NEW YORK — Retailers and consumer packaged goods companies head into 2026 facing a more fragile consumer, intensifying pressure on discretionary spending and a fast-accelerating shift toward value, health, and AI-enabled commerce, according to a recent discussion between industry analysts at Circana.
While 2025 was widely labeled a “record-setting year” for retail, the reality beneath the headline numbers tells a more complicated story.
“I haven't heard one retailer tell me that they had an incredible year,” said Marshal Cohen, chief industry advisor, retail at Circana. He noted that traffic gains were driven largely by social shopping and a consumer desire to “go out and find and discover,” even as “unit consumption was down.”
That dynamic, paired with macroeconomic volatility and pressured household budgets, is now shaping a far more uncertain environment for 2026.
A Consumer Under Strain
One of the most significant risks entering the year is the growing divergence in consumer health across income cohorts. According to Cohen, “the upper income drive[d] the majority of growth,” while “the lower income consumer took a big hit and dropped off.”
What concerns industry leaders most is the middle. “What we're watching with a laser focus is the middle income consumer,” Cohen said. “If that consumer continues to show signs of vulnerability, that's going to create some challenges.”
At the same time, consumers are being forced to rethink priorities. “Having to spend more money on food continues to erode the ability to spend on discretionary product and puts challenges in the general merchandise side,” Cohen said, a shift that is already reshaping promotional calendars and assortment strategies.
Innovation Gaps and Discovery Demand
Despite strong engagement in select categories, a lack of product innovation weighed on overall momentum last year. “There was a lack of newness out there,” Cohen said, adding that in many general merchandise categories, the absence of innovation was “actually boring the consumer.”
The result is a paradox retailers must now solve: heightened consumer appetite for discovery paired with constrained spending power. “Consumers love to discover products, particularly the younger consumer,” Cohen said, stressing that innovation remains essential even in a value-driven environment.
Four Pillars for Growth in 2026
Against that backdrop, Sally Lyons Wyatt, global executive vice president and chief advisor for consumer goods & foodservice insights at Circana, outlined four strategic pillars she believes will define success in 2026.
The first is optimized value, which she emphasized “is not just about price.” Instead, value is “really around relevance and quality and trust,” requiring “flexible pack sizes and opening price points for tiered offerings across name brands and private label.”
The second pillar centers on health and wellness, which Wyatt said has “shifted from a trend to expectation” and is now a “mainstream growth engine.” She pointed to continued momentum around “protein, fiber, hydration,” along with the expanding “ripple effect of GLP-1” medications reshaping consumption patterns and even apparel demand.
The third is AI and digital acceleration. Wyatt said brands must “personalize at scale from assortment to promotions, build frictionless omnichannel ecosystems, and optimize product content for retailer AI engines.” Cohen underscored the urgency, comparing the moment to the early days of e-commerce but warning that AI-driven commerce “is going to even grow at an even faster speed.”
The fourth pillar reflects dynamic consumer behavior. “Consumers are increasingly fluid,” Wyatt said, “switching channels, retailers, and even category boundaries.” That reality, she added, calls for “portfolio discipline” and a need to “compete on value, not just on price.”
Promotions Shift to Essentials
Promotional strategies are also evolving in response to these pressures. Cohen noted that many retailers moved away from traditional seasonal launches toward promotions centered on necessity. “They shifted it to everyday essentials,” he said, including “food and beverage,” “CPG products,” and even “automotive products,” creating “a new dynamic for both retailers and brands.”
Innovation Still Drives Growth
Despite heightened caution, both analysts stressed that innovation remains non-negotiable. “Basics will maintain your business, but it's innovation that's going to drive growth,” Cohen said, adding that this principle is “even more true today than it was when I wrote this 10 years ago.”
Wyatt echoed the sentiment, noting that while core fundamentals remain intact, “you have to do them differently,” and that innovation itself must be “framed differently” in a world where “anything but normal” has become the baseline.
As retailers and CPG companies move deeper into 2026, the message from Circana’s analysts is clear: value must be multidimensional, health must be embedded, AI must be operationalized, and innovation must remain central — even as consumers grow more selective about where and how they spend.
