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Combating FMCG Counterfeiting in India

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FMCG being one of the largest sector in Indian economy is
currently facing the heat of counterfeit products. The grey market percentage in the FMCG-personal goods industry has increased from 25.9 per cent in 2010 to 31.6 per cent in 2012. Parallelly, the loss to the industry has also increased to approximately ` 19,243 crores in 2014 to ` 15,035 crores from
2012, attributable to the increase in the industry size as well as
grey market percentage.
This story highlights this core issue and details on the kinds of counterfeiting prevalent and its impact along with the factors involved for the increase in counterfeit FMCG products.
The story also highlights the usage of various authentication
solutions adopted by FMCG companies to counter this menace.

Published in: Food
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Combating FMCG Counterfeiting in India

  1. 1. www.aspaglobal.com 8 The Authentication Times Issue 29 Cover Story FMCG Industry in India: The fast moving consumer goods (FMCG) segment is the fourth largest sector in the Indian economy and is estimated to grow from US$ 30 billion in 2011 to US$ 74 billion in 2018. Broadly classified into three categories- Packaged Food or Food &Beverages, Personal Goods and House Care Products, food products are the leading segment, accounting for 43 per cent of the overall market. Personal Care (22 per cent) and Fabric Care (12 per cent) come next in terms of market share1 . Size of Counterfeit FMCG Market in India Measuring the exact size of counterfeiting in FMCG industry is methodologically challenging for various reasons. Firstly, the packaged food sector consists of a large unorganised sector, which is particularly vulnerable to counterfeiting. Secondly, it is an illegal activity and illicit traders attempt to remain invisible and are unlikely to record their activities. Thirdly, due to the nature of industry, most of the times various cases remain unreported in evidence of used products. by Chander S Jeena 1. India Brand Equity Foundation FMCG being one of the largest sector in Indian economy is currently facing the heat of counterfeit products. The grey market percentage in the FMCG-personal goods industry has increased from 25.9 per cent in 2010 to 31.6 per cent in 2012. Parallelly, the loss to the industry has also increased to approximately ` 19,243 crores in 2014 to ` 15,035 crores from 2012, attributable to the increase in the industry size as well as grey market percentage. This story highlights this core issue and details on the kinds of counterfeiting prevalent and its impact along with the factors involved for the increase in counterfeit FMCG products and the usage of various authentication solutions adopted by FMCG companies to counter this menace. Combating in India Counterfeiting FMCG
  2. 2. www.aspaglobal.com 9 The Authentication Times Issue 29 Cover Story However, according to various media reports it is estimated that FMCG sector loss 30 per cent of its business to fake products and 80 per cent of consumers who purchased these products believed that they had bought originals. Further, according to a study by FICCI CASCADE in 2013-14 the estimated loss of sale to FMCG industry was approximately (INR 21957+INR 19,243 crores)2 . Factors responsible for increase of illicit trade in FMCG products In FMCG sector, counterfeiters take advantage of and use advanced technology to imitate original products and replace them with inferior substitutes. These could be contrabands or look-alikes passed off as original products. There could be various factors driving the illicit trade in FMCG sector, however, the key reasons seem to be as follows; • A large unorganised sector in the packaged food industry; • Weak regulatory and implementation mechanism; • High price of branded and premium products; • Huge income disparities creating a market for cheap alternatives to the branded andpremiumproductsamong the low income population. Impact of counterfeiting in FMCG sector Counterfeit goods can be dangerous and potentially harm or even kill unsuspecting consumers. These products may contain hazardous and untested ingredients and provide no assurance of safety or efficacy. Apart from the health and safety issues, counterfeit products in the market mean low satisfaction or benefits to the consumers and poor value for their money. Impact on Consumers A recent study by the Delhi Institute of Pharmaceutical Sciences and Research (DIPSAR) found that many of the toothpaste manufacturers are adulterating toothpastes and toothpowders with high quantity of nicotine. Out of 24 well-known brands of toothpastes examined, which were produced and marketed by leading FMCG companies, seven were found to contain nicotine, which is expressly banned as the Cigarettes and Other Tobacco Products Act, 2003, prohibits use of tobacco in any non-tobacco product. Similarly, out of 10 well-known 23 toothpowders, six contained nicotine. The most remarkable aspect of these findings was that the companies involved were leading national and international brands of the FMCG world. Similar cases have been reported from Mumbai and Ahmedabad in which nearly half of all cosmetic and beauty care products sold over the counter (OTC) were found to be fake or spurious and more than half contained harmful ingredients. Ayurvedic products manufactured by some FMCG giants were also found to have misleading information about the ingredients. This is a scenario when 62 out of the top 100 brands are owned by MNCs, and the balance by Indian companies. Out of these 62 brands, 27 are owned by Hindustan Unilever and the rest by other fifteen companies. Impact on Government Any counterfeiting activity, whenever it takes place, is bound toimpacttheGovernmentheavily. Globally, government loses billions of dollars in tax revenue due to counterfeit and smuggled Industry Sector Direct Tax Loss Change Indirect Tax Change 2014 2012 INR crore % age 2014 2012 INR crore % age Personal Goods 1,111 867 244 28% 4,842 3,779 1,063 28% Packaged Goods 594 552 42 8% 5,502 5,108 394 8% Table 1: Loss of taxes to Government (in INR crore) Source: FICCI CASCADE Industry Sector 2014 2012 Increase/Decrease FMCG-Personal Goods 19,243 15,035 + 4,208 FMCG-Packaged Food 21,957 20,378 + 1,579 Table 2: Loss of Sales to Industry (in INR crores) 2. FICCI CASCADE
  3. 3. www.aspaglobal.com 10 The Authentication Times Issue 29 products. Coupled with the costs incurred in judicial proceedings and various associated law enforcement agencies, the effort and cost entailed by the various governmentsbodiestoseizethese goods in gruelling. In totality, Government lose tax, incur higher expenditure on public welfare, insurance and health services as well as consumer distrust, loss of country image and reputation. Impact on Industry Manufacturers are hit badly by illicit trade. In addition to revenue losses, many other things at stake due to counterfeiting. Some of these include: a) Loss of trust, goodwill & brand image: Consumers lose their trust in themanufacturerafterbuying a fake product unknowingly. Forabrand,yearsofhardwork spent in brand-building is lost due to a single incident of fake or counterfeit activity. b) Curtail Innovation: Increasing magnitude of counterfeited and smuggled goods discourages companies to invest and deploy resources in product innovation. According to the FICCI study, FMCG sector is spending very little on innovation. The lack of new copyrights, trademarks or patents in this industry, could be attributed to the fear of lower returns on investments by legitimate manufacturers due to counterfeiting and the growing illicit markets. c) Loss of Sales: The grey market percentage in the FMCG-personal goods industry increased from 25.9 per cent in 2010 to 31.6 per cent in 2012. Loss to the industry also increased to 19,243 crores in 2014 from 15,035 crores in 2012, attributable to the increase in the industry size as well as grey market percentage. Solutions adopted by FMCG companies Counterfeiters today are tech savvy and can easily produce packaging material similar or better than that of genuine products. But, if there is a problem, there are solutions. In India, consumers do not have any tool/medium to differentiate genuine products from their fake counterparts at the time of purchase. Due to lack of awareness and illiteracy, they rely on the visual appeal and can only check the quality of products with the marking of ISI/AGMARK or FSSAI number. However, with the advancement in digital technology, it has become easy for unethical manufacturers to produce fake ISI/AGMARK/packing products as well. Therefore, there remains a constant need to spread awareness on ‘How to identify genuine products from the fake ones?’ Technology-based solutions could be one of the strategies to counter the problem. The proven adoption of these technologies by various brand like Patanjali, Mother Dairy and Amul can be treated as case studies. These authentication solutions have multiple benefit as they provide Cover Story Proven adoption of authentication technologies by various brand like Patanjali, Mother Dairy and Amul can be treated as case studies
  4. 4. www.aspaglobal.com 11 The Authentication Times Issue 29 Cover Story a) Tamper proof packaging; b) Product authentication and c) Tracking and tracing of product Some of the technological solutions that seem to have worked for the industry are listed below: i. Visible Features: These are prominently visible features put on a pack or carton to verify or authenticate a product and difficult to replicate. These also include features that cannot be removed without damaging or defacing the pack. Examples: • Transparent film wrappers with distinctive designs around a product • Use of inherently tamper proof packaging like tin cans, tetra packs sealed hermetically • Breakable caps like those in drinking water and soft drink • Holograms ii. Hidden Features: These features enable the brand owner or grocers to identify and verify a product that may require image scanning devices and may not be detected by the consumers, such as encrypted texts or marks on the product or package. iii. Trace and Track Technologies: These involve assigning unique identity to each stock unit during manufacturing, which remains through the supply chain. The identity includes name of the product, the lot number and expiry date. Examples: bar codes, watermarks, taggants (multi- optical layers) unique pack serialisation, nano printing or microscopic application of UV inks which allow invisible printing, etc. Apart from technology solutions, manufacturers also use other measures like consistent brand packaging to ensure better brand recall value. Frequent changes in packaging can create barriers to identification of products and make a brand vulnerable to counterfeiting. Conclusion These efforts seem to have produced results as our estimates show that counterfeiting in packaged foods has come down. Adopting authentication solutions is a win-win situation for all stakeholders as the brand owner and authorities enjoy the revenues and tax/duties respectively and the consumer gets access to the original product. These authentication solutions also help the end consumer to identify the genuine product, in turn winning his loyalty and boosting brand value. Figure: Example of FMCG brands using authentication security solutions.

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