By David Wainer

As American shoppers buy less packaged foods, Big Food has leaned on a familiar excuse: It's the economy, stupid . True, inflation has forced some families to trade down to cheaper store brands, and stagnant wages have squeezed household budgets.

That explanation misses a crucial shift: middle- and high-income Americans are still splurging, just not on legacy labels. Their dollars are flowing to niche names with more cultural cachet, from fancy new protein bars to chewier candy.

So-called insurgent brands now capture a wildly disproportionate share of growth. Though they make up less than 2% of food, beverage and household products, they drove nearly 39% of incremental category gains in 2024 -- more than double their share the year before, Bain & Co. research shows.

That leaves household names such as General Mills and Kraft Heinz squeezed from both sides: They are losing budget-conscious shoppers to private labels on price, and more-affluent ones to challengers on quality. Total food sales returned to growth in 2024, yet large-cap food makers' volumes are still falling, notes Max Gumport of BNP Paribas.

Consider the meteoric rise of Chomps, the jerky maker. The meat-snacks category, with $7.7 billion in annual sales, is one of the fastest-growing in food, expanding about 14% over the past year, according to Numerator, a consumer-data company. Nearly all that expansion is going to such upstarts as Chomps, which has scaled from $70 million in 2021 sales to roughly $660 million. It has grown much faster than traditional rivals including Slim Jim of Conagra Brands and the longtime leader, Jack Link's.

Chomps has redefined a product once seen as a nostalgic macho niche. Its sugar-free, high-protein sticks are pitched as healthy, portable snacks for health-conscious buyers that skew female and who once avoided that aisle, says Matt Landen, the company's senior vice president of business development. The same story is playing out across chips, frozen foods, chocolate and yogurt. Upstarts are grabbing share through nimble marketing, rapid product rollouts and the focus of having fewer things to sell.

This partly echoes the state of the food industry before the pandemic, when big brands were scrambling to keep up with shifting consumer tastes and new health trends, such as the rise of low-carb and plant-based diets. Upstart brands gained share then, and many incumbents turned to acquisitions to keep their product portfolios fresh.

Now more than ever, disruption is being accelerated by technological progress and eroding barriers to entry. Online retailers such as Amazon give small brands distribution without costly shelf space. Social media and influencers amplify founder-led stories for a fraction of the price of TV ads. Lean teams also mean speed. A promotional decision that might take a mature brand six weeks "can take less than 10 minutes for an insurgent brand," says Charlotte Apps, a consumer-brands expert at Bain.

After years of passing on price increases that outpaced inflation without devoting enough attention to keeping their brands fresh, Big Food now faces a dilemma. Stocks of companies including Campbell's, Nestlé, PepsiCo and General Mills have dropped in the past three years while the S&P 500 has climbed around 80%.

In past crises, Big Food has typically reached for one of four playbooks, says TD Cowen analyst Robert Moskow: slash costs, as the private-equity firm 3G did with the Kraft-Heinz merger; pursue scale through mergers, as in General Mills' $10.4 billion purchase of Pillsbury over two decades ago; sit tight and wait for conditions to improve; or sacrifice near-term margins by reinvesting in brands and resetting the business.

History, Moskow argues, shows that reinvestment works best -- even if it requires sacrificing near-term margins. That can mean spending more on ads or improving quality.

Apps, the consumer-brands expert at Bain, highlights products that have managed to stay culturally relevant, such as Oreo and Dr Pepper. Both have kept their core offerings fresh with new flavors and marketing that reaches younger and more-diverse audiences, while holding on to loyal ones.

Targeted acquisitions are another route. PepsiCo's purchase of Poppi, the acquisition of LesserEvil by Hershey, and Campbell's deal for the parent of Rao's sauce show how incumbents can bolt on growth. But achieving success can be tricky. The pre-Covid wave of acquisitions had some success stories, such as General Mills' acquisition of the mac-and-cheese brand Annie's, but also failures including Campbell's misadventures in fresh smoothies and salsa. Bain research shows the acquired brands' growth rates typically fall by as much as 50% postdeal -- partly because they are bought at a more mature stage, but also because large companies often struggle to nurture them.

Still, reshaping portfolios appears to be inevitable. Some ideas Moskow suggests include Hershey's expansion into premium chocolate, Conagra's purchase of on-trend snack brands and General Mills' cutting of underperforming ones.

Big Food has little choice but to reinvent itself for the new moment. It will take patience and a lot of capital. But the greater risk lies in standing still.

Write to David Wainer at david.wainer@wsj.com

(END) Dow Jones Newswires

October 05, 2025 05:30 ET (09:30 GMT)

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