Gen Z brands are breaching the last citadel of legacy consumer firms

For decades, the biggest competitive advantage of India's FMCG giants was not necessarily their brands or products. It was their ability to get those products into millions of neighbourhood stores, replenish shelves regularly and ensure they were available wherever consumers shopped. That distribution muscle was also what many successful new-age digital-first brands lacked when they tried to expand beyond online channels.

But a new set of numbers suggests this traditional advantage may be coming under pressure. New-generation -- or call them Gen Z -- consumer brands are beginning to make inroads into the kirana network, long considered the last stronghold of legacy FMCG companies.

Also Read: Kirana stores make room for new generation FMCG brands

New-age brands take a bigger bite

New-generation consumer brands increased their share of India's kirana market to 21.7% in the first half of FY27, up from 14.8% a year earlier, according to exclusive data from retail intelligence platform Bizom reported recently by ET. The share of established FMCG companies declined correspondingly from 85.2% to 78.3%. Bizom tracks 10 million kirana outlets.

The shift has gathered pace recently, with D2C brands expanding their kirana footprint by 200 basis points during the September quarter alone. Established players, meanwhile, lost 1.9% of their urban kirana outlets, although their rural store count grew 2.3%.

Also Read: Global FMCG giants find an Indian answer to their Western slowdown

The change reflects growing consumer demand for products that newer brands have built their identities around. Plum Goodness chief executive Shankar Prasad told ET that consumers are increasingly seeking science-oriented, performance-led and clinically positioned products. Retailers who were initially reluctant to stock relatively expensive new-age products are now more willing to make shelf space as customers begin asking for them.

The Bizom data also excludes several digital-first brands acquired by FMCG companies and integrated into their businesses. Their inclusion could make the new-age brands' overall presence even more substantial.

Distribution is the legacy players' biggest moat

The significance of these numbers becomes clearer when viewed against the distribution advantage enjoyed by established FMCG companies.

India's consumer goods market remains heavily dependent on general trade. Kirana stores account for most of FMCG sales. Reaching these outlets requires an extensive network of distributors, warehouses, sales representatives and delivery infrastructure. It also involves years of relationships with retailers who depend on suppliers for regular replenishment and credit.

Hindustan Unilever offers a good illustration of the scale involved. The company has more than 3,500 distributors across over 2,000 towns and reaches nine million retail outlets, including three million directly.

Two years ago, HUL was changing its distribution model to reduce delivery time to kiranas from three days to less than 24 hours. Under the arrangement, distributors would handle orders and payments while HUL took charge of warehousing and logistics. The company was effectively investing further in a distribution infrastructure that smaller brands would find difficult to replicate.

Fledgling brands have historically struggled to secure physical shelf space, with order terms often dictated by large companies such as Unilever and Nestlé. E-commerce and quick commerce have opened alternative routes to consumers, but the advantage is not absolute. Even on quick-commerce platforms, established brands can enjoy preferential shelf presence in certain categories.

The scale of India's retail market makes the challenge particularly formidable. A brand may establish itself among urban consumers through social media, influencers and online marketplaces but reaching a kirana in a smaller town requires an entirely different operating model.

Successful D2C brands ultimately need FMCG giants

This distribution gap helps explain the acquisition wave involving digital-first consumer brands. Over the past five years, HUL, ITC, Marico and Emami have acquired or taken controlling stakes in at least a dozen digital-first brands. The acquired businesses gained access to the distribution and marketing capabilities of their new parents, helping them expand across India.

Wellbeing Nutrition founder Avnish Chhabria told ET last year that before HUL's investment, the company had access to four or five warehouses. It could subsequently access 150-200 warehouses across the country, something he said would have been difficult to build independently.

The acquisition of Minimalist by HUL, Plix by Marico and Yoga Bar by ITC illustrate the larger trend. These brands had built consumer following and established themselves in attractive categories. Their new owners brought the infrastructure required to take them to a much larger market.

Crisil Ratings found last year that around two-thirds of FMCG acquisitions over the preceding five fiscal years were in the D2C segment. The acquired brands offered established companies access to premium consumers and faster innovation, while the smaller businesses gained a route around their scalability and profitability challenges.

The arrangement was mutually beneficial. The startups brought differentiated products and consumer insights while the FMCG companies brought their vast reach.

The kirana shelf is no longer an exclusive club

The Bizom numbers suggest that this equation may be changing. Gen Z brands are increasingly finding that their online popularity can translate into offline demand. This is an important shift because retailers are ultimately commercial businesses. If customers repeatedly ask for a product, refusing to stock it means potentially losing sales.

Digital platforms have helped create this demand before brands enter physical stores. Quick commerce has been particularly important. These platforms allow newer brands to go live across cities much faster than traditional distribution would permit.

This gives new brands an opportunity to establish consumer demand before investing heavily in general trade. It also changes the conversation with kirana owners. A retailer is more likely to stock a relatively expensive newcomer when consumers already recognise the product.

There is another important development. New-age brands are not necessarily competing on price. Many target premium consumers with products positioned around specialised formulations, health benefits and differentiated ingredients. This allows them to command higher realisations and makes the economics of stocking them more attractive.

It isn't as easy as it seems

Can these brands convert their growing kirana presence into a durable challenge to established FMCG companies? Worldpanel by Numerator's Brand Footprint India 2026 report found that only 56% of low-penetration brands increased consumer reach in 2025, compared with 83% of highly penetrated brands. Building initial awareness is one thing. Getting consumers to buy repeatedly across markets is much harder.

There is also the cost of distribution. Smaller brands need to finance inventory, appoint distributors, maintain sales teams and ensure frequent replenishment. Retailer margins alone cannot compensate for weak product movement. If a product does not sell quickly, a kirana owner has little reason to keep allocating it shelf space.

Logistics and platform commissions can eat into margins because brands must replenish multiple dark stores frequently.

Moreover, the large FMCG legacy companies are also grown very nimble these days and are not going to let Gen Z brands push them over. They have long-standing relations with kirana stores which can't be built by new-generation brands easily. Since they have deep pockets too, they can invest further in supply, digital ordering and retailer engagement to retain their space on kirana shelves.

Zydus Wellness chief executive Tarun Arora, cited in the ET report, said that sustaining distribution and building sales over time is considerably harder. Higher retailer margins cannot guarantee shelf space indefinitely and general-trade expansion remains expensive for digital-first companies.

The Bizom numbers nevertheless point to what can become a meaningful change. They suggest the kirana network may no longer be an impregnable fortress for legacy FMCG companies.