From AI to productivity, game-changing CP trends to act on in 2025

Consumers plan to spend less in 2025. AlixPartners’ 2025 Global Consumer Outlook found a net intention for reduced spending of 12 percentage points compared with 2024 globally. Shifting consumer priorities will be met with new challenges as tariff and trade conflicts evolve and geopolitical tensions play out. Nearly half (49%) of Consumer Products (CP) executives are expecting supply-chain disruption to be a bigger challenge in 2025, a 14-point jump from 2024 according to the 2025 AlixPartners Disruption Index.  

While disruption remains on the radar for CP leaders, we expect relief in CP volume pressures and see ample opportunity to deploy and scale AI tools across CP functions. While consumers may spend less, there could be upside for CPG companies as consumers plan to eat at home more and allocate away from travel-based spending. The environment also seems to be leaning towards an increase in dealmaking in the CP space, an opportunity for CP companies to retool their businesses. 

Here, our team touches on the major trends we are watching and how we are preparing our clients to act. 

AI and automation reach the point of being able to scale

The 2024 holiday season was the first time many consumers used AI chatbots to shop for gifts on Amazon.com, Walmart.com, and Target.com—one clear use-case finally deployed en masse. While many organizations have already conducted AI pilots and experimentations, only few were able to truly scale AI technologies efficiently and pragmatically across functions.   

We recommend the following actions in 2025: 

• Identify few high-impact and low-complexity use cases: 
  • Focus on areas with existing clean data and clear potential for a solid return on investment, such as demand forecasting or AI-driven pricing and inventory optimization. Avoid complex implementations requiring extensive data cleansing or system integration projects. 
  • Example:  Unilever uses AI to optimize prices for its vast portfolio of products in different markets, balancing profitability with competitiveness.
• Adopt a modular approach for building AI capabilities: 
  • In-house AI/ML engineering organizations take time to build. Instead, leverage ready-to-use, pre-built AI industry solutions as most cloud, SaaS and cloud ERP providers expanding their embedded AI capabilities.
  • Example: Azure Bot Service or AWS Lex can be used to automate customer service function achieving 20-30% cost reduction, and up to 50% in faster response time. 
• Use ecosystems partnerships strategically: 
  • Partner with specialized AI vendors for specific capabilities. Share development costs through industry consortiums.
  • Example: Palantir can be used for rapid data integration, especially in a multi-ERP environment 
• Create a balanced human/AI operating model:
  • Use AI for data intensive efforts, preserving human oversight for strategic decisions. Build hybrid teams that combine deep business and technical expertise.
  • Invest in AI literacy and proficiency across the enterprise. Based on the Section School’s survey of 5000 knowledge workers across the U.S., Canada and the U.K., most companies are nowhere near ready to deploy AI at scale. Only 1% of the workforce consider themselves “experts” and 47% still rate themselves as “novice.”   
  • Example: Nestle employs human-in-the-loop (HITL) in its personalized nutrition programs: AI provides dietary recommendations based on consumer health data, which are reviewed and refined by dietitians and nutrition experts.

The CP M&A market thaws after a long freeze

M&A activity remained sluggish in 2024 thanks to a challenging macro environment, high interest rates, a scarcity of attractive assets, weak balance sheets, and elevated valuations. Private equity (PE) firms specifically found themselves holding assets longer than expected, waiting for the right time to exit. The tide may be changing for consumer products companies in 2025, as we look at deals such as the $36 billion Mars-Kellanova transaction. Generally, factors seem more favorable for dealmaking: the election is in the rearview, the Fed is expected to continue slowly easing interest rates, the economy is stabilizing, and bid-ask spreads are narrowing. 

We see the below implications for M&A:

• Less mega-deal variety, and more single-digit billion-dollar deals. Mega-deals will likely be outliers, especially given the regulatory hurdles, capital availability, and cash requirements. We expect corporates to continue spinning off non-core businesses and brands (e.g. General Mills selling its North American yogurt business) to focus on core categories and brands to foster growth while family businesses also look to sell as they seek help with their next stage of growth (e.g. PepsiCo’s $1.2 billion deal for Mexican-American brand Siete Foods). As a result, we expect a trend for single-digit billion-dollar deals (and smaller) to pick up. 
• Private equity becomes more active as rates ease. The Fed is expected to continue to cut rates, although suggesting a slower pace in 2025 than previously expected, which should bolster activity by itself. Corporate acquirers will likely still have a cost of capital advantage to some extent in the year ahead. However, PE activity should pick up as sponsors look to deploy over $2 trillion in available capital, LPs seek returns, and, PE firms enjoy an improved playing field thanks to easing rates and narrowing bid-ask spreads. 
• Cost synergies alone are not enough. While cost savings will continue to be a significant factor in underwriting any deal, acquirers need to also focus on commercial/growth and technological opportunities to ensure holistic view of synergies especially as competition for good assets pick up forcing acquirers to put their best foot forward.  AI and machine learning technology will continue to be a major factor, and should be a key deal driver moving forward, as well as advancements in other technology areas such as cloud computing, automation, and cybersecurity.

M&A will continue to be a significant driver for companies looking to grow, innovate and meet evolving consumer needs. Given this improved backdrop for M&A, we think it is critical for acquirers to ensure thorough and holistic focus on up front diligence, map out and plan key sign-to-close activities to ensure a successful Day 1, and then execute detailed post-merger integration plans to unlock full potential value creation. 

Industries face multi-faceted supply-chain disruptions

In 2024, CPG companies battled inflation to keep material costs in check while dealing with a decreasing ability to boost prices. While inflation might be moderating (but not going away), threats of supply chain disruption are climbing as a new U.S. administration details a more protectionist agenda, economic and military conflicts rage, and challenges on labor and operating costs continue. While CP firms have worried about the long-term risk of sourcing from China, they are now looking at the ramifications of importing from Mexico and Canada, should steeper tariffs be deployed. 

There is a lot of uncertainty. The best defense is to get on offense:

• Harden your supply-chain strategy and resilience processes. Conduct thorough scenario modeling and develop a risk and resilience plan upfront to make well-informed decisions when major disruptions occur.
• Improve supply network robustness. Diversify your supply base to mitigate risk, especially with assets and suppliers in regions that are of long-term concern (e.g., China); consider how reduced risk and shorter supply chains offset increased operating costs to improve the business case.
• Improve supply chain agility. Ensure your planning and forecasting processes are operating smoothly and your inventory management is prioritized to be positioned ahead of any tariffs increases; review processes and contracts with suppliers, distributors, third-party logistics, and customers to collaboratively be better off.
• Focus on productivity of the extended operation. Put in place the structure to aggressively execute on a full productivity pipeline to reduce waste and offset increased costs from supply moves or disruptions in logistics, labor, materials, etc., including through automating physical and information-based processes.

Pressure on CPG volumes may finally ease

With rare exceptions, CPG companies have faced ongoing volume headwinds following the post-pandemic period. There are two driving forces: 1) high inflation has forced consumers to reprioritize household spend; and 2) demand continues to fragment, as younger generations shift away from mainstream brands that make up a large share of CPG sales.

But there may be light at the end of the tunnel: recent data from Circana indicates that CPG volumes increased for the first time in three years, growing at 1.1% for the 52-week period ending September 29. However, CPG dollar sales still grew at the lowest rate in three years at 2.5% (versus 4.7% in 2023 and 8.6% in 2022). Early signs indicate that we may be returning to a historical norm of 2-3% year-over-year growth for the industry.

These are the implications for 2025:

• Precision pricing. There’s no more room for indiscriminate price increases. Pricing action will need to be taken much more granularly and surgically.
• SKU mix. Mix is an often-forgotten lever of sales growth. Opportunities for cross-selling and upselling may gain renewed focus.
• Commercial capabilities. Heightened focus on pricing over the past 2-3 years is like a high-sugar diet—it can give you a quick boost, but it’s not good for your long-term health. It’s time for CPG to dust off their full commercial playbooks, including renewed emphasis on trade and marketing effectiveness, category management, go-to-market capabilities, salesforce productivity, and so on.
• AI and ML solutions support revenue. AI is quickly finding its way into commercial use cases, particularly targeting, improvements in marketing effectiveness, customer retention, pricing and promotional strategies, and new customer engagement.
• Beyond the core. Every sector of CPG continues to be disrupted by a wave of new entrants. We expect that CPG companies will continue to reposition their portfolios in higher-growth, higher-margin market spaces in 2025, but with greater emphasis on partnerships and minority stake investments, in addition to more traditional M&A transactions.

While consumer spending is expected to moderate further in 2025, opportunities will still exist for companies to improve on commercial performance and drive growth.