There’s some good news for consumers heading into 2025.

Globally, high inflation rates are cooling to more normal levels.

Caveat:

Inflation is falling in part because consumers themselves have become more price sensitive than they were two or three years ago. They are likely to continue to look for solid deals and discounts; this mindset is reflected in falling consumer expectations of future inflation.

In Europe, inflation expectations have largely returned to where they were in spring 2020. Similarly, in the U.S., one-, three-, and five-year inflation expectations have fallen back to near-2019 levels. The ongoing dominance of price-sensitive consumers means businesses will likely not gain any more room on margin over the next few years—and may in fact face even tighter pricing environments.

But falling interest rates means that consumers may shift spending toward more interest rate-sensitive goods purchases they’ve been putting off. This will be especially true if governments and central banks succeed in avoiding a serious recession in the next few years.

In 2020, durable goods spending surged on items like electronics, home appliances, and furniture.

This rise had several root causes:

Four years later, consumers who front-loaded durable goods spending may finally be nearing replacement cycles for at least some of those purchases—especially smaller electronics.

• Electronics already tend to have shorter replacement cycles than other durable goods—three to five years, on average—because of technological advancements.
• These cycles may be shortened even further if electronics integrate high-demand new features that require upgraded hardware, such as augmented on-device AI capabilities, smaller and lighter builds, and extended battery lives.

The outlook is less clear, however, for home appliances, which tend to run on 10- to 20-year cycles, and larger electronics like televisions, which are typically replaced every five to 10 years.

• Data from the U.S. Bureau of Economic Analysis shows that as of the end of 2022, the average current-cost age of home appliances was the same—4.8 years—as it was in 2018. This finding suggests there will be no upward or downward pressure on appliance spending from replacement cycles in the near future.
• Meanwhile, for audio–video electronics like televisions, the average age fell to 0.5 from 2.3 years—typically a sign that replacement will be less a factor in consumer spending in the near future.

With its growth potential expected to be $12 trillion by 2030, the spending impact of Generation Z has rightfully received increasing attention from retailers and brands in recent months. But they would be remiss to ignore another emerging source of spending power at the opposite end of the consumer spectrum.

In most countries, the population is aging, on average, and as a result, population growth is projected to slow or even decline. These trends are not new. They also reflect a mix of factors, including some positive ones, like longer life expectancies, greater freedoms, and more prosperity. But they will have profound effects on consumer spending for decades to come.

One way to think about aging is the increasing share of older adults among the world’s population.

An aging population means that the face of the average consumer will, quite literally, look different over time. Older consumers in the future will have more purchasing power and command a larger share of income, wealth, and spending.

In the U.S., households 55 and over went from accounting for 56% of wealth in 2000 to 73% in 2023. Over that same period, these households went from making up 25% of income to 37%.*

*Author’s calculations using the Current Population Survey Annual Social and Economic Supplement

These growing wealth and income shares are also partially a consequence of the rise in female labor force participation that began decades ago in many advanced countries; as those women now retire, they are eligible for larger pensions and benefits as a result. And it’s not just that elderly households represent a larger share of the economic pie: Their real incomes have been growing on average, too, from prior older cohorts. This generation of elderly are more educated, on average, than prior generations of older workers—and their higher incomes (and the fact that they tend to work longer in life before retirement) reflect that.

The consumer shift toward private (store brand) label CPGs has garnered renewed attention over the last four years. But it is not a new phenomenon. Private labels had already made great strides in picking up sales value share over the decade prior to the pandemic. In fact, this upward trend in private label spending was briefly interrupted in 2020 as consumers temporarily flocked back to name brands in the depths of lockdowns. However, as inflation rose throughout the developed world, consumers came back to private labels. This was one of several money-saving strategies they used at checkout.

One might expect that as global inflation moderates, consumer loyalty to private labels will weaken.

After all, one of the key motivators for private label purchases—price—will be less top of mind to consumers than it was before. But so far, the opposite has been true:

Consumer perceptions of private-label CPGs have shifted—and the shift has not been a recent one. A 2011 study found that 80% of U.S. consumers purchase private labels regularly because they see the quality as equal to or better than name brands. Results from a recent NIQ consumer survey were consistent with this finding: 72% of high-income Americans perceived private labels as a good alternative to national brands. As the 2024 analysis put it:

The gap between private labels and name brands continues to close. Store brands have done well to build brand equity by meeting multiple consumer needs—and it’s shifting the perception of desirable branding in the eyes of all consumers, regardless of income level.

Higher perceived quality is consistent with the gradually growing sales share of private label spending over the last 15 years—from 15% in 2009 to 22% in 2024, as reported by NIQ’s Mid-Year Consumer Outlook. Over this same period, inflation-adjusted per capita incomes in advanced economies grew a cumulative 23%—and by almost 60% in developing economies. As nations and consumers grow richer they, if anything, tend to “trade up” toward higher-quality goods and services over the long term. If private-label CPGs were viewed as inferior quality products whose primary trade-off was price, we would expect their sales share to be trending down, not up.

It’s hard to turn on the evening news without catching at least one story about the latest health breakthroughs of GLP-1s.

This class of medication has taken the world by storm:

These robust projections are driven by a mix of the strong efficacy in managing diabetes and obesity thus far, as well as the potential for the introduction of new products, including several oral GLP-1 drugs currently in development. Note, too, that these forecasts do not even account for the live possibility that GLP-1s become widespread for uses beyond weight loss, such as treating Parkinson’s disease, Alzheimer’s, and addiction.

But the GLP-1 phenomenon will have significant downstream effect on consumer spending beyond just the direct growth of the drugs themselves.

First, analysts foresee that GLP-1s will cause reduced aggregate food consumption overall:

• KPMG estimates that GLP-1s will lead to a $48 billion annual reduction in food and beverage spending each year for the next decade in the U.S. alone.
• Citigroup projects meal and snack spending could fall by 1 to 1.75% by 2035.

Most analysts agree that these declines will be concentrated among junk food and sugary snacks. Anxieties around GLP-1s have already arisen in this industry.

Caveat:

These numbers are against a counterfactual forecast without GLP-1s, so the implication is not that food consumption will shrink overall, but rather that, because of GLP-1s, it will grow more slowly than it would otherwise.

Second, within the Food & Beverage category, there could
be substitutions toward healthier food options, thereby raising their market share.

• Goldman Sachs notes that while GLP-1s tend to cause reduced spending on other weight loss aids, they are also associated with increased spending on vitamin supplements and nutrition shakes.
• NIQ’s Mid-Year Consumer Outlook survey reported that 60% of global consumers would be likely to start or increase vitamin and supplement intake for health support.
• T. Rowe Price anticipates GLP-1s could increase demand more broadly for healthy, sustainable products. 

Conclusion

As we approach 2025, businesses continue to navigate a complex consumer landscape shaped by cooling inflation and lowering interest rates.

While some Tech & Durables manufacturers might see an uptick in big-ticket purchases thanks to these market conditions, consumers will continue to seek value and spend intentionally. Discounts, promotions, innovation, and direct and indirect price adjustments will remain essential as brands continue to compete against the shifted perceptions of private label products.

At the same time, new opportunities are emerging in Health & Wellness, Beauty, and Food & Beverage to cater to the unique needs of both an aging population and consumers taking GLP-1 medications. These target segments will be ones to watch in the coming years, particularly as on-label use for GLP-1 medications grows beyond diabetes and obesity.

While challenges remain, the overall outlook for 2025 shows promise for brands and retailers who can strategically maneuver amidst evolving consumer mindsets and market conditions.