Counterfeit Goods A Major Threat To FMCG Market
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Trading of low-quality fake consumer goods is posing a serious threat to the FMCG market as the counterfeit market has grown 44.4 per cent per annum higher than the rate at which the overall consumer goods market in the country is growing.
Consumer goods sectors that are relatively more prone to counterfeit trading in India are alcohol, consumer packaged goods, personal care products, tobacco, mobiles and mobile components, automobile components and computer hardware and software. The estimated value of counterfeit and smuggled goods of these, grew from Rs 729 billion in 2012 to Rs 1,054 billion in 2014, according to a study by consultancy firm KPMG.
"Counterfeit products have an impact on both producers and consumers; on one hand the producers risk damage to their brand image, and consequently on sales; on the other hand, consumers pay excessively for low quality products that could possibly have health and safety risks," says Rajat Wahi, Partner and Head, Consumer Markets at KPMG India.
Wahi went on to add that counterfeit products are a challenge for the government as well. Being a clandestine industry, the manufacture of counterfeit products causes a substantial loss to the exchequer in terms of lost tax revenue. In addition to and having health and safety risks, spurious counterfeit products also put a strain on the public health system. Industry - legitimate businesses suffer significant losses in terms of sales, profits and goodwill to counterfeiters every year in India.
Technological advancement, especially in the print industry, has helped counterfeiters create replicas of leading FMCG brands, thereby, making the FMCG and alcoholic beverage's sector more vulnerable to the illicit trading of counterfeits in India. In 2014, the overall counterfeit sales of FMCG, alcoholic beverages and tobacco goods constituted 65 per cent of the total counterfeiting sales in the country, accounting for loss of sales of over Rs 684 billion to the Indian FMCG manufacturing sector.
The salience of counterfeit products in almost all sectors, with the notable exception of FMCG packaged goods, is estimated to have grown by more than 20 per cent. Low growth rates of counterfeit FMCG packaged goods (7.2 per cent growth during 2012-14) can be attributed to FMCG companies focussing on the technological advancements and innovative packaging solutions, making it difficult for counterfeiters to 'crack' or replicate their products. It is estimated that the grey market share for alcoholic beverages is close to 17 per cent.
The counterfeiters often refill empty bottles with illicitly produced alcohol and sell them as genuine products. This increases the level of direct competition for liquor brands, especially in the mass segments, with the genuine brand vying for market share with the illicitly manufactured counterfeit. Such 'deceptive counterfeiting' results in loss of goodwill and trust, with consumers blaming genuine brands for poor quality of goods purchased by them, consequently resulting in loss of brand equity.
Additional expenditure on technology to protect brands from counterfeiting and creating consumer awareness positively impacts margins of the industry. This issue gets magnified for SMEs who lack the capacity to compete with counterfeits, which significantly affects their operations.
Counterfeiting in packaged food has resulted in many cases where consumer health has been impacted, and brand equity built over many years has suffered. In India, about 80 per cent of the consumers buying counterfeit goods are victims of deceptive counterfeiting, i.e. they buy fake goods in the belief of buying genuine ones. The fact that such a large number of consumers is exposed to counterfeit goods, more so in rural areas, only compounds the problem and demands immediate action.