The Profitability Problem: How CPG Brands Can Reclaim Margin

In today’s saturated consumer packaged goods (CPG) market, brand leaders face a relentless squeeze on margins. Rising input costs, retail pricing pressures, and shifting consumer preferences have eroded once-reliable profitability. From shelf-stable snacks to premium wine labels, the story is consistent: volume growth no longer equates to growth in margin.

For many, the response has been reactionary cost-cutting, SKU rationalization, and short-term promotions. But these moves rarely fix the underlying problem. To truly reclaim margin, CPG brands must rethink how they create, capture, and communicate value. That means embracing smarter strategy, refining go-to-market models, and leveraging data in ways that drive sustainable, high-margin growth.

At Assemblage Strategy Group, we specialize in helping CPG brands, particularly in complex categories like wine marketing, turn strategic insight into operational profitability. Here’s how your brand can start reclaiming margin today.

Understanding the Margin Squeeze in CPG

Let’s look at why profitability is under such pressure:

1. Commoditization of Categories

Most mature CPG categories are oversaturated. Whether it’s sparkling water or Sauvignon Blanc, consumers have endless choices and often default to price as the deciding factor. This forces brands into a discounting spiral that erodes long-term value.

2. Retailer Power

Retailers hold enormous leverage over CPG manufacturers. They demand pricing concessions, slotting fees, promotional support, and chargebacks all of which cut into profit. Brands, particularly smaller or emerging ones, struggle to push back.

3. Inflation and Supply Chain Costs

Raw materials, packaging, transportation, and labor costs have all increased post-pandemic. Brands can’t always pass these costs along to consumers, especially in price-sensitive categories.

4. Misaligned Channel Strategy

Many CPG brands pursue volume without understanding the true cost-to-serve for each channel. Selling through a distributor network, e-commerce platform, or DTC each carries different margin implications.

Step 1: Redefine Value in the Eyes of the Consumer

CPG brands often think they have a pricing problem when, in fact, they have a value communication problem.

Ask yourself:

What are you selling? (Is it just wine, or is it an experience, a lifestyle, a story?)
What makes your product truly different?
Are you communicating those differentiators clearly and consistently?

Wine marketing is a perfect case study. Two Pinot Noirs may taste similar, but one sells for $12 while another commands $45. The difference? Storytelling, brand positioning, and perceived quality.

Premiumization isn’t about raising prices arbitrarily. It’s about crafting a compelling brand narrative that gives consumers a reason to pay more.

Assemblage Insight: Brands that invest in strong, differentiated storytelling and packaging architecture often see a 15–25% improvement in price realization without increasing costs.

Step 2: Rationalize SKU Strategy Without Killing Growth

The more SKUs you have, the more complexity you introduce—higher inventory costs, forecasting challenges, and inefficiencies in production. But trimming your portfolio too aggressively can reduce shelf presence and consumer choice.

The solution? SKU contribution analysis.

Identify:

Which SKUs drive the most profit, not just revenue?
Which items are eroding margin due to small runs or high returns?
Where assortment complexity is hiding inefficiencies in your P&L.

For wine and beverage brands especially, vintages and varietals can balloon into unwieldy portfolios. A disciplined approach to rationalization can enhance your brand identity and margin at the same time.

Step 3: Restructure Channel Economics

Not all channels are created equal. Many brands chase revenue through every possible route: traditional retail, e-commerce, foodservice, DTC, club stores, and international exports. But few understand the real margin implications.

Consider:

DTC may offer higher margins on paper, but it requires major investments in digital infrastructure, fulfillment, and customer acquisition.
Retail may offer scale, but retailer demands and discounting dilute margins.
On-premise (restaurants, wine bars) offers brand-building potential, but slow turns and inconsistent purchasing patterns.

Mapping true cost-to-serve for each channel gives you clarity on where to lean in—and where to pull back.

Assemblage Tip: Use activity-based costing to isolate hidden costs by channel. We’ve seen brands boost overall profitability by 10% simply by rebalancing their channel mix.

Step 4: Optimize Trade Spend Intelligently

Trade promotions are one of the largest line items in any CPG P&L and often the least understood. Many brands spend 20–30% of revenue on trade spend with no clear ROI measurement.

To reclaim margin, brands must:

Segment customers by value.
Tie promotions to specific goals (trial, velocity, retention).
Measure post-promotion performance, not just lift during the event.

It’s not about spending less—it’s about spending smarter.

For wine marketing, this is especially critical. Case stackers and price drops are common, but rarely drive brand loyalty. Creative activations tastings, digital engagement, influencer partnerships—can be more cost-effective and brand-enhancing in the long run.

Step 5: Unlock Margin Through Strategic Pricing

The simplest lever to increase margin? Pricing. But most brands treat it as a back-office function, not a strategic tool.

Strategic pricing involves:

Value-based pricing: Pricing based on perceived customer value, not just cost-plus.
Tiered pricing architecture: Creating a ladder of offerings (entry, core, premium) that captures a greater share of wallet.
Geo- and channel-specific pricing: Recognizing that willingness to pay varies by region and distribution method.

A well-designed pricing strategy not only boosts profit it also signals quality and positions your brand effectively in a crowded market.

Assemblage Framework: We guide CPG clients through a proprietary pricing ladder model that consistently delivers 5-10 points of gross margin improvement within 12 months.

Step 6: Reframe Innovation Around Profitability

CPG brands often chase innovation for growth’s sake launching new flavors, formats, or packaging innovations. But if these ideas don’t enhance margin, they may distract from your core value proposition.

Ask:

Will this innovation command a premium price?
Can it scale efficiently?
Does it align with our brand DNA?

Innovation should deepen customer relationships and improve your economics. In wine marketing, for example, limited-edition bottlings or collaborations can elevate brand prestige and create scarcity driving up both price and demand.

Step 7: Build Margin into Your Culture

Reclaiming margin isn’t just a finance exercise. It requires cross-functional alignment—from marketing to operations to sales.

Marketing must create demand at premium price points.
Sales must negotiate with an eye on long-term value, not short-term volume.
Ops and supply chain must be empowered to flag margin killers early.

The most profitable CPG companies treat margin as a team sport. They build it into their KPIs, compensation, and culture.

Final Thoughts: Margin is a Strategy, Not a Math Problem

If your brand is facing a profitability problem, you’re not alone. But margin isn’t something you cut your way into—it’s something you build through intentional, strategic choices.

At Assemblage Strategy Group, we help CPG brands—including those navigating the nuances of wine marketing—reclaim lost margin through disciplined strategy, smart analytics, and bold brand positioning. Whether you’re a legacy brand or an emerging player, there’s an opportunity to do more than survive; you can thrive.