What’s wrong with Big Food? A summary:
- Big Food growth has stalled
- Volumes falling across FMCG
- CEOs axed amid weak returns
- Core food assets sold off
- Investors chase premium plays
Warren Buffet made clear he was backing Kraft Heinz for the long-haul when he invested almost $10bn back in 2015. “The short term doesn’t make much difference to us, because we will be in this stock forever,” said the acclaimed investor.
Ten years later, however, and he’s clearly re-evaluated. New filings in January revealed Berkshire Hathaway is considering selling its 28% stake in the business – perhaps the clearest signal yet of the dramatic downturn riddling many of the world’s biggest food companies.
Because Kraft Heinz is far from alone. Stagnant growth and volatile markets are creating huge turmoil with companies selling off once prime assets and cycling through new leadership teams in a bid to rediscover a winning formula.
Numerous top bosses have got the axe, including Unilever’s Hein Schumacher last year, Diageo’s Debra Crew a few months later, while Nestlé has powered onto its third CEO in two years.
Unilever also spun off its whole food business in a $66bn deal last month, a sign that the days of sprawling empires combining dozens of food, household and personal care brands is increasingly under question.
Nestlé’s ice cream and water businesses are up for sale, PepsiCo has pledged to eliminate around 20% of its US product line-up by early 2026, while Coca Cola is selling off large chunks of both its African and Indian businesses.
As Frederic Fernandez, a consultant for some of the world largest FMCG companies, says: “The industry is cleaning house.”
So what’s going on? Why are the industry’s big players so unsettled?
What is curious to some observers is that on the face of it, many of these food giants look strong. Unilever’s food business made around €13bn last year with around $3bn of that landing as profit. Nestlé saw sales of around €100bn with a profit margin of 16% (€9bn).
The problem is that growth has ground to a halt. Unilever’s food sales were just €400m higher last year than in 2020 and volumes over that period are flat. Nestlé’s sales have also barely budged over that period and what it has gained is largely down to price hikes.
This is a common trend with around half the world’s largest food companies seeing volumes decline in the final quarter of last year, according to Fernandez’s analysis. The trend is particularly stark in categories like alcohol where every single booze company suffered falling volumes in 2025.
Profitability is also stuttering with almost two thirds of those same companies reporting a drop in earnings compared to before Covid. While a small recovery briefly emerged in 2023, this has now stalled.
Who is winning in Big Food?
“We are going through unprecedented times with structural changes in the FMCG industry,” Fernandez says. “The best way to change the trajectory is to change the underlying footprint. The best way to change that is to eliminate what has underperformed, and there is a willingness to do that even at a low valuation.”
Food, as we traditionally know it, may not the cash cow it once was. Between the 1960s and the mid-2010s, the food industry delivered some of the biggest shareholder returns in the economy and outpaced sectors including technology, finance and telecoms, according to BlackSummit Financial Group.
This was largely based on an ability to launch new products with minimal investment while landing on a series of innovations which slashed big chunks out of their costs, explains Seamus Higgins, a former food engineer at Nestlé and Premier Foods, and now an associate professor at the University of Nottingham.
“That’s where high fructose corn syrup comes from - it was 60% of the cost of cane sugar,” says Higgins, whose new book Food and Us explores how the race for profit, price, and convenience has impacted the food we now eat.
Joel Charalambakis made a similar point in an analysis for BlackSummit in 2021. “Coca-Cola didn’t need to build a new plant to create Diet Coke and General Mills didn’t have to start from scratch to produce Honey Nut Cheerios after the original,” he wrote.
“With minimal additional capital outlays these companies created new products, expanded the universe of potential customers, and raised sales, all on costs that had been invested years before.”
That structural basis has shifted. FMCG companies are said to be delivering some of the lowest shareholder returns of any major sector following a decline from 15% to 2.9% in the last decade, a Bain & Company report said last year, and is now claimed to have the lowest of any major sector.
John Blasberg, a partner who wrote the report, said legacy packaged food companies have been slow to adapt in the face of changing eating patterns which now see customers buying more prepared meals, takeout, and private label foods shaped by increasing health consciousness, climate pressures and digital tools.
Investors are therefore wary. Even the assumption that the food industry provides a safe haven in rocky economic times is starting to unwind. Over the past year, the market cap of the top food companies grew by just 6% compared to 14% for the S&P500 with almost half of those FMCG giants seeing their market value decline.
But there are bright spots. Coca-Cola has seen consistent volume growth over the last few years alongside steady price rises, while almost all health and beauty companies have avoided any serious drops in volumes over the same period.
While hardly the heady heights of Silicon Valley, it is where many are now pivoting. Unilever is now prioritising its beauty and wellbeing business where volumes grew between 3% and 5% over the last few years. Similarly, its home care has recovered from a short blip on commodity pressures in 2023 to deliver two consecutive years of volumes rising 3%. This means both segments are growing five-times faster than the food business.
Beauty’s ability to go premium is one crucial reason it is standing out. Top beauty ranges often sell for around four times the category benchmark price, something that is clearly not an option for Marmite or mayonnaise. Shoppers are simply not willing to pay four-times more for something special to spread on their toast.
Where next for Big Food?
As former investment analyst Aalim Azeez Ur Rehman noted: “You cannot build a prestige condiment brand in the same way you build a prestige skincare brand, because the category simply does not generate the same emotional premium.”
“The ‘desire at scale’ demand creation model – built on irresistible aesthetics, elevated sensorials and brand aspiration – finds no purchase in a category defined by functional utility and taste.”
Private label is also an obstacle for building growth through premium foods. Private label makes up around half the food market in Europe but only about a third of personal care. This gap is notable because it reflects a fundamental difference in brand defensibility, says Aalim Azeez Ur Rehman.
“A consumer who trades from Dove Body Wash to a supermarket own-label equivalent experiences a genuine degradation in sensory performance, packaging quality and emotional experience.
“The same consumer who trades from Knorr to a supermarket own-label stock cube frequently does not notice a meaningful product difference.”
Unilever’s decision to offload food is arguably therefore not just a simple disposal of a slow-growing business, he concludes. It is a telling structural decision about what kind of company Unilever wants to be, and more specifically, “what kind of company its management believes the market will value most highly over the next five to 10 years”.
This is quite clearly companies with a high share of premium products. An analysis by KPMG found these “premium-oriented” FMCG companies saw an average share price rise of 89% between 2018 and 2022 versus just 4% for those focused on more value products.
“Taking a closer look at the financial data, what investors really seem to be looking for are sustainable growth rates of more than 3% per annum and EBIT margins above 15%,” said the report. “Miss those targets and – based on the historical data – investors will punish you.”
As ever, food companies’ best response will depend on whether they believe today’s disruption is cyclical or structural, temporary or permanent. The decision to sell-off core assets suggests many are backing the latter.
But that doesn’t mean they are giving up the fight. There are few commentators suggesting the days of the giant food companies are over.
Instead, as Blasberg at Bain & Company argues, with their huge scale and strong popular brands, if they can refocus innovation on true unmet needs they could quickly shift from the disrupted to the disrupters.
None have yet seized the opportunity. Typically, a disrupted industry eventually finds a new heavyweight. In tech, it was Apple. In vehicles it was Tesla. But, as Blasberg explains: “In food…the field remains open.”