The real contest is between manufacturers and retailers, and retailers have already won

The stakeholder mapping reveals three definitive parties locked in a zero-sum contest for a shrinking consumer dollar: legacy manufacturers, dominant retailers, and institutional investors. But the power balance is one-sided. Retailers hold the structural advantage: store brands account for 24% of grocery unit share nationally, 31% at Walmart, and 34% at Costco. That share gives retailers a credible outside option — a home-grown alternative — whenever a manufacturer tries to raise prices. Alexia Howard of Bernstein made the mechanism explicit: when rising Iran-driven oil costs push up fertilizer, packaging resin, and freight, “Walmart and its peers are expected to refuse” pass-through requests. The retailers do not have to announce a threat; the private-label infrastructure is already in place. The manufacturer has no weapon to punish retailer defection — its brand is not differentiated enough to survive being delisted.

Institutional investors are rotating to the retailer’s side. Kunaal Kanagal, a portfolio manager at Bahl & Gaynor, told the Journal that “owning stock in the retailers is a better bet than owning stock in the brand manufacturers.” When capital chooses one side of a supply chain over the other, the cost of capital rises for the side losing the bet.

The GLP-1 demand shift compounds the structural squeeze. More than 1 in 10 American adults now take a GLP-1 drug, and the figure keeps climbing. Use of appetite-suppressing medications is part of a broader dietary shift: Americans are reading ingredient labels more closely, gravitating toward protein and fresh ingredients, and fleeing the calorie-dense, ultraprocessed staples that fill the center of the grocery store. Novo Nordisk and Eli Lilly — dominant U.S. producers of semaglutide and tirzepatide — sit structurally outside the supply chain but functionally shrink the total addressable market for processed food. This is genuine demand destruction, not a transfer of spending to retailer-brand offerings.

The K-shaped economy splits this further. Affluent shoppers trade up to smaller brands and fresh food; lower-income households trade down to private label, including premium private-label offerings at the higher end. Within the lower-income group, internal heterogeneity matters: some households are basic private-label dependents facing pure caloric cost; others are premium private-label choosers exposed to marginal quality loss if even those products rise. Food-stamp aid cuts have intensified pressure on the lower-income segment regardless of subgroup. The branded middle loses from both directions, and no single company’s tactics can bridge the gap.

The dependent stakeholders — manufacturing workers, SNAP recipients, small ingredient and packaging suppliers, agricultural commodity producers, public health advocates — carry the welfare consequences of the squeeze but have no voice in the negotiation. No union representative, worker voice, supplier executive, or advocacy organization is quoted in the source material. Private-label producers, the operational winners of retailer strategy, are unnamed even as they absorb the shelf space legacy brands are losing. The Trump administration’s immigration enforcement occupies a different category of influence: in salience terms it carries high power, high urgency, and contested legitimacy, and it is the one policy actor capable of accelerating or decelerating the demographic headwind without being a direct market participant. Max Gumport of BNP Paribas was blunt: the administration’s enforcement of immigration law has slowed U.S. population growth, eliminating “what had been an advantage for this group throughout its history.”

Why the cooperative equilibrium collapsed and why cheap talk cannot rebuild it

A game-theory reading of the manufacturer-retailer relationship explains why the old bargain — manufacturers invest in brands, retailers grant shelf space, both share the consumer-dollar surplus — has permanently broken down. The cooperative equilibrium required the retailer’s best response to a manufacturer price increase to be acceptance, relying on brand loyalty to keep consumers buying. That equilibrium depended on the retailer lacking a credible substitute. Once private-label share crossed roughly one-quarter of the grocery basket, the retailer’s best response shifted: any manufacturer price increase is now met by expanding store-brand shelf space, because the retailer can credibly replace the brand and keep the consumer. The manufacturer cannot punish that defection because its product is not essential. The 24% to 34% store-brand shares are the visible equilibrium outcome; the 50% to 70% decade market-value decline for the four manufacturers is the equilibrium verdict in market terms.

On the consumer side, a mixed-strategy equilibrium has formed: affluent shoppers probabilistically defect to smaller brands; price-sensitive shoppers probabilistically defect to private label. The Journal reports that protein-reformulation and stepped-up marketing have failed to hold either segment. This is not a tactical failure; it is the equilibrium outcome.

The manufacturers’ claims that they can innovate back to growth are cheap talk — costless assertions unsupported by any credible commitment mechanism. “Slapping protein into old brands does not work,” analysts told the Journal. Real innovation “requires years and investment” per Howard, but the companies carry heavy debt, payout ratios at “unsustainably high” levels, and quarterly earnings pressure that blocks long-term reinvestment. Conagra’s dividend halving and General Mills’ flat-to-declining guidance after a 2% organic sales decline in fiscal 2026 falsify management’s forward promises. Dividend maintenance as an implicit confidence signal was a failed commitment: Conagra’s cut shows shareholders had no recourse. Forward guidance that conditions will improve is costless assertion, contradicted by the same actions. Retailers’ threat to refuse price increases, by contrast, is credible — the sunk-cost commitment to private-label infrastructure at 24% to 34% share means the threat does not require announcement; it is already priced into the shelf.

The bounded-rationality trap is acute. Management remains anchored to the 2021 schema of cost pass-through and stimulus-driven demand, blaming a “strained consumer” for conditions that are structurally permanent. Quarterly earnings pressure, dividend commitments, and heavy debt loads create a structural preference for short-term cost-cutting over long-term innovation, even when the latter is strategically superior. The Journal’s conclusion that these businesses “are shrinking and do not know how to stop” describes organizational lock-in: cognitive and structural barriers to updating a business model whose competitive conditions have shifted beyond management’s planning horizon. The transition, when it comes, will be forced by an external shock — a further dividend cut, an activist filing, a takeover — not by gradual strategic updating.

Four futures, no easy exits

The scenario architecture maps four paths over the next three to seven years, each driven by a small number of divergence points rather than by managerial choice.

The most likely path — prolonged erosion at 45% to 55% probability — extends the current grind indefinitely. Price cuts, protein additions, and marketing fail. Dividends get cut again. Multiples remain at the current 9.8x to 12x forward earnings, a roughly 60% discount to the S&P 500. Walmart’s private-label share has room to grow past 35%, accelerating the squeeze. The erosion is stable in the game-theory sense but fatal to investor returns.

A consolidation-and-breakup wave at 25% to 35% probability follows the McCormick–Unilever template — a tie-up announced earlier this year with a combined entity worth roughly $65 billion. Private-equity firms, activists, or strategic buyers take troubled names private below debt-adjusted enterprise value. But the stress test shows that ownership change does not solve the volume problem: the same consumer-preference sinkhole persists under new owners. The deals produce poor exits for sellers and persistent center-store decay for buyers. Two conditions gate the wave’s feasibility: a Federal Reserve rate path with cuts of 100 or more basis points over the next 18 months, which reduces PE financing costs, and cumulative activist ownership crossing 5% at any of the four companies, which creates the catalytic pressure the bounded-rationality trap requires to break the current schema.

An accelerated category shrinkage at 10% to 20% probability occurs if GLP-1 adoption passes 15% of U.S. adults. The current 1-in-10 rate and climbing trajectory make this a live wire: if employer and insurer coverage expands, or if patient adherence proves durable, the total addressable market for ultraprocessed staples shrinks faster than any reformulation programme can compensate. This path does not require a trigger from manufacturers or retailers; it is an exogenous demand collapse.

A repatriation via reformulation at 10% to 20% probability requires protein-forward, clean-label versions of legacy brands to gain traction while GLP-1 adoption plates and private-label growth stalls. It is the only path that returns the sector to investor favor, and the most conditional. Howard’s timeline — “years” for real innovation, constrained by heavy debt and high payout ratios — makes this the least likely outcome. The template that exists is General Mills’ Blue Buffalo fresh refrigerated dog food, acquired in 2018 and cited by Gumport as a working example — but it sits in pet food, not human food, and the human-food equivalent has not been invented.

Confidence map

The four scenarios do not carry equal analytical weight. The probability bands reflect differing levels of evidentiary anchoring and structural conviction.

S1 — Prolonged erosion (45%–55%): moderate confidence. Anchored by the decade-long 50% to 70% market-value loss against a tripling S&P 500, Conagra’s dividend halving, General Mills’ flat-to-declining guide, and decade-low forward multiples. The lower bound reflects the possibility of stabilization attempts; the upper bound reflects the absence of any visible demand recovery mechanism.

S2 — Consolidation wave (25%–35%): moderate confidence. Anchored by the McCormick–Unilever template (confirmed deal), Conagra’s payout-ratio stress, and the precedent for CPG take-privates. The lower bound reflects deal-execution friction (debt, regulator review); the upper bound reflects visible distress creating entry points.

S3 — Accelerated category shrinkage (10%–20%): low-to-moderate confidence. Anchored by the current “more than 1 in 10” adult GLP-1 use with continued growth trajectory. The wide band reflects uncertainty in coverage expansion and adherence. No published forecast supports a precise ceiling.

S4 — Repatriation via reformulation (10%–20%): low confidence. Anchored by the absence of any demonstrated success at scale in reformulating legacy brands. Howard’s years-long timeline and the debt and payout-ratio constraints cap the upper bound.

Integrated architecture: moderate confidence. The convergence claim — that S1 and S2 produce overlapping end-states regardless of which path dominates — is structurally sound. The residual uncertainties (GLP-1 adoption ceiling, patient adherence, novel-product innovation timeline, category-formation risk) are large enough to break the projection at the specific-path level, even where the structural trajectory remains clear. The probability bands above should be read as indicative of mechanism likelihood, not as precise forecasts.

Two convergent conclusions that the market has not yet priced

First, the most likely path (prolonged erosion) and the second-most likely path (consolidation wave) converge on the same end-state: diminished returns, poor exits, and a center-store category that is smaller and less valuable regardless of ownership. The market has marked the stocks down to decade-low multiples, but the current multiples still embed an implicit assumption that earnings can be stabilised. The game-theory equilibrium and the scenario stress test both suggest that stabilisation is structurally blocked — earnings will continue to compress as private-label share keeps rising and GLP-1 adoption keeps stealing demand.

Second, the only constructive exit — redefining the center of the store as a protein-forward, fresh-adjacent space rather than a calorie-dense staple zone — requires a simultaneous commitment from retailers and manufacturers that no current mechanism supports. Manufacturers cannot invest in new shelf formats without retailer commitment to shelf space; retailers will not commit shelf space without evidence that the new products generate foot traffic. The sequential move order (manufacturers first, retailers second) gives retailers the countermove advantage. A binding third-party contract or industry-association mechanism does not exist. Until it does, the joint-investment equilibrium that could reverse the decline remains a wish.

Divergence points to watch

The architecture identifies specific leading indicators that would signal which path is materializing. Walmart private-label unit share — a cross of 35% signals prolonged-erosion acceleration; 38% by 2030 under stress-test conditions signals consolidation-wave inevitability. GLP-1 adult adoption rate — exceeding 15% of U.S. adults signals accelerated-shrinkage activation. Dividend payout ratios at any of the four companies — a guided cut signals consolidation-wave activation. Cost-input pass-through success — if retailers accept pass-through in the next CPG contract negotiation, the reformulation path opens. M&A deal volume — two or more deals above $5 billion in a single calendar year signals consolidation-wave activation, contingent on the Fed rate path and activist filings. Three residual uncertainties are Knightian — no probability distribution is knowable: the GLP-1 adoption ceiling depends on employer and insurer coverage decisions with no reliable base rate; patient adherence beyond the first year is unknown; the timeline for novel product innovation that could function as a human-food equivalent of Blue Buffalo is structurally unforecastable, and a legacy packaged-food company that successfully builds such an equivalent would alter the sector trajectory in ways no scenario set constructed from current structural pressures can anticipate — the scenario set itself is incomplete by construction.

The redistribution the frame understates

The Journal’s frame — brand companies struggling against a “strained consumer” — is accurate but incomplete. The redistribution of value is the actual story. Retailers are capturing margin. Private-label producers are gaining volume. GLP-1 manufacturers are shrinking the total addressable market. Affluent consumers are trading up to smaller brands. Institutional investors are rotating into the retail side of the supply chain. The parties bearing deferred costs — manufacturing workers whose plants face closure, SNAP recipients whose food-stamp aid is being cut, small suppliers whose margins are compressed, public health advocates whose policy momentum is raw market circumstance rather than deliberate outcome — have no independent voice in the discourse. They are mediated through analysts’ financial frame, not their own.

A constructive-future analysis — working backward from a desired sector trajectory to identify required interventions — would require inputs the source material does not supply. This analysis covers descriptive-future only: probability-weighted scenarios and adversarial-future stress testing.

The sector faces a “long road back to the American shopper,” the Journal concluded. For the dependent stakeholders, that road has no timetable and no representative at the negotiating table. The branded middle is being dismantled, and no current mechanism in the industry’s toolkit can stop it.

This analysis draws on the provided source materials and does not assert intent. Facts cited are sourced as stated.

Analytical techniques used in this piece

This analysis applies the methods below. Each links to a short, plain-English explainer you can read and reuse.

Stakeholder Mapping
Charts the parties to a situation — their interests, power, and alignments.
Strategic Interaction (Game Theory)
Models a situation as a game — players, moves, payoffs, and likely equilibria.
Wicked Futures
Explores a long-horizon, deeply entangled future with no clean resolution.