We know from previous Pixar films that the audience can still relate to the characters when the story is fantastic, but the fantasy setting feels like little more than a coat of paint here.
If anything, it feels like Onward needed to up the “fantasy” dial a bit.
The world doesn’t feel as lived in as the others do, making the audience investment tougher.
Onward is an urban fantasy, which is a popular genre in books, but is seen less in film, where the characters of fantasy stories, elves, dwarves, dragons, etc, exist in an otherwise normal modern world.