This has been a challenging results season so far, as CEOs grapple with unusually high macro volatility. However, when you layer in a value-seeking consumer, structural changes in US consumer behaviour, and tariffs, visibility has rarely been this low.
Given this uncertainty, Diageo withdrew its medium-term guidance completely. Global spirits peer Pernod Ricard pre-released with China still a big headwind, down 25%. As indicated by its lower mid-term organic growth and margin guidance, Pernod believes 2026 will be a transitional year. Spirits is in a tough place.
Beauty woes
The beauty industry is also facing issues. Growth is normalising after the Covid super-cycle growth spurt. L’Oréal missed consensus estimates due to continuing weakness in China. The mainland China beauty market declined by 6% in the second half of 2024 versus a decline 2% in the first half of 2024. A specific weakness lies in the Asian travel retail market, down 17% in the second half.
Despite those headwinds, L’Oréal sees the global cosmetic market growing 4%-4.5% in 2025 and is determined to outperform the market, driven by a big step-up in innovation.
Meanwhile, Estée Lauder’s new CEO has set out a strategic vision called ‘Beauty Reimagined’, which includes accelerated cost savings, partially by slashing global headcount by 10%. ELF Beauty lowered its outlook – and sent its share price down by a quarter – in part due to uncertainty about the future of TikTok in the US, which resulted in weaker social media trends.
Confectionery and snacking
The confectionery players are also struggling with record cocoa prices, which seem to be divorced from supply and demand fundamentals. Mondelez signalled deeper than expected cuts to earnings in 2025 and moderated its 2026 outlook. It expects several waves of chocolate pricing in 2025 and will be watching closely how volumes shift. Hershey’s comments and outlook have mirrored those of Mondelez in several respects.
By contrast, Lindt upgraded its 2025 OSG guidance and held its margin guidance. Lindt is taking significant market share in both Europe and the US – higher chocolate pricing is accelerating premiumisation, which plays to its portfolio.
Over at PepsiCo, the focus remains on turning around its large salty snacks unit Frito-Lay, which has suffered a disappointing 3% dip in volumes, decelerating sequentially.
Playing catch-up
‘Unprecedented times’ is an often overused phrase, but it seems apt for the fmcg industry right now. The pre-Covid operating model has changed, and consumer habits are evolving rapidly after facing years of double-digit pricing. They are looking for value for money and real differentiation from new product launches. Fmcg companies are scrambling to play catch-up.
PepsiCo CEO Ramon Laguarta quipped that Americans are tapped out on calories, which is driving PepsiCo’s push into premium and better-for-you-offers. Danone’s CEO Antoine de Saint-Affrique has been saying for a while the food industry is at a ‘tipping point’. If RFK Jr is confirmed as US health secretary, it could have sizeable consequences for the US food industry as he pursues his ‘Make America Healthy Again’ campaign.
The accelerating rate of fmcg companies missing expectations sends a message: the industry needs to adapt faster. China – once a big fmcg tailwind – has become a headwind. Companies need to pivot to India more aggressively: it has better demographics and is premiumising rapidly. Climate change is making it much tougher to predict input cost inflation, which makes procurement and supply chains even more important.
Disruptive innovation has never been more important, and scaling what works in one country globally will be a key point of differentiation. This is likely to mean more R&D and advertising spend, and companies need to get much better at understanding returns on these investments.
Lessons from Unilever
Fmcg CEOs need to be laser-focused on where they have competitive advantage and put the right resources in these places. Unilever is doing this. It has skewed marketing investment to its top 30 brands, which account for 75% of group sales. It’s now going one step further, prioritising its top 24 markets accounting for 85% of sales.
Markets outside these 24 countries will be called ‘One Unilever’ markets, which in practice mean they will get less resources. Portfolio management will likely accelerate as companies pivot to faster-growing spaces and jettison brands and categories that are commoditising.
The myriad of changes both top down (politically and regulatory) and bottom up (consumer behaviour, channel shift and inflation volatility) is dizzying. The environment requires companies to be more aggressive in self-disrupting. This requires ‘making markets’ not ‘stealing share’.
It is not easy to do this, and requires a clear understanding of the total addressable market opportunities, coupled with flawless execution and backed by agile supply chains. The right incentives must cascade from c-suite right down to the factory floor. The fmcg industry thrives on volume growth and it is getting harder to find. Sadly there is no substitute.
Warren Ackerman, head of European consumer staples research at Barclays
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