Indian FMCG has long been one of the most dependable ways to make money in this country. These companies have compounded through recessions, demonetisation and even a pandemic, while consistently generating cash, and the market has rewarded that consistency with a valuation premium over most other sectors.
The reason usually comes down to the moat, a lasting advantage that keeps a company ahead of rivals and protects its profits. For decades, FMCG companies built some of the strongest moats in Indian business. That moat is now being tested, not by a new competitor with deeper pockets, but by a customer who simply wants something different. This edition looks at what that moat was built on, why it is shifting, and what it could mean for the sector’s next decade.
In This Edition
- The Moat That Built the Industry
- The Customer Who Changed the Rules
- Build It or Buy It
- . The Shelf That’s Starting to Compete With You
- Does the Reset Pay Yet?
1. The Moat That Built the Industry
For most of FMCG’s history in India, winning the customer came down to two things: reaching their hands, and reaching their mind.
Reaching their hands meant distribution, mostly being present at the neighbourhood kirana store. India’s retail landscape has always been unusually fragmented compared to markets like the US or China, where organised retail dominates. Building a network that reaches millions of small stores, deep into rural India, took companies like HUL, ITC, Dabur and Britannia decades and enormous capital, making it one of the hardest things for a new entrant to replicate.
Reaching their mind meant branding: memorable advertising and products people reached for out of habit rather than active comparison. For cheap, frequently repurchased items like soap, biscuits or toothpaste, customers rarely had a reason to switch once they trusted a brand, the cost of experimenting with an alternative simply wasn’t worth it.
Add to this the scale advantages of large procurement and manufacturing, plus the portfolio breadth that let a company like HUL negotiate shelf space across categories with a single distributor, and the moat looked close to unbreakable.
2. The Customer Who Changed the Rules
Nearly every projection about Indian consumption points to the same underlying shift: millennials and Gen Z are becoming the country’s dominant consumers, and their share of spending is only going to grow.
In FY19, these two generations accounted for a little over half of all consumer spending in India. By FY24, that had climbed to roughly two-thirds. By the end of the decade, they are projected to drive close to three-fourths of total spending, on a pool that is itself expected to nearly triple over the same period.
This generation does not behave like the one before it. They want different products, shop through different channels, and are influenced by different sources of information, a real challenge for legacy companies that spent decades understanding a very different customer.
The clearest sign of this shows up in what they want to buy. For most of FMCG’s history, companies built products for an entire category, think Clinic Plus for the broad haircare market, with a few brand extensions filling in the gaps. That playbook is breaking down. Today’s customer doesn’t want a product made for everyone. They want one made for them, a sulphate-free shampoo for coloured hair, a serum for one specific skin concern. One large category is splitting into dozens of narrower needs, each increasingly getting its own dedicated brand.
Broad, mass-market categories are already showing signs of this slowdown, while a long tail of narrowly-focused brands steadily chips away at share. The incumbents aren’t losing overall share yet, but they are losing the incremental customer, the young, urban, first-time buyer who increasingly picks the focused challenger over the legacy giant.
3. Build It or Buy It
Faced with a customer who wants narrow, specific products rather than broad category leaders, a hundred-year-old FMCG giant has two real choices. Build a niche brand from scratch, which is slow and runs against a large organisation’s instinct for scale, or buy one that already has the credibility it would take years to build organically.
The buying route has clearly become the more common one. HUL acquired Minimalist, an ingredient-led skincare brand, a very different proposition from the mass-market beauty brands it built over decades. Marico has spent the last few years acquiring and backing digital-first brands across wellness and grooming, each catering to a narrower need than its traditional portfolio. Most of these brands started online and built loyal communities long before appearing on a supermarket shelf, credibility a legacy company would struggle to manufacture internally with a brand-new launch.
These acquisitions aren’t cheap, which raises the question of who can actually afford to play this game. Cash reserves vary sharply across the sector, some large players sit on substantial war chests, others carry net debt and would need to borrow. Cash on hand only shows the ability to spend though, not the intention to, and some companies have consistently preferred dividends over acquisitions.
Worth a note of caution here too. Buying growth in FMCG is tricky, and the sector’s history includes expensive deals that looked sensible on paper but didn’t age well once the category lost momentum. The companies most likely to win this phase are probably not the ones spending the most, but the ones buying steadily and cheaply, close to the emerging trend, rather than through one large, splashy transaction.
4. The Shelf That’s Starting to Compete With You
FMCG used to be a world of consolidated brands and fragmented distribution: a handful of giant labels pushed out through millions of tiny shops. That arrangement is, arguably, inverting. Brands are fragmenting into a long tail of niche labels, while distribution is consolidating into a handful of platforms, the fastest-growing being quick commerce.
Quick commerce has gone from novelty to the single fastest-growing sales channel in FMCG, and for several large companies already drives the majority of their online sales. Its economics look nothing like the traditional kirana model, a dark store generates dramatically more revenue per square foot and stocks a far wider range of items in a fraction of the space. In simple terms, it offers brands far more volume with far less friction.
Kirana stores still account for the overwhelming majority of Indian grocery spending, so the old distribution moat hasn’t disappeared, but it is being challenged in a way that changes the balance of power. A single kirana operator has little negotiating leverage with a large brand. Quick commerce platforms are a different story, they’ve started doing what only the largest modern retail chains once could: dictating terms, demanding higher margins and bigger marketing budgets for prime placement.
The more significant shift is what these platforms are doing with the reach they now control. India’s largest quick commerce player has moved toward an inventory-led model that explicitly supports building its own private-label products, turning a channel brands depend on for distribution into a direct competitor on the same shelf. A kirana store never competed with the brands on its shelf. A quick commerce platform can.
This changes how brands need to think about their presence on these apps too. Heavy ad spend can mask a brand’s organic ranking quietly slipping, and platforms matching each other’s prices in real time can trigger rapid price cascades that erode a brand’s premium positioning without it changing anything on its end. Winning shelf space today increasingly means managing a brand’s position within an algorithm, not just a physical shelf.
5. Does the Reset Pay Yet?
All of this, new products, acquisitions, ten-minute shelves, costs money. So it’s worth asking whether the reset is actually paying off yet, or simply proving expensive.
For now, margins across the sector are under some pressure, though much of it looks cyclical rather than structural. Input costs, particularly palm oil and crude-based derivatives, have risen due to global supply shifts, and one-off tax and policy changes have temporarily disrupted demand and inventory across the chain. Recent quarterly results suggest volume recovery is real for several large players, even as rising input costs continue to weigh on profitability at the margin.
If there’s one place the reset could eventually show up clearly in the numbers, it’s premiumisation. The new customer doesn’t only want products made specifically for them, they also want to trade up, the nicer face wash, the fancier coffee, the premium single-serve pack. Quick commerce has become an ideal channel for exactly this, since it’s where discovery happens and where the basket tends to skew upmarket.
There’s a parallel worth noting outside FMCG too. The Chairman of Jio Financial Services has said he expects a similar reset in banking, as deposit-based moats come under pressure from a generation of savers turning into investors, a shift worth watching alongside this one.
The one-year forward P/E for the sector (excluding ITC) tells its own version of this story. After peaking above 65x twice in the last five years, once in late 2021 and again through 2024, the multiple has now slid down to around 45-46x, sitting right at its ten-year average minus one standard deviation, among the cheapest the sector has traded at outside the 2020 shock. Read one way, that looks like the market pricing in a genuinely eroding moat. Read closer, though, valuation gaps within the sector itself tell a more selective story, the companies still commanding a premium tend to be the ones actually adapting to the new customer, not the sector as a whole trading down uniformly. The market may already be quietly separating the winners from the rest rather than writing off the entire category.
Conclusion
The FMCG moat was never really about any single product. It was built on reaching the customer’s hands through distribution, and their mind through trust. Both of those pillars are now being tested at the same time, by a customer who shops differently, wants narrower and more specific products, and discovers brands through a ten-minute delivery app rather than a neighbourhood store.
The moat hasn’t disappeared. It has moved, and it isn’t fully clear yet who owns it, the legacy brands adapting through acquisition, or the platforms that now control the shelf itself.
For investors and allocators tracking this space, the practical takeaway is to look past headline market share numbers, which still favour incumbents, and pay closer attention to who is winning the incremental, younger customer. Watch which companies are actively acquiring or building for narrower consumer needs rather than defending broad categories, and which are managing their presence on quick commerce platforms as seriously as their traditional distribution network. Valuation gaps within the sector are increasingly separating companies adapting to this shift from those still relying on the old playbook, and that gap is likely to widen before it narrows.
Disclamer- This content is for informational and educational purposes only and does not constitute investment, legal, or tax advice. Please consult qualified professionals before making any financial decisions. MintWit Financial Services LLP is an AMFI-registered Mutual Fund Distributor (ARN-283168); however, all investments are subject to market risks and returns are not assured.
