January 2024

Innovation and Disruption: Private Equity’s Role in Shaping the Future of CPG


Molly Hull

Executive Vice President


Companies in the consumer packaged goods (CPG) industry have always been the backbone of the global economy. But as the world evolves, these companies face unprecedented challenges and opportunities. In this transformative landscape, private equity will likely emerge as a crucial player in guiding the CPG sector toward innovation and sustainable growth.


Historically, the CPG industry has thrived on consistency and predictability. Recent times have disturbed this balance of CPG trends, introducing a whirlwind of changes: supply chain disruptions, labor shortages, and unprecedented food inflation, just to name a few. Private equity firms are often hesitant to invest in shifting markets—and yet PE investors harbor the very resources CPG companies need to innovate amid challenges. Collaboration can be mutually beneficial, creating long-term value for CPG firms while reigniting the strategic use of capital in the PE sector.


CPG Trends: A Convergence of Sustainability & Technology

What might the future of CPG look like? Based on our research, the evolution of the industry seems to occur along two interconnected paths: one of sustainability and one of digital transformation.


Now more than ever, consumers want to believe their dollars are being spent ethically, contributing to sustainability, health, and food security, according to a Hartman Group study. This is no doubt a response to the threat of climate change, which stands to affect every industry on earth, including our food supply. Additionally, the rate at which agriculture uses up natural resources only adds to that strain. Modern technology—which enables more resource-efficient outputs—is naturally intersecting with the food supply chain, involving CPG by association.


CPG companies are responding to market evolutions by putting climate and sustainability initiatives at the top of their to-do lists. But achieving sustainability at scale is a daunting task given the size of the value chain. Organizations must get a handle on innovation to help ease the burden. Concurrent issues, including the pace of e-commerce expansion and the industry-wide shift to omnichannel sales, only compound the need for CPG disruption. Advanced digital platforms and AI will become indispensable tools in making sure all these important boxes get checked.


Private Equity’s Influence on CPG Innovation

Both CPG trends point to significant investment opportunities. However, in today’s unpredictable environment, CPG companies alone may struggle to make momentous business shifts—opening the door for private equity to lead the way.


First, there’s the practical matter of cost. With so much at stake, CPG companies can’t afford to let financial hurdles get in the way of innovation. Private equity funds—backed by investments from large institutional investors—can breathe life into CPG businesses by taking control for a period of time and focusing on rapid value creation for the organization. The act of easing financial burden suddenly frees up a given company to invest in technological leaps forward.


The role of private equity in CPG has evolved beyond just financing, however. Where once the focus was primarily on cutting costs and improving profits, PE firms now influence branding and growth. This includes enhancing a brand’s image to attract more valuable customers, targeting those open to buying from new brands, and most pertinent to this discussion, highlighting efforts in environmental and social governance to appeal to more thoughtful consumers.


Private equity also helps CPG companies grow by expanding their products and reaching global markets, providing the expertise and capital necessary to enable sustainable growth. The seasoned investors at Kainos Capital, for instance, equip food and consumer products businesses with sector experience and industry relationships to spark diversified wealth. Varied sources of revenue within individual portfolio companies simultaneously support the long-term success of PE firms. At Warburg Pincus, an emphasis on geographic and sector diversification has allowed the firm to capitalize on a wide range of emerging trends and maximize profitability across portfolio companies.


Diversification and globalization benefit both small growth opportunities and larger established companies. But no matter the size, all CPG companies stand to benefit from private equity’s unique ability to unlock innovation—including novel products and high-tech processes—and communicate their modernization initiatives to the market at large.


Private Equity’s Role in Supporting CPG Talent Decisions

Private equity can also play a significant role in supporting executive talent decisions in CPG. With extensive resources and strategic insights, PE firms have a unique view into identifying and attracting top-tier executives who can drive the innovation needed to achieve sustainability at scale. As a result, over 75% of new CEOs are external hires when companies are under PE ownership, which introduces effective leaders CPG companies may not have otherwise considered. And finding the right leader is critical to navigate the complex and competitive landscape of the CPG market, which demands a deep understanding of consumer trends, supply chain management, and digital transformation.


The ideal executive, in addition to the requisite experience, will possess the vision and agility to adapt to changing market conditions. The unique perspective of an established PE firm can often expedite the process of recruiting a more robust and effective leadership team, poised to capitalize on new opportunities and steer the company toward innovation and disruption.


In an ever-shifting business landscape, the role of private equity in the CPG industry is more critical than ever. As CPG companies navigate a landscape marked by rapid changes and high stakes, the strategic, financial, and personnel input of private equity will be vital in shaping the industry’s future. The ongoing evolution of the CPG sector underscores the importance of continued innovation and adaptability, with private equity firms playing a key role in steering this progress.


What other areas for innovation have you noticed in CPG? How might private equity help to expedite those changes?