Scam Alert Series – Counterfeit Products Part 5
Why Fast Moving Consumer Goods Are Prime Counterfeiting Targets
Counterfeiting – the production and distribution of imitation goods is a pervasive issue affecting various industries. While luxury goods are often associated with counterfeiting due to their high market value and prestigious brands, we may be wondering, what about those low-cost products that we use daily?
Fast-moving consumer goods (FMCG) encompass a wide array of products that are in constant demand due to their essential and everyday nature. Items like toiletries, packaged foods, and household essentials fall under this category. Unfortunately, the ubiquity and popularity of fast moving consumer goods make them a prime target for counterfeiting.
The fast-paced nature of these goods, driven by high consumer demand, provides counterfeiters with an ideal environment to infiltrate the market. Whether it’s counterfeit cosmetics, food, or hygiene products, the risks associated with fake FMCG extend beyond financial losses to consumers and businesses; they also pose serious threats to health and safety. Recognizing and addressing the challenges posed by counterfeiting in the FMCG sector is paramount to preserving consumer trust, ensuring product quality, and safeguarding the integrity of the market.
An interesting trend emerges when we examine the FMCG industry. Through this article, we delve into the reasons behind why FMCG products actually faced greater challenges and explore what makes them more susceptible to counterfeiting than their luxury counterparts. Here are the key reasons:
1. Commonly available and mass appeal
Fast moving consumer goods such as food, beverages, toiletries, and household goods are always found in our daily life. They are high volume purchases and consumed by the masses. The fast-moving nature of FMCG products, characterised by frequent purchases and consumption, provides a constant stream of opportunities for counterfeiters to introduce fake goods into the market without raising immediate suspicion.
In many parts of Asia, fake toiletries, such as shampoos and toothpaste, flooded the market in various regions, capitalising on the high demand for personal care items. These fake products often lacked quality and posed health risks to unsuspecting consumers.
According to a report by the International Trademark Association (INTA), the global counterfeit FMCG market was valued at approximately $84 billion in 2020. There is surely substantial economic incentive for counterfeiters.
2. Lower Production Costs and Profit Margins:
The production of fake FMCG products often involves lower costs compared to luxury goods. These items are typically simpler to replicate, requiring fewer resources and less sophisticated manufacturing processes. The large volume provides economies of scale that further push down the production costs. With imitation goods manufactured at a fraction of the cost, counterfeiters are still able to enjoy significant profit margins even at lower price points. The cost effective and low barrier of entry offers a lucrative opportunity.
A study by the Organization for Economic Cooperation and Development (OECD), based on data for 2019, estimates that the volume of international trade in counterfeit and pirated products amounted to as much as USD 464 billion in that year, or 2.5% of world trade. And FMCG products are a major contributor due to their lower production costs.
3. Complex Global Supply Chains
Fast moving consumer goods often navigate complex global supply chains, making it challenging to monitor and regulate every step of the production and distribution process. The multiple stages required provide many opportunities and vulnerabilities for fake goods to infiltrate the supply chain. The case of counterfeit alcohol in the beverage industry exemplifies the supply chain complexity. Illicit manufacturers exploit weak links in the distribution chain to introduce fake alcoholic products, posing serious health risks to consumers.
The rise of e-commerce platforms since the early 2000 has further exacerbated the counterfeiting problem for FMCG products. Online marketplaces provide a convenient avenue for counterfeiters to reach a global audience, often without stringent verification processes. According to research done by Michigan State University (MSU) in 2023, counterfeit products were most commonly purchased via e-commerce websites (39%) and social media (39%) in the USA, showcasing the role of online platforms in the proliferation of counterfeit goods.
4. Consumer Perception and Trust
Consumers tend to associate certain fast moving consumer goods companies with reliability, safety, and quality. Being lower cost compared to electronics, luxury or apparel products, consumers often feel that FMCG would not be a counterfeiting target. Counterfeiters exploit this mindset by producing fake products that closely mimic popular brands, deceiving consumers into purchasing substandard items. The health and safety implications of consuming fake FMCG products such as food, beverage, healthcare supplement products can be severe, creating an added layer of concern. The World Health Organization (WHO) states that almost 10.5% of the medications worldwide are either subpar or fake. This leads to significant health risks for unsuspecting consumers.
5. Challenges in Regulation and Enforcement
Regulatory frameworks and enforcement mechanisms in the fast moving consumer goods industry may be less stringent compared to industries like luxury and medical goods. In some cases, weak regulatory oversight enables counterfeiters to have insignificant punishment when arrested for the illicit trade compared to the potential gain.
Many developing nations have limited resources for a strong enforcement to combat counterfeiting effectively. Almost 28% of all FMCG products sold in India are fake, reported by Authentication Solution Providers Association (ASPA) in 2023 and FMCG products are the 2nd most counterfeited goods in the country after apparel.
The World Customs Organization (WCO) also reported that over 500 million items were seized globally in 2022 with 160 participating WCO members, emphasising the prevalence of the issue. It becomes more important for brand owners to step up and take further actions to protect their IP, products and consumers.
While luxury goods frequently make headlines regarding counterfeiting, the FMCG industry faces more profound and intricate threats from counterfeiters. The confluence of factors such as high demand, cost-effective production, complex supply chains, consumer perception, regulatory hurdles, and the prevalence of e-commerce creates a vulnerable landscape for FMCG products. Tackling this multifaceted challenge demands collaborative initiatives from governments, manufacturers, and consumers to bolster regulations, elevate supply chain security, and increase awareness about the perils of counterfeit FMCG products.
Nabcore stands ready to assist fast moving consumer goods companies in their fight against counterfeiting, offering advanced solutions that fortify brand protection, ensuring authenticity and consumer safety. It’s time for industry leaders and brand owners to proactively engage in this collective effort to combat counterfeit threats in the fast moving consumer goods industry. Learn how Nabcore was able to help a Fast Moving Consumer Goods (FMCG) company to prevent loss revenue due to fakes, and regain market share.