DEODATE Insights: Rising Costs, Shifting Consumers:How Food Manufacturers Are Adapting

Inspired by WSJ (“Are Food Stocks Cooked?” by Aaron Back, Aug. 2025) and supplemented with company filings, policy analysis, and industry data.

EXECUTIVE PERSPECTIVE: For decades, packaged food companies have been considered safe havens for investors. Predictable demand, steady dividends, and recession resilience made them cornerstones of the consumer staples sector. Today, that narrative is being tested. Rising costs, shifting consumer behavior, and policy changes are pressuring operators in ways that extend far beyond earnings calls. From a real estate strategy perspective, these forces are reshaping how manufacturers evaluate portfolios, facilities, and logistics networks.

STRATEGIC SUMMARY: Taken together, these dynamics suggest that food manufacturers will continue to manage their portfolios with greater discipline. Key themes include:

• Cost efficiency as priority: Facilities will be judged on total cost of operation — utilities, labor, and logistics — as well as rent.

• Flexibility over size: Companies are increasingly reluctant to lock into long-term commitments, favoring flexible and/or adaptable leases that allow for expansion or contraction.

• Portfolio churn: Consolidations and spinoffs will likely lead to selective closures, divestitures, and repurposing of assets, alongside new requirements in core growth markets.

• Location strategy: Operators are reassessing their networks, favoring sites with multimodal logistics access and skilled labor pools to offset higher input costs.

MARGINS UNDER PRESSURE: Kraft Heinz recently reported that it expects 5–7% cost inflation in 2025 but can only pass through about 1% to consumers. This spread illustrates a structural ceiling on pricing power after years of steady hikes. With consumers increasingly resistant to higher prices, manufacturers are forced to look elsewhere for efficiencies. Logistics, supply chains, and real estate costs are under heightened scrutiny.

Facilities that were once considered reliable anchors are now being evaluated through a new lens: operating costs, energy efficiency, and labor productivity. In practice, this means operators are more cautious about committing to large footprints and more focused on modernizing existing assets. For landlords and investors, this is translating into slower decision-making cycles, tougher negotiations, and a stronger emphasis on cost justification.

POLICY HEADWINDS: The policy environment is adding another layer of complexity. Recently enacted reductions in the Supplemental Nutrition Assistance Program (SNAP) — estimated at $186 billion over the next decade — are expected to trim food-at-home spending. While the impact will not be uniform across all brands, value-oriented lines are most exposed.

For food manufacturers, this policy shift amplifies pressure on volume. It also accelerates a long-running trend: companies must do more with less. Real estate portfolios that were built on assumptions of steady, baseline demand may need to be streamlined, consolidated, or redeployed to align with a more cost-sensitive consumer base.

CONSUMERS TRADING DOWN: The consumer side of the equation is equally important. Nielsen and Circana data confirm that private-label products continue to grow faster than national brands in 2025. Households, faced with tighter budgets, are increasingly trading down to store brands.

This trend challenges the traditional value proposition of established packaged-food companies. It also influences their operational models. With top-line growth harder to achieve, many are leaning into efficiency — both within production and across their facility footprints. For real estate, this often means exploring secondary markets with lower labor and utility costs, or renegotiating lease structures to allow for greater flexibility.

RESTRUCTURING ACCELERATES: Industry consolidation is gathering pace. WK Kellogg was acquired by Ferrero for $3.1 billion, Kellanova by Mars for roughly $36 billion, and Kraft Heinz is actively exploring a $20 billion spinoff of its grocery division. These transactions underscore a broader restructuring trend in the sector.

For real estate, M&A activity rarely passes quietly. Consolidation typically triggers facility rationalization, asset sales, and reconfiguration of logistics networks. Spinoffs create new entities that may need separate headquarters, distribution centers, or production sites. At the same time, parent companies often pursue sale-leasebacks as a way to unlock capital from owned real estate. These patterns create churn across the property landscape and open opportunities for both investors and developers who can position assets strategically.

CLOSING VIEW: The Wall Street Journal asked whether food stocks are “cooked.” From our perspective, the more important story is how operators are adapting. With pricing power capped, consumer spending pressured, and ownership structures in flux, food manufacturers are increasingly turning to their real estate portfolios as a lever for efficiency and resilience.

In moments like these, portfolio strategy becomes more than a financial exercise — it is central to how companies compete. Decisions about which facilities to expand, consolidate, or reconfigure carry long-term implications for costs, logistics, and market reach. For landlords, investors, and occupiers, this is a reminder that real estate is not just background infrastructure, but a driver of corporate strategy.

DEODATE’S role is to interpret these shifts and help organizations connect market realities to real estate decisions. Whether through footprint optimization, site selection, or portfolio restructuring, we translate industry pressures into strategies that position companies for long-term resilience.

Sources:

The Wall Street Journal - “Are Food Stocks Cooked?” by Aaron Back, Aug. 2025. Link here

Investing.com – Kraft Heinz Q2 2025 Earnings Report. Link here

Food Business News – SNAP Cuts Expected to Impact Value Brands, 2025. Link here

Grocery Dive – Private Label Sales Outpace Branded in 2025. Link here

Reuters – Coverage of WK Kellogg acquisition (Ferrero, $3.1B), Kellanova acquisition (Mars, ~$36B), and Kraft Heinz spinoff plans. Link here