When you’re the one in charge of your child’s birthday celebration, I don’t think ANYTHING is mandatory, including those favors. It’s your choice to do what you, and the birthday child, want.
That being said, it’s not so easy to buck convention. Especially when your child thinks that what they’ve experienced elsewhere is what it ought to be. A conversation is clearly required if you intend to do things different from the norm, And that’s OK; our kids all need to learn that families make their own choices and don’t all do things the same way.
As to those favors, there are several ways to meet the expectations yet still do it differently. I recommend this healthland.time.com article on the subject- you’ll at the very least get a chuckle. Hopefully, also an idea or two on how to handle the goody bag in a different way.
The author’s daughter took great pride in creating her own goody bags. It seems clear that the bag was more important to the birthday girl than the contents, and to the party guests as well. The favors themselves can also easily be homemade- extra birthday cupcakes, cookies, an invitation to a future playdate.