For decades, food and beverage companies could count on population growth and geographic expansion to create results. That engine has sputtered out, and investors have punished the sector for it—the industry shed nearly $1 trillion in enterprise value. On this episode of The McKinsey Podcast, Senior Partners Duncan Miller and Frank Sänger speak with Editorial Director Roberta Fusaro about what’s behind the massive valuation drop, why the industry’s old moat—scale and brand loyalty—no longer holds, and why consumer-packaged-goods (CPG) leaders should view AI not just as a cost-cutting tool but as the engine that funds growth itself.
The McKinsey Podcast is cohosted by Lucia Rahilly and Roberta Fusaro.
The following transcript has been edited for clarity and length.
To watch the full-length version of this interview, please visit The McKinsey Podcast playlist on McKinsey’s YouTube channel.
A trillion-dollar wake-up call
Roberta Fusaro: McKinsey’s State of Food and Beverage report suggests that the food and beverage sector lost close to a trillion dollars in enterprise value. What accounts for this loss?
Frank Sänger: The food and beverage sector has been a very high-performing industry for a long time. Even in the early 2000s, it was very successful in generating lots of growth momentum, amounting to revenue growth of around 9 percent. In the 2010s, that dropped quite dramatically to around 3 percent. That’s when the structural shift really started. It was masked by the COVID pandemic but continued afterward, simply because with less population growth and less geographic expansion, companies haven’t been able to keep up that growth momentum. That’s at least one major source.
Duncan Miller: The trillion-dollar figure is obviously a headline-grabbing number, but if you unpack it a little, a lot of the more recent drop has been about expectations. As Frank said, in the early 2000s and into the 2010s, companies were realizing sustained volume growth in their categories. In the 2020s, that fell off, and much of the revenue growth was led by product price and mix instead. Investors said, “This industry has to grow volumes in order to sustain high valuations,” so the valuation drop-off was significant. We’ve seen some leaders begin to restore volume growth in 2026, which is restoring confidence in a few organizations. However, the key question is whether this industry can sustain the trajectory it’s enjoyed for many decades.
Frank Sänger: The consequence of these shifting expectations that Duncan mentioned is that EBIT multiples dropped as well. For example, multiples for leading food and beverage companies dropped from around 17 to 14 times.
Roberta Fusaro: That’s a significant change. One of the more interesting themes coming out of the report for me was that consumers are simultaneously trading down and trading up. They’ll buy private-label pasta but splurge on functional beverages or premium snacks. How do you make sense of that seemingly contradictory behavior?
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Duncan Miller: There’s been a trend for a while of people spending on indulgence while also saving money elsewhere. With the massive food and beverage inflation we’ve seen over the past few years, which can be more than 20 or 30 percent-plus in some geographies, that tension has become more acute. We’ve seen a more meaningful shift in a behavior that was already evident in the market. In terms of dining out and food delivery, it’s obviously much easier than it ever was to access those services. But when you look at the affordability squeeze in the US, for example, food accounts for north of 30 percent of spending among the poorest households. People are really paring back. Candidly, beneath that, private-label quality has gotten a lot better in the US. It’s always trailed Europe, but the US is closing the gap. People are looking to indulge in delicious things when eating away from home, but also looking to pare back. They’re cooking at home more, eating more leftovers, and shifting to private label in a US market that was always much less mature than other parts of the world.
Frank Sänger: Private label, as Duncan said, has become much better-quality products, with more convenience. At the same time, smaller, disruptive brands are fulfilling unmet needs that the big brands haven’t been able to meet. The big brands are being squeezed from both angles.
Roberta Fusaro: Exactly—scale has always been one of the biggest competitive advantages in food and beverage, and yet relatively small brands are capturing disproportionate growth. What are the small brands doing differently that incumbents are struggling to replicate?
Frank Sänger: In my mind, the scale advantage still exists, and the big brands still own it. What small brands are very good at is being consumer backed. Smaller brands are coming up with value propositions that bigger brands aren’t fulfilling and are responding much more quickly to changing consumer needs.
Duncan Miller: A few other changes helped to favor small brands. Acquiring very targeted customer groups through digital media is now much more straightforward for a small brand. When you look at which of the biggest brands are outperforming, it’s not just that the brand or product is great; it’s that their distribution system gives them a real advantage that small brands struggle to match. Physical retail, whether it’s click and collect or otherwise, is still an incredibly important part of how consumers get their products.
What small brands are very good at is being consumer backed.
Roberta Fusaro: There is an old assumption in this discussion around private label and brand dedication that strong brands naturally command loyalty. However, your research suggests food and beverage consumers haven’t stopped caring about brands; they’ve just become more selective. What’s changing in the mind of the consumer there?
Duncan Miller: Big brands have historically captured a disproportionate share of growth. As Frank said, that has shifted toward small brands over the past five years. Categories have enormously evolved. For example, “tea” used to have sweetened or unsweetened options. Now there are 17 different varieties, like matcha, probiotic, oolong, and a thousand others. It is tougher for a big brand to span all those niches, which structurally creates room for smaller brands to come in and own a portion of that space.
The other big shift with consumers is that they used to see “better for you” and “great taste” as a trade-off. Some smaller brands have come up with great-tasting, better-for-you products in the past few years. If you look at innovation rates among larger players in some categories, much of their changes haven’t been new to market; they’ve been renovation or restaging. What has happened is that a lot of changes have enabled small brands to grow into the space that’s opened in these categories.
Consumers no longer just want taste and convenience. They want better-for-you and functional food and beverage. Smaller brands have jumped into this fragmented marketplace and done a great job. There are still plenty of things that make life difficult for small brands, but that’s what’s created room in the market.
Roberta Fusaro: Did you see any differences between older and younger consumers in how they approach food and beverage purchases?
Frank Sänger: Younger consumers have, in recent years, been more health conscious than older consumers, and they’re not willing to compromise on those benefits. That drives some of the changes Duncan described. Millennials, in particular, are much more focused on healthiness. If I think about my own kids as an example, they’re super focused on health benefits like protein and fiber.
Duncan Miller: In food and beverage specifically, we see that boomers, despite their advancing years, are still not as willing to sacrifice taste and convenience. They’re still telling us, “I want the stuff that’s delicious and easy,” even though they also cook at home more. Also, to state the obvious, Gen Z is highly influenced by digital media in terms of what they choose. They are much more digitally influenced compared with other generations, though other generations are catching up, particularly on health and wellness.
A new way of thinking about AI in CPG
Roberta Fusaro: The report argues that AI in food and beverage isn’t just about cutting costs; it’s also about funding growth. That’s a different framing than we often hear. Can you talk about what that looks like in practice?
Frank Sänger: One important point ties back to what we discussed about capital markets at the beginning of our conversation. The capital market honors growth for CPG and food and beverage companies much more than margin expansion. Consequently, it’s critical that food and beverage companies drive growth. The benefit from margin expansion alone is much smaller. That’s why it’s important to reinvest some of the “savings” from AI into accelerating growth and creating more value for the company.
Duncan Miller: Beyond just saving money to invest in growing volume, the CPG and food and beverage leaders we have seen are already using AI to enable growth itself. There are marketing leaders who have used AI to fundamentally transform how they market to consumers and generate demand. There are leaders in revenue management who are using AI not only to figure out how much price to take and where but also to identify pockets of volume opportunity for pricing and promotion. Leaders in sales, particularly those who control their own distribution, are using AI to shape recommended order quantities and suggest the right assortment and buy-in levels, both with organized and fragmented trade.
We’re already seeing leaders drive real growth with AI in the real world, not just in pilots. As everyone gets more efficient, this will matter as a source of funding and, equally, as a genuine driver of growth at the front line with consumers. There’s good traction so far, and some very impressive work from both larger CPGs and smaller enterprises.
Roberta Fusaro: Plenty of companies are starting to get it right. What are the obstacles for the CPG companies that aren’t as far along?
Frank Sänger: Every CPG company I see is heavily investing in and experimenting with AI. The biggest challenge is that only a few are truly able to scale and deploy it across the organization. Not many companies are seeing the full benefits yet. Everyone believes in it, but it hasn’t fully shown up in the P&L [profit and loss]. One of the core reasons is that, by experimenting across too many areas at once, no single area sees the full impact. We recommend focusing fully on a single domain, rather than running trials everywhere simultaneously, to truly capture the benefit within that one domain.
Duncan Miller: That’s exactly right. We’ve been in a period of “pilotitis,” and that’s not something unique to CPG and food and beverage. It’s true across many other industries, too. As Frank said, you should pick a domain, ideally one that drives the top line, particularly volume, and go after it properly and fully. Perhaps you begin with one or two domains to really scale them, like revenue management, marketing, or sales. That’s really the key: focus, scale, and fund.
Roberta Fusaro: Did the report surface any differences among consumers in different geographies? Is the era of being a global brand over? Were there geographical differences the report highlighted?
That’s really the key: focus, scale, and fund.
Frank Sänger: Of course, there are different nuances across geographies. Cooking at home, for instance, plays out on a different scale in Europe compared with North America. Private label and discounted options play a different role in Europe versus North America. Health consciousness and GLP-1 adoption are much more advanced in the US than almost anywhere else in the world. There are many nuances, and I’d say small brands are very good at targeting the specific consumer demands within different geographies.
Duncan Miller: And obviously, in an increasingly complex geopolitical world, that’s created room for regional brands to shine versus global ones in a few categories. That’s the other factor that plays out very differently by region, along with national taste preferences.
The traditional rules of competition have changed
Roberta Fusaro: If we sit down and have this conversation again in three years, what will determine the top performers in CPG food and beverage? Will the big factor be AI, portfolio choices, product innovation, or something else?
Frank Sänger: I believe all the above. Three things in particular stand out to me. First, you will need to make smart portfolio choices around categories, health and functional benefits, and geographies. You must be laser focused on where true growth can come from. Second, you must invest in your product innovation and ask yourself, “What’s really driving value for the consumer?” That could be affordability on one end, or premium ingredients, health, and taste on the other. Winning on product is that second piece. And third will be funding that growth through AI. AI will be the difference maker, in my mind.
Duncan Miller: I would add innovation to Frank’s list. True product innovation from larger players has historically been stark. Consumer expectations are now extremely high. They’re not willing to sacrifice taste for quality and health, so companies must deliver on all three targets. From a revenue management standpoint, you need to do it affordably for parts of the population while still charging a premium where real benefits exist. For me, innovation is the most important thing for CPGs to get right, and nearly all of them are already working on it. They might be restaging portfolios for permissibility or figuring out how to drive real volume growth through true product innovation. The product is ultimately going to win, and particularly as the world shifts to generative search, consumers will be unforgiving on product quality. It’s going to become ever more important for CPGs to win on product performance.
Roberta Fusaro: For an executive reading the report, what’s one big assumption they should let go of? Is there something in the report that will be an “aha” moment?
Duncan Miller: I think many of the executives we work with are already acutely aware of what’s going on in the world and are working on as much of the agenda as they can. For me, the one big assumption to let go of is that historical equity and product configuration used to be your moat. The new moat looks very different today. It’s a combination of true product superiority, strong brand equity, and affordability where it matters.
Frank Sänger: Companies won’t win on cost alone. They need to drive growth, and that will make the difference.
