The Consumer Packaged Goods (CPG) industry faces an unprecedented challenge: genuine innovation is at an all-time low. According to Mintel’s Global New Product Database (GNPD), only 35 percent of global CPG launches in the first five months of 2024 were genuinely new products. This marks the lowest level of innovation since Mintel began tracking new products in 1996. The remaining 65 percent of launches were mere renovations—line extensions, reformulations, new packaging, or relaunches. This innovation drought threatens the future profitability of established players and puts their very survival at risk.
While the decline in innovation is a global trend, it is most pronounced in North and Latin America. In the USA, a mere 29 percent of CPG launches were new products during the first five months of 2024, falling below the global average. Conversely, the Middle East, Africa, and Asia-Pacific regions are leading in CPG innovation, driven by their faster economic growth and entrepreneurial mindset. The International Monetary Fund forecasts that emerging and developing Asia will grow by 4.9 percent in 2025 and the Middle East, Asia, and Central Asia by 4.2 percent, compared to just 1.8 percent in advanced economies.
Beyond the Pandemic
COVID-19 disrupted the ability of research and development (R&D) teams to collaborate and innovate. The pandemic and the Ukraine war forced companies into defensive strategies, focusing on keeping up with rising ingredient costs and raw material shortages. However, the decline in true innovation predates the pandemic. In 2007, just over half of global CPG launches were new products, but by the first five months of 2023, this had declined to 35 percent.
The Changing Landscape
The decline in innovation is more than just a product of economic disruptions. Post-2008 financial crisis, larger CPG companies reduced R&D investments due to concerns about return on investment. This created an environment for startups like Harry’s Razors, OLIPOP, and Glossier to thrive. McKinsey’s analysis shows that between 2016 and 2020, only 25 percent of CPG growth was driven by leading brands, with small and medium-sized brands capturing 45 percent of growth and private labels 30 percent. Major CPG companies have responded by creating in-house venture capital units to invest in young companies, gaining insights into new consumer trends and agile business models.
Sector-Specific Challenges
Innovation has declined the most in the food and drink sector, with just 26 percent of new products launched between January and May 2024, compared to 50 percent in 2007. The barriers to entry in food and drink are higher due to complex supply chains, low margins, and the need for temperature control. In contrast, beauty and personal care brands face lower barriers to entry but are still struggling with higher raw material costs and increased consumer scrutiny around ingredients.
The Digital Transformation
The rapid emergence of Artificial Intelligence (AI) and eCommerce is lowering barriers to entry for smaller, direct-to-consumer brands. AI can augment innovation, create marketing campaigns, develop consumer insights, and support customer service, enabling startups to grow with smaller teams. As AI improves, launches will become more sophisticated, and big brands must become more agile and faster to compete.
The Road Ahead
Recessions often catalyse startups, and with the European Central Bank cutting interest rates, we may see a wave of new challenger brands. Falling inflation boosts consumer confidence, making them more open to new products offering different benefits. Additionally, AI is helping supermarkets create better private-label products at competitive prices. For big CPG brands, innovation will be crucial to survive and thrive against these challenges.
Innovation is not just a buzzword but a necessity for the CPG industry. As we enter the late 2020s, the ability to innovate will determine the winners and losers in this sector.
The time to innovate is now.
Download the Mintel Report here.
More news here.
