GST, quick commerce and war: The year that rewired FMCG

India’s FMCG sector spent the past year dealing with multiple forces that changed the way the industry prices, sells and reaches consumers. The GST rate cuts made several everyday products cheaper but disrupted trade inventories and offered less immediate demand upside than expected. At the same time, quick commerce moved from being an emerging channel to a serious growth engine, while the West Asia conflict pushed up crude, packaging and freight costs just as companies were settling into the new tax regime. The result has been a year of stronger channel shifts, cautious consumption and a more complicated price equation.

The GST reset was the first major disruption. Effective September 22, 2025, GST on products including biscuits, namkeens, sauces, noodles, chocolates, coffee, shampoos, soaps and toothpaste was cut, with several categories moving to 5% from 12% or 18%. HDFC Securities Institutional Equities (HSIE( Research estimates that 88% of Britannia’s portfolio, 67% of Nestlé India’s, 68% of Dabur’s and 57% of ITC’s FMCG portfolio benefited from the second round of GST rationalisation.

The immediate impact, however, was messy. Companies had to manage old and new MRP packs, distributor destocking and dual pricing. HUL's former CFO Ritesh Tiwari said the disruption lasted through September and October, with trading conditions expected to normalise by early November. “Consumers were very choiceful and they are hoping to see lower prices on the shelf before they start loading in their own pantry,” he said during HUL’s Q2 FY25 quarter earnings call.

But the consumer benefit was not always visible at the shelf. Britannia CEO Rakshit Hargave said in Q1FY27's earnings call that more than 60% of the company’s portfolio is sold at ₹5 and ₹10 price points, meaning a tax cut often translated into more product rather than a lower price. “The consumer is still paying ₹5 and ₹10, what he's getting is an extra or a couple of cookies more,” he said. As a result, the volume response would take time to show up.

Nestlé India had a more positive assessment of the exercise. Manish Tiwary, MD, said the government had “unlocked this for our consumers” and that the company’s execution across millions of outlets, including changes to packaging, pricing and weights, had been “flawless”.

HSIE, however, said the trade pipeline was disrupted by differential priced SKUs, even as companies remained optimistic about the long-term formalisation benefits of GST.

GST helped affordability, but the bigger gain may be formalisation

Ultimately, the longer-term opportunity was clearer. HSIE says GST has steadily pushed formalisation since its implementation in 2017 and expects the latest rate cuts to accelerate that process. Yet it cautions that the near- and medium-term consumption benefit could be limited because lower household taxes do not automatically translate into higher FMCG consumption. The larger benefit, it argues, will come through income growth and a continued shift towards organised consumption.

By the March quarter, companies were reporting a more normalised demand environment. Marico CEO Saugata Gupta said FY26 demand sentiment remained stable, supported by benign inflation, improving rural sentiment and the affordability boost from GST rationalisation. “We are optimistic of a gradual improvement in consumption trends in the quarters ahead,” he said on the Q4 FY26 earnings call.

That recovery carried into FY27. HUL reported 5% underlying volume growth and revenue from operations of ₹17,184 crore in Q1 FY27, while Nestlé India posted 25.2% revenue growth to ₹6,378 crore, with strong double digit growth across all four product groups. Nestlé’s EBITDA rose nearly 40% to ₹1,538 crore as gross margins improved.

Quick commerce changes what FMCG companies sell and how they sell it

While GST was reshaping the price architecture, quick commerce was reshaping distribution. “As the new-age channels' salience gradually expanded for companies and relevance of innovation increased, traditional FMCG firms started paying closer attention to and positioning offerings for such channels,” notes the report.

HUL reported 40% to 50% growth in the channel and is building specific assortments and price pack architectures for quick commerce. The company is also using data to improve conversion, visibility and repeat purchases. CFO Niranjan Gupta described the channel as structurally attractive, with the ability to deepen scale and improve the quality of growth.

Marico’s core business on quick commerce grew more than 50%, with the channel accounting for around 5% of India business revenue, excluding digital brands. All digital channels together contributed more than 20%.

For Nestlé, the shift is not simply about faster delivery. E-commerce and quick commerce are helping the company acquire new customers, premiumise its portfolio and use these platforms as launchpads for innovation. Its premium portfolio contribution rose from 11% to 14%, with the segment growing nearly 500 basis points faster than overall growth.

“Quick commerce, with presence in 100 cities and contributing 50-60% of e-commerce revenue for large FMCG players, offers granular consumer insights that can support a bottoms-up strategy. In contrast, traditional companies continue to adopt a top-down approach, shaped by the legacy general trade moat,” says the HSIE report.

The War

Then came West Asia.

The conflict drove sharp volatility in crude, feeding directly into packaging, freight and crude derived ingredients. ITC said the June quarter was marked by heightened uncertainty from the conflict, with significant trade and supply chain disruption. Its non-cigarette FMCG business nevertheless delivered strong double digit growth.

HSIE estimates that crude palm oil prices in India were up 20% in FY26, while soybean and sunflower oil prices rose 13% and 24%, respectively. It notes that crude is embedded across the FMCG cost structure through derivatives, packaging and freight. After the sharp rise in crude from March 2026, companies responded with 2% to 4% price increases.

Even though spot crude prices have corrected as the West Asia situation eases, HSIE expects the disruption in derivatives and supply chains to persist through the year. Dabur and Britannia have started routing supplies from India for international markets, which could be margin dilutive, while the stressed Strait of Hormuz route means supply chain normalisation is likely to be gradual.

HUL’s CFO put the commodity pressure in a longer context, pointing out that palm oil inflation has been building over two years rather than being a one year or GST related phenomenon. The company is responding through premiumisation, with Dove and Pears growing at strong double digit rates and greater focus on body wash.

Yet consumption has held up better than feared. Marico reported double digit domestic volume growth in Q1 FY27, while Godrej Consumer expected high teens consolidated revenue growth. Dabur’s Q1 revenue rose 10.5% to ₹3,764 crore and profit increased 15% to ₹591 crore despite geopolitical and commodity pressures.

What this year ultimately exposed is that FMCG companies are no longer dealing with one disruption at a time. As HUL chairman Nitin Paranjpe put it, “disruptions are simultaneous and compounding.”

FGST has made the market more affordable and formalisation more attractive, but external shocks can quickly erase the margin benefit. The next phase of growth will depend on how well companies balance price, volume, distribution and costs while consumers remain increasingly selective about what they buy.

"These macro pressures have stressed FMCG incumbents, who have been encountering waning moats. While management remains optimistic and remains excited about the India growth opportunity, given global trends, we expect the preparation for disruption to be the key ahead," said the HSIE report.