CPG Experts & Entrepreneurs Share Their Industry Predictions for 2023

As the sun sets on a tumultuous and unpredictable year, surely we wouldn’t be foolish enough to fall into the trap of attempting to prognosticate on what 2023 has in store for the CPG industry, would we?

The prospect is tempting; having seen global markets wake from the COVID crisis only to face the new nightmare of war in Ukraine, the next 12 months are poised to reshape the world economy yet again, and it’s safe to say that we have some questions. Are we truly on the edge of economic recession? How will brands change strategy as investors shift their attention from growth to profitability? Can real progress be made on ambitious environmental sustainability goals and potentially game-changing processing technologies?

All those questions remain to be answered, but during the dead-zone that is the week between Christmas and New Year’s, we couldn’t help but ask. We reached out to entrepreneurs, thought leaders and industry experts for their takes on the 2003 economic outlook for CPG, as well as the major market trends and food and beverage categories they’ll be watching for in the new year.

“Cash is king for emerging brands. Capital will continue to be challenging to raise and debt will be expensive.” – Luke Vernon, Managing Partner, Ridgeline Ventures

I’d describe my approach to 2023 as cautious. While I’m not a doomsday philosopher, and generally think there are a lot of positive signs in the economy, I do believe now is a time to plan for the worst and hope for the best.

The pullback in consumer spending is happening and it’s hard to predict how long that will last and how deep it will go, but it will likely impact premium-priced brands the most. This will create opportunities for growth in private label brands and companies that co-pack private label products. Our long-term belief remains that brands win over the long run, but consumers have been known to trade down in tough economic times.

If consumers continue to shift away from restaurant dining, they’ll need to keep their pantries stocked at home, which points to potential opportunities for consumer staples and at-home meal prep. And as consumers eat at home, that could also lead to an appetite for exploring new products, leading to trial of items with good price-value perception as well as a desire for new flavor profiles as consumers look to refresh their pantries.

Cash is king for emerging brands. Capital will continue to be challenging to raise and debt will be expensive. A focus on profitability, capital efficiency, gross margins, and expense management will be paramount. Brands that have strong balance sheets and operating margins will be well positioned to take advantage of opportunities during this time. Growth at all costs will not be a winning strategy.

“The Regenerative Organic Certification will continue to emerge as a standard-bearer for better food production.” – Errol Schweizer, Founder and Owner, Errol Schweizer LLC

2023 will be a challenging year for food retail and CPG. Food price inflation (CPI) still sits above 10%, the highest in decades. The Federal Reserve has raised interest rates 7 times in 2022 in a futile attempt to combat inflation and has threatened additional hikes in 2023.

What this means for brands in the NOSH ecosystem is that money will stay expensive and consumer demand will be erratic. Cash will be queen in 2023, as brands need to stay in the black instead of investing in rapid scaling. Managing trade spend and retailer revenue demands, as well as adjusting for competition with incumbent CPGs, private label and other ambitious start-us, while navigating lower consumer spending and channel shifting, will all be competing priorities. So emerging brands should be prepared to buckle up and hang on.

The Regenerative Organic Certification will continue to emerge as a standard-bearer for better food production. ROC has a clear framework, strong backing from Rodale Institute, is rooted in the popular USDA organic certification and has been building a network of agroecological producers who supply an enthusiastic and ambitious slate of member brands. It is also one of the few regenerative certifications recognized by Whole Foods. Next generation food technology, or synthetic biology, will also gain greater visibility, such as cultivated meat, which was recently greenlit by the FDA, as well as microbial dairy, oils and proteins (aka “precision fermentation”), which are produced by genetically engineered microorganisms. Despite unanswered questions about scalability, supply chains, waste materials and biohazard risks, the environmental claims relative to factory farmed agriculture will most likely appeal to younger, eco-conscious and tech-savvy consumers.

In terms of policy, a better-funded and strengthened NLRB means that food companies should make sure they are familiar with and in compliance with labor laws. The recent wave of union organizing has galvanized public support for organized labor (over 65% approval and over 80% among younger consumers). Food companies may want to avoid the example that Starbucks has set by firing organizers and incurring piles of unfair labor practice charges. Beyond the Kroger-Albertsons merger hullabaloo, a stronger FTC may be a huge boon to emerging brands and independent retailers who are at a competitive disadvantage to oligopolistic meat, snack and beverage companies who dominate supply chains, shelf space and customer wallet share. And the Farm Bill is up for renewal in 2023 and will be a big subject of debate over the coming months.

“In many ways it is one of the best macro environments I’ve ever seen to drive leadership, expand market positions, and drive long-term stakeholder value.” – John Foraker, Co-Founder and CEO, Once Upon a Farm

I think 2023 will be a much better year broadly for premium CPG than most people currently expect. The headlines are scary, but I believe strong consumer demand trends and very real negative structural industry issues are being conflated, creating an overly pessimistic narrative that needs to be un-packed a bit.

On the demand side, there is little evidence out there that consumer interest in cleaner, healthier food options abated in any material way over the past year. Interest in health & wellness is a long-term macro shift driven by generational change, technology, and word of mouth that marches on. Despite the inflation headwinds, and wobbly consumer confidence headlines, many consumers are continuing to spend heavily and the packed stores this Christmas and surging online sales support this.

Over the years one of the most reliable indicators of consumer predilection to buy premium CPG I’ve tracked in my businesses are trends in theme park attendance. When theme parks are surging, as they continued to do all through 2022, it’s a pretty good sign that premium CPG will remain strong as well, especially for products targeting families with kids. Gas prices are moderating, as are many of the pandemic related imbalances that drove supply chain havoc globally. The job market remains exceptionally strong, not without some cracks in places, but unemployment remains very low. Retailers are growing dollar sales, while unit trends are soft. All the retailers I’ve spoken to over the past year are hungry for innovation and newness. In short, consumer demand for premium wellness positioned food and beverage remains very strong, both online and at retail, and retailers are hungry for it.

In the face of this strength, there are significant structural issues in the industry for emerging CPG brands that are very, very real, and that will be painful to work through for some time. Free flowing capital created far too many brands in lots of premium CPG categories over the past 5-10 years. Like a predictable pendulum, the flow of that cash has diminished massively and quickly, like it did post 1999, and again in 2008-2009. Lots of companies are going to see big down rounds, survival mergers, or even shut doors completely in 2023 and 2024. It will also be very difficult to raise friend & family money and high-net worth investor angel funding to start something new in this environment. This unfortunate and painful reality will be something that clouds headlines and Expo floor chatter for the next year or two.

Emerging premium brands with real traction, meeting important consumer needs, who can extend runways and stay ahead of the choppy cash and financing waters while continuing to invest in exciting innovation are well-positioned to thrive in 2023 & beyond. In many ways it is one of the best macro environments I’ve ever seen to drive leadership, expand market positions, and drive long-term stakeholder value. Scary at times? Yes, but the best times usually are.

“We do predict that there will still be pockets of premiumization across some categories as consumers look to elevate or enhance their experience among everyday items.” Eric Skae, – CEO, Carbone Fine Food

As we head into 2023, we at Carbone Fine Food are optimistic that many of the industry and consumer challenges that we faced in 2022 will begin to wane, although recognize that much of the economic struggles will likely be maintained in the year ahead.

However, even as consumers’ wallets continue to be squeezed given the inflationary effects across many sectors, with rising prices across many consumables, we do predict that there will still be pockets of premiumization across some categories as consumers look to elevate or enhance their experience among everyday items. Even as the economic environment will force consumers to change purchasing behaviors and product choices, as they look to save money or garner more value, consumers will increasingly seek out premium products that provide innovative or differentiated offerings.

As consumers look to reduce their spend in pressured times, consumers are also shifting towards buying away-from-home quality for at-home indulgence. While this trend is translating into consumers finding creative product solutions to recreate their coffee shop indulgences at home, we have also witnessed an increasing number of consumers looking to recreate their favorite restaurant-inspired meals at home.

“Affordability is the key word for the macro picture, but how do consumers define that and where will they save?” – Ken Sadowsky, Senior Advisor, Verlinvest

My view is that the overall economy will be choppy [and] turbulent. I think this because many prices have increased for all consumers, but the ramifications have not all rippled through the economy. I also have a sense that consumers’ mindset will play a larger role than the actual economic inputs as they tend to do. Affordability is the key word for the macro picture, but how do consumers define that and where will they save?

In terms of trends, innovation will be back stronger than the last couple of years because retailers believe that supply chain hiccups are mainly in the rearview mirror. With so many price increases already in the system, it will be interesting to watch what will happen if some of the input prices decline, i.e., fuel.