The Winning Formula: The New Rules of Value Creation in Ingredients

The ingredients sector is entering a more demanding phase.

After several years of volatility, the backdrop remains challenging. End-market demand has been soft across many categories with inflation reshaping pricing and margin dynamics. Commodity volatility continues to impact part of the value chain, whilst consumer expectations are changing more rapidly than ever before. Particular importance is being placed on sentiments around health, overall nutrition and clean label. For ingredients businesses this creates a more complex growth environment.

The market is not short of opportunity, but it is becoming more nuanced. The players that outperform will be making deliberate choices about where they play, how to differentiate themselves and where to invest for the next decade.

Our latest ingredients analysis shows that the winners are not simply benefiting from market momentum. They are reshaping  their portfolios and commercial models whilst accelerating innovation agendas. Volume growth in end-markets may be slower, but there is still an opportunity for ingredients businesses to align themselves to shifting consumer needs.

Growth is no longer evenly distributed

End-market growth is becoming increasingly nuanced, with our analysis forecasting annual volume growth of around 1–2% across food, drink, beauty and consumer health. Food volumes in the US and Europe declined by 0.3% per year between 2021 and 2025 (excluding the Covid recovery period). Growth is becoming less a function of market momentum and more a reflection of strategic choices.

The businesses outperforming today are those that have deliberately repositioned themselves towards faster-growing categories with stronger customer propositions and more differentiated capabilities.

The implications are particularly clear in food and beverage. GLP-1 adoption is beginning to reshape consumer baskets, shifting towards smaller and healthier portions that are more nutritionally dense choices. Concern around ultra-processed foods is also rising, this is increasing demand for products with simpler ingredient lists and clearer nutritional benefits. Alcohol consumption in the UK and US is at record lows, providing another strong signal that consumer attitudes are rapidly changing when it comes to overall health.

For ingredient suppliers, these shifts come with both risk but also potential reward. Managing volume risk will be front of mind, but reformulation opportunities are vast when addressing shifting consumer demands, like:

• Nutritional density
• Higher protein
• Improved mouthfeel
• Sugar reduction
• Fibre enrichment
• Clean-label / natural positioning

The question for leaders and M&A teams is whether their current portfolio is exposed to the headwinds, the opportunities, or both.

Keeping pace with consumers shifting needs is an imperative for innovation

There are a multitude of opportunities for ingredients businesses to capitalise on with the pace of change in consumer preferences. Consumers  are increasingly conscious of specific needs such as sleep, women’s health, protein intake and more. As well as providing supply reliability, customers need better formulation expertise, technical evidence to support benefit claims and clear consumer insight to ensure speed to market.

For example, in beauty and personal care the fastest-growing opportunities are concentrated in higher-value areas such as actives and speciality ingredients. These are more R&D-intensive and their efficacy comes under closer scrutiny, so the quality claims need to be science-backed and differentiated.

The boundary between categories is also becoming less clear, with everyday beauty, supplements and wellness increasingly converging around the same consumer need and ask. A consumer wants a greater holistic approach to say, skin health, with this no longer only served by traditional beauty products but also through supplements, medications and procedures.

These trends are forcing businesses to rethink where they can create the most value. The strongest positions are likely to sit with companies who collaborate with customers regularly and produce products which combine scientific expertise with application knowledge to keep pace with changing consumer needs.

Value creation now depends on the quality of growth

During the recent inflationary period many ingredients  businesses delivered strong reported growth, but much of this was driven by pricing rather than underlying demand. As inflation has eased, like-for-like growth has returned to low single digits across the sector. Our analysis shows in 2024 growth of around 3% for input suppliers, technical ingredients businesses and broad-portfolio players; while distributors grew by just 0.2%. Growth has  become easier to buy than earn, which is also reflected in valuations where margin levels remain a clear driver of enterprise value across ingredients businesses.

Accelerating this shift is increased M&A activity, where deal volumes have remained relatively steady but average deal values and multiples have increased since 2023. Recent transactions such as Tate & Lyle’s acquisition of CP Kelco demonstrate this trend, strengthening its portfolio in speciality, nature-based ingredients aligned with evolving consumer demand. Technical ingredients businesses have attracted the highest average multiples, reflecting investor appetite for differentiated capabilities and innovation-led growth.

It’s clear that value creation is no longer about scale alone but depends on building a portfolio that can defend margins alongside supporting customer innovation, and compete in the parts of the market where demand is strongest.

AI will redefine advantage in ingredients

AI is already beginning to affect the ingredients landscape, with our report identifying several ways AI could change competitive advantage. The opportunity is great but there are strategic risks.

For differentiated ingredients businesses AI can enhance technical capabilities, for example in specialised suppliers AI will accelerate formulation innovation through predictive modelling. For less specialised or more standardised products it may make it easier for customers to bring parts of development in-house.

AI isn’t going to replace formulations experts, but it will expose where expertise is genuinely differentiated.

The competitive landscape is shifting

There has been industry moving M&A and divestments, and increased presence of PE-backed platforms over the last few years, all of which is reshaping the competitive landscape.

Businesses in ingredients should evaluate the moves around them and be clear on the opportunities and threats that arise as a result.

Competitive gaming and assessing strategies through this lens often leads to the most robust and defensible plans for long-term growth.

OC&C’s winning formula: three strategic moves

The strongest ingredients businesses are responding to this environment through a combination of three strategic moves:

A new playbook for ingredients leadership

The ingredients market is not becoming less attractive, however it is arguably becoming less forgiving.

Growth will still be available. However it will accrue disproportionately to companies with the right portfolio exposure across technical  expertise, deep customer knowledge underpinned by strategic discipline.

For CEOs and investors, the priority is to move beyond short-term volatility and ask more fundamental questions. The next decade of value creation in ingredients will not be won by waiting for demand to return, instead winners will actively reshape where and how they compete.

Download the full report to explore the ingredients winners, the market forces reshaping the sector and the strategic moves leaders can make to create value in the next decade. Contact our experts below to discover how we can support your long-term strategy.