The Great Divide in U.S. Food & Beverage: How Small Brands and Private Label Are Redefining Growth

The U.S. Food & Beverage retail market is undergoing a fundamental structural divergence between large incumbents, emerging “Small Brands” and Private Label (PL) offerings. Worth USD 785 billion in 2024, this market is now increasingly defined by two distinct consumer paths through challenger brands: one prioritizing health, functionality, and authenticity, and the other driven by value, convenience, and price sensitivity.

Inflation and post-pandemic shifts in consumer trust have eroded traditional brand loyalty. Shoppers are now increasingly “trading down” to affordable Private Labels or “trading sideways” to niche Small Brands that deliver perceived value through innovation, health claims, and transparency.

By Eda Kocakarin, Jordy Lemus, Ecehan Berk Pehlivanoglu, Ozan Ozaskinli and Okan Akgun

Between 2019 and 2024, Small Brands and Private Label together accounted for nearly 60% of total market growth, signaling a fundamental redistribution of value within the U.S. Food & Beverage landscape. Over this period, Small Brands held their overall market share broadly flat yet delivered a remarkable +5.5 p.p. increase in products with health & functional claims, reaching ~40% share in that segment. Their growth was particularly strong in categories such as soft drinks, snacks, and dairy & dairy alternatives, where consumers actively reward innovation, clean-label positioning, and functional benefits. Private Labels, by contrast, strengthened their presence in regular (non-health-claim) products, especially in staple foods and cooking ingredients, where value and consistency drive choice. This enabled PL to increase its share of the total F&B market from ~14.5% in 2019 to ~16% in 2024, reinforcing its role as the primary winner in value-oriented categories.

Looking toward 2029, both challenger archetypes are expected to continue gaining ground. Though, as is typical in a mature market, the shifts will be incremental rather than dramatic. Private Label is projected to expand its share by +2.0 p.p. between 2024 and 2029, reaching ~18% of the market as value-seeking behavior persists and retailers selectively extend PL into higher-quality, premium-leaning niches. Small Brands are also expected to register modest yet meaningful gains, adding +1.1 p.p. to exceed 40% market share by 2029. While these changes may appear small in absolute terms, they are strategically significant in categories where annual share movements rarely exceed a point. Together, they reinforce a bifurcated competitive landscape: Private Label continues consolidating the value tier, while Small Brands strengthen their position in health and functionality-led segments. This dynamic will intensify pressure on incumbents, whose share is expected to decline by ~3 p.p. over the same period, to either premiumize or localize their offerings to remain competitive.

1. Introduction – Rise of Challenger Brands in U.S. Food & Beverage Retail Market

The U.S. Food & Beverage retail sector has long been a story of incumbency, household names like Coca-Cola, PepsiCo, General Mills, and Kraft Heinz commanded dominance for a very long time. But two powerful forces have been steadily at play for the past decade: the wellness economy, fueling demand for Small Brands with “better-for-you” products rich in functional, plant-based, or low-sugar claims; and the affordability imperative, which has made retailer-owned Private Labels a viable alternative rather than a compromise.

The analysis underpinning this article covers six major Food & Beverage categories (Staple Foods, Snacks, Soft Drinks, Cooking Ingredients & Meals, Dairy Products & Alternatives, and Hot Drinks) and further broken down into 85 sub-categories, enabling a granular view of where value and growth are truly shifting. The scope is strictly limited to the United States retail market, excluding the foodservice channel, and reflects a total market of USD 784 billion in 2024.

From 2019 to 2024, total F&B retail value rose at a 7.1% CAGR, outpacing inflation. Yet, the more interesting story is one of share redistribution: growth migrating towards agile Small Brands and increasingly sophisticated Private Labels. In the same period, nearly 60% of the incremental growth was driven not by legacy manufacturers but by these two challenger archetypes. Private Label expanded at a 9.3% CAGR and gained 1.5 percentage points of market share, reaching ~16% of the total market. In the meantime, Small Brands grew at a 7.2% CAGR, keeping their share stable but capturing disproportionate momentum specifically in sub-categories with health & functional claims. Incumbents, despite still representing the largest share of value, posted slower 6.5% CAGR growth and ceded 1.5 percentage points of market share over the period.

2. Rise of Small Brands – A Surge Rooted in Health, Functionality and Premiumization

The Health & Functionality Engine as a Key Driver for Small Brands

The most powerful undercurrent shaping the U.S. Food & Beverage retail landscape and driving the emergence of Small Brands is the accelerated rise of products carrying health and functional claims. These products have not only outpaced the broader market, but they have also redefined where and how the growth is being generated. Between 2019 and 2024, F&B items positioned as “healthy or functional” grew at a 9.0% CAGR, significantly faster than the 6.1% CAGR seen in regular products. This differential, compounded over five years, has pushed the healthy-and-functional segment from USD 200 billion to USD 308 billion, lifting its share of total retail F&B from 36% to nearly 40%.

What distinguishes this shift is its highly concentrated category footprint. Healthy-claim products represent the majority of category value in Snacks (46%), Soft Drinks (54%), and Dairy Products & Alternatives (56%), three of the most influential and innovation-intensive areas of the market. In these categories, the healthy-and-functional segment is not a niche overlay; it is the new mainstream, capturing more than half of consumer spending. In contrast, staples such as Cooking Ingredients or Staple Foods remain dominated by regular products, underscoring that health-driven growth is anchored in categories where consumers actively seek performance, wellness, or nutritional benefits.

Small Brands’ Growth Across Categories

It is true that Small Brands grew at a 7.2% CAGR in between 2019-2024, keeping their share stable overall. However, they captured a striking +5.5 percentage point share gain in products with health & functional claims, as consumers gravitated toward products with clearer benefits, cleaner labels, and functional attributes, while incumbents saw an equivalent –5.5 p.p. decline and Private Label remained almost absent from this segment.

Small Brands’ performance varies significantly across the seven major food and beverage categories. But one consistent thread emerges: their gains were strongest across sub-categories & products where health & functional attributes shaped consumer choice.

Although total share of Small Brands in Staples fell, their healthy & functional portfolio grew its share by +3.2 p.p. The decline of Small Brands in overall Staples category reflects pressure from value-tier competition, but robust performance in gluten-free, natural, and vitamin-enriched staples underlines their resilience.

With a market of USD ~176 bn, Snacks saw Small Brands gain 4.3 p.p. in healthy & functional varieties, representing ~50% of that space. Keto, plant-based, allergen-free, and natural snacks have provided fertile ground for Small Brands.

Soft Drinks accounted for USD ~170 bn in 2024, of which Small Brands grew their healthy & functional segment share by +9.9 p.p., reaching 41.5%. This dramatic shift reflects rising demand for no-sugar, no-caffeine, and functional beverages.

Small Brands had their share decrease overall in Cooking Ingredients & Meals category, though they still recorded robust performance in Healthy segments (+3.9 p.p.), driven by organic and allergen-free options.

Small Brands gained share both in total (+1.5 p.p.) and healthy & functional (+2.1 p.p.) segments in the USD ~101 bn Dairy Products & Alternatives category. Plant-based and functional dairy alternatives that are high in protein, enriched with vitamins, or lactose-free were standout drivers.

Hot Drinks category truly transformed with fragmentation. Small Brands gained 20.2 p.p. in Healthy hot beverages, reaching 34.2% of the segment in 2024. Natural and no-caffeine hot drinks were particularly strong.

What Has Driven Small Brand Growth?

The surge of Small Brands is rooted in a confluence of evolving demand patterns, channel shifts, and marketing innovation. Several themes stand out in terms of driving the Small Brands’ growth:

Evolving Consumer Trends: Clean-label, functional, low-sugar, gut-health, and longevity-oriented propositions accelerated breakout growth. Founder-led Small Brands successfully built trust through local sourcing, transparent missions, and community-driven narratives. Another key aspect was focus on sustainability & climate positioning. Niche five years ago, sustainability is now a mainstream expectation, favoring agile Small Brands.

Value Positioning: While premium insurgents thrived early in the period, inflation introduced a “trading-down” effect. However, premium Small Brands largely sustained momentum due to strong health-related & functional benefits and their perceived value.

Retail & Channel Dynamics: Shelf-space disruptions during COVID opened a window for new brands, while e-commerce grocery acceleration (Instacart, q-commerce players, etc.) allowed insurgents to bypass traditional distribution. Additionally, Direct-to-Consumer (DTC) models allowed fast scaling with low acquisition costs (at least until 2022, while capital was still cheap).

Marketing & Awareness: Social media virality and micro-influencer communities delivered explosive — and often cost-efficient — consumer acquisition. Additionally, Retail Media Networks (RMNs) enabled highly targeted in-store conversion, at a reasonable price in its early days.

Co-Manufacturing: Over the last decade, the co-manufacturing ecosystem has expanded in both capacity and specialization, particularly in categories such as functional beverages, snacks, and dairy alternatives. This allowed emerging brands to scale production rapidly without the heavy capital investment traditionally required to enter the market, lowering structural barriers and enabling faster speed-to-market. At the same time, the growing availability of specialized capabilities (from aseptic bottling to allergen-free production) has allowed Small Brands to offer high-quality, differentiated formulations from day one.

What Does the Future Hold for Small Brand Growth?

Looking ahead, Small Brands are expected to maintain their growth trajectory, but the nature of that growth will become more balanced and structurally different from the last five years. The healthy and functional wave that powered their rise is not slowing down; rather, it is broadening into adjacent “better-for-you” territories such as mental wellness, gut health, longevity, and natural performance enhancement. As these needs become mainstream rather than niche, Small Brands will continue to benefit from their agility and credibility in health-led innovation.

However, premium positioning alone will not be enough. Value-for-money expectations are rising, and consumers will increasingly demand products that combine functional benefits with fair pricing. This shift challenges purely premium insurgents but creates opportunities for those able to scale efficiently while maintaining distinctiveness. Small Brands will also face more sophisticated, retailer-backed challengers and must work harder to defend their edges in formulation, storytelling, and brand identity.

Retail media will play a larger role in shaping outcomes: as pay-to-play environments become universal and CPC/CPA costs rise, Small Brands will need sharper, data-driven marketing strategies. While virality on platforms like TikTok will remain a powerful accelerant, it will no longer be a guaranteed engine of growth on its own; instead, integrated checkout journeys and full-funnel conversion strategies will matter more. Meanwhile, AI-powered targeting will give Small Brands new tools to reach highly specific audiences with precision, counterbalancing some of the increased marketing expenditure required.

The advantages Small Brands enjoyed during the pandemic (such as expanded access to shelf space and unusually low customer acquisition costs) will not repeat. Retailers are tightening space allocation with stricter velocity metrics, and the cost of operating in e-commerce ecosystems continues to climb.

Co-manufacturing capacity will remain a viable scenario, however the available capacity in specialized facilities may become tighter, making access to high-quality co-manufacturers more strategic. At the same time, the co-manufacturing ecosystem is evolving toward greater sophistication, with operators investing in automation, precision batching, and advanced quality systems that were once accessible only to large incumbents. For Small Brands that secure strong partnerships early, this next generation of co-manufacturing will continue to support rapid scaling. However, emerging brands without established relationships may face longer lead times, higher MOQs, and rising production costs, raising the bar for entry.

Taken together, these dynamics point to a future where Small Brand growth remains solid but evolves into a more measured, sustainable pattern. They will continue to gain share in health-forward categories such as Snacks, Soft Drinks and Hot Drinks, though at somewhat slower rates than the explosive gains of 2019–2024. Categories like Staple Foods, Dairy and Cooking Ingredients will see more modest but steadier progress as the health narrative matures and becomes more embedded in these categories as well.

In essence, the next five years for Small Brands will be less about disrupting the market further and more about proving staying power in a more competitive, more data-driven and more value-conscious marketplace.

3. Rise and Evolution of Private Label in U.S. Food & Beverage

How Private Label Performed in the Last Five Years (2019–2024)

Over the past five years, Private Label has firmly consolidated its role as the core value engine of the U.S. Food & Beverage market, particularly across high-frequency, everyday-essential categories. While the surge of Small Brands has been concentrated in health-oriented and functional niches, PL has gained traction across a much broader base—benefiting from consumers trading down amid sustained inflationary pressure. Between 2019 and 2024, Private Label expanded at a robust 9.3% CAGR and gained +1.5 percentage points of market share, reaching ~16% of the total market. PL’s performance was even more pronounced in the “Regular” F&B segment (i.e., products without health or functional claims). Within this USD 476 billion market, PL captured ~27% share, a significant +3.7 p.p. increase since 2019, underscoring its continued strength in value-driven and commoditized categories.

In category specifics, PL steadily increased its share in Staples (+2.9 p.p.), Cooking Ingredients & Meals (+1.6 p.p.), and Dairy Products & Alternatives (+1.5 p.p.), reflecting shoppers’ willingness to switch to retailer-owned options in relatively more value-driven categories.

Private Label’s recent momentum is anchored in a clear pattern: it wins fastest in categories that are more commoditized & price-sensitive and have relatively lower brand loyalty. The top-performing segments (such as baked goods, processed meats, sauces and condiments, bottled water, and ready meals) share a common structural characteristic: consumers perceive limited differentiation between national brands and retailer-owned options. This enables retailers to lean heavily into price-performance positioning, offering products that feel “good enough” or even equivalent to branded offerings at a materially lower price point. As inflation reshaped household budgets between 2019 and 2024, these categories became natural battlegrounds where PL could rapidly accelerate penetration.

Beyond essentials, PL has also gained ground in snacks, cereals, and dairy spreads, benefiting from the rising consumer acceptance of PL in indulgent or family-oriented items. In these segments, retailers often compete on both value and convenience, meeting grab-and-go needs while offering formats and flavors that mirror market leaders. Meanwhile, in Cooking Ingredients & Meals, PL’s clean-label evolution has enabled it to move beyond “basic value” products. Retailers are increasingly positioning their ready meals, sauces, and condiments as credible, simplified alternatives to branded equivalents, with quality upgrades that align with evolving consumer expectations.

PLs now extend selectively into premium and health-forward niches, such as plant-based milk and certain clean-label ready meals. This signals retailers’ ambition to bring healthier and simpler formulations to the mainstream at more reasonable price points. However, we expect PL’s ability to penetrate Healthy & Functional segments to remain limited.

The overall story remains consistent: Private Label thrives where the category is commoditized, the need state is daily, and the consumer is value-driven. These structural advantages continue to reinforce PL’s role as a strategic growth engine for retailers and a resilient choice for cost-conscious consumers.

What Does the Future Hold for Private Label?

Over the next five years, Private Label is poised for steady, value-driven expansion rather than explosive growth. As inflation moderates, the value-for-money narrative will remain powerful but the headwinds for premium PL will intensify. Growth will continue to be concentrated in core staples, dairy, cooking ingredients, and ready meals, where PL already commands trust and can further expand through price leadership and strategic assortment placement. Retailers will double down on integrating PL deeply into their loyalty ecosystems, digital journeys, and retail media platforms; boosting recommendation visibility (“recommended alternatives”), personalized promotions, and preferential digital shelf placement.

However, we expect PL’s ability to penetrate Healthy & Functional segments to remain limited. While mainstream PL will benefit from improved trust and consistent quality, premium PL will struggle to scale outside selective categories as Small Brands dominate innovation in plant-based, clean-label, and functional nutrition spaces. This creates a bifurcation: mainstream PL continues to rise, while premium, health-forward PL remains a niche play.

Operationally, Private Label will continue benefiting from the growing sophistication and strategic importance of the co-manufacturing ecosystem. PL programs with long-term volume commitments are a great fit for co-manufacturers, who are looking for deliveries at-scale & with consistent quality. Retailers will continue using Private Label as a buffer against margin pressure, leveraging their control of shelf space, pricing, and retail media to strengthen competitiveness against national brands. By 2029, PL is expected to gain share across most major categories, especially in Staples, Dairy, and Cooking Ingredients.

4. Conclusion: A Market Reshaped by New Rules of Value, Wellness and Retail

The U.S. Food & Beverage market is exiting a decade defined by disruption and entering one shaped by structural realignment. The rise of Small Brands and Private Label is no longer a short-term reaction to inflation, novelty cycles, or pandemic-era behaviors; it is evidence of a deeper shift in how consumers define value, how retailers assert power, and how brands earn trust. Together, these two challenger segments have captured the majority of market growth since 2019, not because consumers rejected incumbents outright, but because they increasingly reward propositions that are either meaningfully better or meaningfully cheaper.

Small Brands have won where innovation, health, and functionality matter most. They excel in categories where consumers actively look for better-for-you benefits, cleaner labels, or novel formats—from hydration beverages and protein-enriched dairy alternatives to plant-forward snacks and functional hot drinks. Their success comes from speed, purpose, and credibility: the ability to identify needs early, scale quickly through flexible supply chains, and build affinity through modern storytelling. Yet their next chapter will demand more operational discipline, sharper differentiation, and deeper integration into retail and digital ecosystems, as competition intensifies and acquisition costs rise.

Private Label, in contrast, has consolidated power in the value-driven core of the market. Retailers have transformed PL from a budget compromise into a strategic asset—upgrading quality, expanding assortment, and embedding PL into loyalty programs, digital shelves, and retail media. As a result, PL now dominates many commoditized categories and is beginning to encroach selectively into premium, clean-label, and plant-based territories. Over the next five years, PL will continue to strengthen its role in staples, dairy, and cooking essentials, even as its penetration into health-led niches remains structurally limited by slower innovation cycles.

What emerges is a bifurcated market defined by two winning formulas: value leadership and purpose-driven innovation. Incumbents sit in the middle; a position that is increasingly difficult to defend. To stay relevant, they will need to premiumize, differentiate through nutrition and science, deepen retail partnerships, and invest in brand equity that goes beyond price.

By 2029, the U.S. F&B landscape will be more diversified, more polarized, and more retailer-powered than ever before. Small Brands will continue shaping the frontier of wellness and functionality, while Private Label will continue reinforcing the backbone of everyday consumption. The companies that thrive will be those that evolve fastest, adapting portfolios, pricing strategies, channel choices, and innovation pipelines to meet a consumer who is simultaneously more health-conscious, more cost-conscious, and more demanding.

In a market defined by both aspiration and affordability, the winners will be those who understand that growth no longer sits in the middle—but at the edges where purpose or price clearly lead.