG's ability to price and improve their business performance. Sachin, why don't you kick us off?

Sachin Jangam:

Yeah, so I think if you look at it during COVID time, the focus was on supply chain resiliency, and how do we keep business going? But as we come out of COVID, what we're looking at is there's the impact of tighter monetary policies are still existing in the system. There is always a lag on what central banks do, versus how it impacts consumer confidence. So we are seeing a higher unemployment rate. We are seeing businesses struggling with the increased cost base owing to inflation and the highest interest rates. So all of this, while on one side might think it's a bleak situation, problem area. But I see on the other side with all the changes, central banks doing lowering interest rates, political uncertainties are behind us. I see more positivity coming up. Owing to the lagged effect, maybe next six, eight months, we should be able to see the recovery, and a higher consumer confidence, which enables us not just to drive price-led growth, but even a volume-led growth, which consumer industry is lagging for the last two or three years. And when I look at IMF forecast per se, I think we are expecting, or IMF is suggesting by 2026, they will see lowering of the prices compared to 2025. But we're still around 17% higher than what was spent on the same basket in 2022. So we will be adjusted to a new normal, but there will be a, I think potentially increase in consumer confidence as we go through the later half of 2025, early 2026. That's how I see it.

Samad Masood:

So generally positive, going in the right direction. Mayank, any thoughts to add to that?

Mayank Ranjan:

Yes, Samad. If you look at the consumer today, the consumers have become very value-conscious. And prices have gone up, inflation, everything, and it has really brought a big pressure on the household budget. So we are seeing a trend of consumers shifting to the tier two brands, and private labels have seen a very, very strong momentum. If you look at all the big chains, private labels are seeing very good momentum. From the consumer standpoint, now there's a big shift towards healthy options, and all the big players in the industry are having to kind of take a step back, rethink their strategy, and see how they can increase their presence in the healthy segment. There's a lot of focus or preference by consumers on the do-it-yourself kind of products. So there's a lot of consumer behavior shift that we are seeing, and CPG is compelled to have to adjust to that, and then maintain their pace.

Samad Masood:

Rahul, we're getting a picture here that perhaps 2025 is going to be looking a bit better, but we're still dealing with some of the challenges of the past with a very value-conscious customer base. What would you have to add to that? What's your view?

Rahul Ubgade:

Yeah, I think from a consumer perspective, in my view that it's not going to be a very easy path. It is possible to achieve success, but there's a lot of work to be done. So the entire post-COVID inflation has seen unprecedented price increases, and largely price-led growth. Today, that has all tapered, but the consumer spending is already impacted, and you see deceleration in the volume growth. Even in the last few quarters, the price growth has actually come down significantly, but still volume has not caught up yet. So there is still a lot of work to be done. So we've been doing a lot of pricing studies for many brands, and what we find is that in many cases, the willingness to pay for the brand is not improving year-on-year while the prices have caught up. So you're leaving less and less consumer surplus for the consumers by the brand. And therefore I think there is a lot of work to be done. Some part, I think Mayank has already highlighted. Looking at your portfolio, changing consumer habits, but I think there'll be many levers as we discuss further. We'll talk more details.

Samad Masood:

Thanks. And that's sort of what I was going to go on to next is actually, given this quite mixed and challenging environment, although there is some optimism, what are CPG firms in particular doing to respond to these conditions? How is that changing things?

Sachin Jangam:

So the way I look at it, brands are reorganizing their product ranges aligned to channel shift. Possibly a lot of these businesses today are doing 25, 30% through e-channels. It's very important to have different ranges across e-commerce, quick commerce, traditional retail at the rise price point. So that's something is happening. Secondly, there is also big theme going on about subscribe and save, brand-led, retailer-led. That helps drive the brand affinity and repeat sales, and potentially you have a consumer with you forever, or for the lifespan, right? I think that's something we've seen. Third one, there are a lot of reorganizing, reshaping of this organization as e-marketplaces are evolving. There are options where you support marketplace end-to-end. There are options where marketplace just does the marketing job or a channel job, but you do the supply chain behind the scenes.

So I think these are things consumer goods are doing. While all of this is happening on front end, I think there is a huge desire to have access to the consumer data, taking those insights and getting right propositions in market, a link to the pack size pricing, seasonal offers. So if you ask me, these are the balancing facts which consumer industry is changing and reshaping for them as they look forward to 2030. Mayank, I don't know how you see it, what you see it in this space.

Mayank Ranjan:

Thanks, Sachin. I think it's very pertinent that we get a good understanding of how the consumers today are behaving, and then every company is trying to adapt to that. What we are seeing is that there is a lot more focus on product innovation. How do you reduce the cost of ingredients, so that your cost of goods sold, cost of manufacturing goes down, while maintaining the quality? There's a lot of, more in the food and beverage segment, there's a lot of health or healthy product options that companies are feverishly working on, on launching more and more skews in that segment.

The need to personalize engagement of consumers through campaigns, through marketing, through packaging, through all the digital touchpoints has increased or is probably at the highest point ever that we see. And every brand is trying to maximize on that so the brand loyalty can be maintained. A lot of direct reach to the consumers, whether it's through direct to consumer brands, through marketplaces, through collaborating with the channel partners. All of those options are being absolutely worked on with great momentum and focus by the CPG companies, to really stay in the conscious and that mindset of the consumer.

Samad Masood:

The brand element, though, I know Rahul, you've got a few views on this, about the challenge that there is, because a lot of consumers are also perhaps seeing less value in brands, as they look for cheaper or more value, more financial value rather than a brand value. Is that the case?

Rahul Ubgade:

No, I think for many brands it is the case, I would not generalize for everyone. But I think we are seeing the rise of the private label, once again. And these times when the private label catch up, it really means that brand is not giving enough value to the consumer, and therefore consumer is seeing no difference, and moving to private label in some cases. So this is absolutely the time to go back to the drawing board with the marketing fundamentals, getting your 6Ps right.

So understanding the point which Mayank said, changing demographic. What new demographic is coming up? What are their changing habit, consuming habit? They want to go for wellness, health? There are GLP users who have different eating habits. So all these things have to be looked into from a portfolio perspective, am I giving and serving the needs of the demographic today?

And then it is about investment back into the brands, in terms of communication. So understanding what are those differentiating attributes of your brand, which you want to communicate sharply. And there are a lot of analytics studies available to really tell you where to dial up your communication, because generally giving brand communication doesn't help unless you get the brand attributes right. And then finally, executing that with personalization. Another element we have seen is that a lot of money from the brand development, particularly on ad spend, is now moved to the retail media, and that has become a bit of a default choice. One should do a top-down allocation in terms of what is the right spend in retail media versus the other digital media, and what is the right balance between conversions and long-term brand building. So I think all this becomes very important. It's all about fundamentals of 6Ps in marketing, which we have always been talking about. They have to be revisited and invested in.

Samad Masood:

So back to the drawing board in these times. But the industry itself, CPGs are reshaping quite a bit, aren't they, in terms of how they're structured? There's been quite a bit of M and A and carve-outs and such. Mayank, can you tell us a bit about the context for all of this? I mean, how is that also changing the dynamic in the industry?

Mayank Ranjan:

What has happened is that the price of raw material ingredients has gone up significantly. And if you look at all, especially the food and beverage and then the other fast-moving consumer goods companies, in the last year and a half to two years, everyone has had their shot at increasing the prices. And now they almost, they've hit the ceiling with inflation, and the consumer behavior's visible. There is no more price increases that you can take in the near future. So what are they trying to do? They're trying to, how do you lower the price of ingredients? How do you fight the battle of not losing market share to private labels, and then some of the relatively cheaper brands. Supply chain costs have gone up and that limits the flexibility on how you source your products, and then raw materials, and all that.

So all of these have really put significant pressure on manufacturing and shipping the products. On the other side, how do you increase your consumer base? Acquisition of consumers? Given how digitally connected today's consumers are, it's very expensive to influence the mindset. Is easy to reach, but very difficult and very expensive to change the mindset, and shift consumers to your brand. So all of these have put tremendous pressure. So every dollar, how do you split the dollar becomes very, very pertinent here. And then companies have to be very optimized in all of these aspects to really stay connected with the consumer.

Samad Masood:

That's interesting, and that optimization and what Rahul was saying earlier about going back to the basics, but really requiring quite a lot of data and insight to understand how to do that. We're going to talk a bit later about how technology is supporting that and particularly how the AI revolution is helping. But Rahul, I'd like to turn to you a bit more about this dynamic. First, what's your view on how CPGs are reshaping themselves and their structures?

Rahul Ubgade:

I think one point which we all spoke about and Mayank amplified on it, was about how do we drive that organic growth, manage cost, and fuel that saving back into the investment into growth. But I think other lever which has become completely inevitable is the mergers and disposals. I think that is going to be an important lever, because the earnings expectation from CPG companies is growing, and they are not keeping pace. Even remaining within guidance is challenge for some of the companies now. So this lever is all about, how do I acquire more high growth, high margin categories, and dispose which are non-core or not growing enough, right? So becoming quite ruthless in those choices, and that will lead to a lot of mergers as well as disposals.

And sometimes we see also, disposals not for being a non-core category, it can be for reason of specialization. The example is Unilever is separating their ice cream business. Now it's a good business, performing well, but it can do even better if it is independent, because then it can pay attention to its specialized cold chain supply chain investments and think of its own destiny based on those investments rather than being tied to other categories which are not synergistic with ice cream. So I think that is also another trend which we are seeing.

Samad Masood:

I was going to say, it's interesting, so we're moving from perhaps a world of large CPGs, to maybe more focused smaller businesses? Is that something you're seeing, Sachin, as well?

Sachin Jangam:

So if I do see in the last two years, I have seen the maximum divestment on, right? The earlier mantra was, "Bigger is the better, bigger is the efficient." But what I've seen now is smaller, nimbler is where the value is, and the agility is brand expansion is. So if I go across the industry, bigger life science businesses are carving out their consumer arms. Sanofi separating Opella, Novartis separating Sandoz, because they traditionally cannot operate at a life science cost base. So they need to look at, what is the right cost base? What's the right consumer focus ethos? What are the lighter regulation they need to operate in? And that's where those are coming to for it.

Second part of it is, especially consumer goods, the shareholders are dialing down on ROI, ROIC, kind of a focus. As a result of it, organizations like Reckitt are focusing more on, what are my core brands, power brands? How do I invest behind it? How do I scale them? And what are the essential brands which may be under-invested, maybe under-penetrated? And in a bigger ecosystem, I'm not able to create a focus behind them. But being separate, nimble, they might drive their own business. So they're thinking from that perspective.

Rahul talked about Unilever. Unilever is a multiple different business unit, be it ice cream, be it tea, be it the traditional Unilever brands. They're also thinking, how can there be independent agility, independent autonomous construct and structure, which can drive higher operational efficiencies, independence, and in turn better pricing power and consumer affinity. So huge plethora of [inaudible 00:17:41] going on, fewer large M and As going on. We know interest rates are high. This is not a classic time to do bigger mergers and acquisitions, but on one side, Mars going after Kellanova to increase their reach of food sector, snacks, snacking sector, this something is happening. But more and more, we are seeing more prominent carve-outs driven by efficiency, driven by brand focus, and potentially leveraging AI autonomous construct to be a lot more leaner, meaner and a new generation organization.

Samad Masood:

This is a very interesting point, and I think if we look back at the last few years, there's been challenging consumer market, challenging supply chain situation, global economy. But now we're starting to see, as you say, in the last year or so, these divestments and carve outs, and a real reshaping of the CPG industry. We may have more nimble, more competitive, more focused businesses, and more targeted I suppose. And to the points that were made earlier, needing to focus more on their brand and really focus on the basics. I guess these business areas are now freed to really target their consumer audiences much better. But of course, the big elephant in the room is also the AI revolution and enterprise AI, and how that's driving a change within businesses as well. We've been saying a lot that 2025 is the year where AI experimentation is ending, and it's time to start scaling. In fact, we have some research coming out soon which shows some strong evidence of that many, many more AI use cases are starting to show really strong business value. How do you all see how AI is helping the challenges that CPGs face today, in terms of reducing bottom line, improving their brand value, and being more targeted? Mayank?

Mayank Ranjan:

So, Samad, any discussion today anywhere on the planet is incomplete without discussing AI. So as Rahul and Sachin alluded to, that many of the large firms are looking at, now, hiving off part of the business so they can be more focused on the brands and the segments and the categories they really want to stay vested in. There is an increasing realization that the day-to-day business operations, which over the last couple of decades you see that companies organize their back office operations, whether through outsourcing or through having their own centers.

And the last decade or so or even a little more, saw a lot of robotic process automation to improve human efficiency. Now, where that AI, generative AI and now agentic AI, has become so affordable and accessible, there is a significant opportunity for consumer goods companies to really bring the front office more and more to the back office, by freeing up human effort from the tactical to the repeatable tasks into more of cognitive activities, into taking more of those cognitive and intellectual tasks into the back office, so that the front office is more focused on reaching out to the consumers, building their brand and then focusing on the business. So that's one aspect.

The other aspect that we see as a trend across companies is that there is a realization that the tech investments they have made over the last couple of decades, there is significant headroom to sweat those assets more. And by improving the efficiency of the processes as they look at diversifying their business, or even concentrating in many cases. So the focus is to leverage the now accessible, affordable AI, generative AI, agentic AI, into driving more nimble processes, execution for their business, amplifying the human output and doing a lot more, achieve a lot more, with every dollar that they're spending.

Samad Masood:

And how is that, do we have any examples of how that's starting to happen, or what sort of use cases are working, or where it's being applied?

Mayank Ranjan:

Yes, if you see in marketing, marketing is a big area that's getting affected, where localizing your campaigns or outreach to the consumers. If you look on the back office function side, processes like, say, order management, and in many cases it's a very high touch operation, but there's a lot that can be enabled through generative and agentic AI, which enables less human touch. That means orders can get fulfilled much faster with more accuracy, and the potential human capacity is available to do more of the planning and handling exceptions, rather than getting involved in the day-to-day operations.

Samad Masood:

Yeah, and Rahul, I know you're very interested and focused on pricing. How is it being used there, and what's being done with AI there?

Rahul Ubgade:

I think the use of AI is already being done at scale in many CPG companies, and it's being applied in forecasting. Demand forecasting, raw material price forecasting, and also in pricing area as you were alluding to, recommendation engines. So it's not new, it has been used. But what is happening is that the new evolution of that is coming to your doors even before you have completed the first one.

So I think the key challenge is the speed of adoption, and speed of implementation and experimentation. All of this has become extremely important, but I think over the years, what I want to say is that a lot of companies have invested on good data foundation, they have invested on building algorithmic layer on top of that data foundation. I think what we do now with GenAI and agentic AI, which are the new capabilities come in the last 12 months, is that you can leverage the investment in this foundation to layer on top. So all that hard work which has been done actually can be utilized, and you get better value. And we are seeing more and more use cases where agentic AI is being used to drive the algorithms the way human was driving in past. So I think that is where we are seeing the traction now, that first algorithms were built for human, and now agents are using it in a very intuitive way amongst each other, to really come out with the result, and sometimes keeping human in loop, sometimes doing without the human in the loop.

Samad Masood:

Do you expect, I mean I don't want to say an exponential growth, but we could see quite a rapid expansion over this year, of how AI is being used, as you say, building on those foundations and then accelerating with agentic AI, as well?

Rahul Ubgade:

Yeah, absolutely. I think the growth is unquestionably going to be there in this space because the value is quite easy to see when you put in place. I think what is important is that the companies should not forget the fundamentals, because doing one POC in isolation, versus putting it at an industrial scale, being in a responsible AI, ensuring the data security and privacy in place, and then delivering the business value, is going to be very important.

So it is not going to be an easy path. It is still going to apply certain rigors, which we have applied in the past. In some cases it become even more rigorous, because of the compliance requirement in AI space, and the dangers of bias and other things coming in. So you have to put the guardrails in place while you apply it, but it should not stop you from adopting at pace. I think the speed of adoption is still going to be very important, because I think we are very sure that agentic AI is not the last. You are going to see some more. And therefore before the next thing comes into your door, you should be already reached to some level of maturity on the current technology.

Samad Masood:

Sachin, any thoughts to add there? I mean, Rahul has painted a picture of some really exciting things that could be happening over this year, despite the start of our conversation looking at perhaps quite a challenging year, with some opportunity coming through. It sounds, actually, the power of AI could really start showing its strength this year. How should companies, or CPG companies in particular, think about adopting that?

Sachin Jangam:

So Samad, I think what Mayank and Rahul said is completely valid. I think if I had to look at it two years back, people were testing, teasing, thinking, what can really do? So it was a lot more POC phase, but now I can see it is heading into the enterprise scale model. And what do I mean by that? People are ready to invest equal amount of investments as they would do in traditional ERP or a supply chain function. So with that in the mind, I'm seeing a lot more investments happening in enterprise data platform. Getting the data right and then leveraging AI for top-line growth, mostly in marketing, pricing, promotions, getting inventory to the right location, getting the pack sizes aligned to the consumer habits, doing the personalization aspects. A lot of AI leverage is there.

And when I look at operational efficiencies for every function, the head of supply chain, head of finance, everybody's thinking, "What is my human-to-report ratio going to be?" I used to be traditionally doing a lot more human-based with a lot more cost in, but as I go forward, where is AI going to help me? How that human-to-bot ratio is going to be improved, and how do I drive more operational efficiency and residency? Basically, if I'm the leading the pack, I'm going to win in the marketplace, just because of my optimal cost base, just because of the proposition I bring to the customer. And I think we're seeing a huge uptick in getting AI to the enterprise scale, and it's just, I would say, the beginning of a journey, and we're seeing a lot more shift in that area from an investment perspective, futuristic perspective, the way I look at it.

Samad Masood:

Great, thanks. I'm going to wrap it up now, and just say for any closing thoughts for the year ahead, for our audience here for CPG firms, what do we recommend? Mayank, would you mind going first? What would be the things you'd end the conversation on?

Mayank Ranjan:

Absolutely. The prominent theme here is product innovation. Every company, you have to look at really innovating your products to engage your consumers better. The health and wellness focus from consumers has gone up. That has to be front and center in new product portfolios or diversifying the product portfolio, mergers and acquisitions, so that the right product mix is made available to consumers.

Consumers today are very aware, and the millennials, the young generation, they're so sensitive about our planet. So sustainability focus has to be absolutely paramount because if you're not seen as a responsible company, you will lose brand loyalty. Smart marketing, how do you personalize and then go after a very, very narrow segment? Ideally, it's an equal to one. But, how do you narrow that, and then make sure that you're messaging right to those consumers? And reaching out to the consumers by giving them the ability to choose and transact and buy your products anywhere they feel like, and receive the products anywhere and at the time they feel like.

So all of these really are very pertinent themes and priority areas. So I wish all the consumer goods companies the very best dealing with this phase of the evolution.

Samad Masood:

Thanks, Mayank. Sachin, anything to add on that? I know you have some thoughts on the D2C approach as well.

Sachin Jangam:

Yeah, so when I look at from a consumer standpoint of view, I think from a top line perspective, consumer goods are looking at how can I have a reach to consumer, how can I reach them across different channels? How do I embed personalization, customized offering for them? So there is a lot more focus on being consumer-centric, and getting access to that data, and leverage that data to do those kinds of offering drive brand loyalty. I'm seeing huge push in save and subscribe. I had somebody walking at door today saying that here is a basket you can order from us, we'll give you at a supermarket price, and you go through weekly rounds. So I think there is a huge shift happening in subscribe and save direct-to-consumer, and making those offers personalized. And if I look at the huge leverage from a back office optimization perspective, is autonomous enterprise. I will not go anything beyond that autonomous enterprise, encompassing AI automation, to drive the efficiencies.

Samad Masood:

Great, thanks Rahul. Any last words to add?

Rahul Ubgade:

I think there are areas where there is going to be disproportionate growth, and I think the CPG companies will have to give special attention there. And depending on category, of course. One of them is the online channel or e-commerce. We saw that growth during pandemic time, but it is not end of it. That is continuing to grow, and it is going to contribute, an average, 20% of the growth coming from online channels going forward. For some of the category, the share of growth, I'm talking about share of growth, is going to be 50%. For example, beauty care or pet care.

So online channel is extremely data intensive, and in order to perform in that channel, you need to be really taking very disparate set of data, bring them together, convert into real time insights, which the leaders in that business can take action to stop revenue leakages and also to get competitive advantage. So that is I think is an important investment required. You may call it as ERGM, you may call it as managing digital shelf, but that's the piece which is going to be very, very important in terms of investments going forward. The other area is of course, not a very easy area, is developing emerging market. For global companies, the lot of share of growth is going to come from developing emerging markets. It is never easy to do business in those markets. I have myself been in Asia, also experienced some markets in Africa. So you have to deal with inflation, currency devaluation, and you have to also deal with local competition who are bringing very, very interesting offering, which the global brands have not thought about. And that introduces a PPA gap, and identifying that gap to make sure that you are actually not leaving anything on the table, and capture that. So I think these two are, I think in addition to whatever we spoke, which are very fundamentals, I think the two areas is online channel growth, and emerging and developing market growth.

Samad Masood:

Thanks, Rahul. Thanks, Mayank, and thanks, Sachin. I have to say at the end of this conversation, I'm more excited about the future of CPG than I thought I would be. It feels like a year where there's going to be a lot of change, there's a lot of change been happening, and there's a lot of opportunity for CPG companies to start engaging closer to their customers, more with their data, more with AI, personalizing more, and uplifting their brands. It's going to be really interesting to see what happens over this year. And for those in our audience, I wish you all the best with the coming year. Thank you so much for joining and listening. Thank you once again to my guests and thank you all. Thank you to the audience.

Mayank Ranjan:

Thank you.

Rahul Ubgade:

Thank you.

Samad Masood:

Thank you. Take care.