Smart solutions to counterfeiting

7 December 2018



Identifying the right smart pack to beat counterfeiting threats is now a priority for operators in the fast-moving consumer goods sector. Matthew Rogerson identifies potential weaknesses in the packaging supply chain and how technology is now informing anti-counterfeiting solutions.


According to the latest B2B survey from GlobalData, 68% of fast-moving consumer goods (FMCG) executives are concerned about the dangers of counterfeit goods, and this includes 100% of executives in Asia-Pacific, 68% of executives in North America and 54% of executives in Europe.

A 2015 Forbes survey revealed that multinational brands are losing approximately 10% of their top-line revenue as a result of counterfeiting. However, smart packaging is offering disruptive new tools to help combat such illegal activity.

Nanotechnology, authentication, antitheft labels, big data, smart tags, mobile tools, apps, artificial intelligence (AI), the internet of things (IoT) – there is an incredibly diverse range of effective tools that can be employed, but identifying specific threats at different stages of the supply chain is crucial in implementing the right smart solution for the task.

Vulnerable points in the supply chain

If we examine the supply chain, starting with ingredient and raw materials suppliers through to suppliers, manufacturers, distributors, retailers and eventually consumers, three potentially key points of weakness are identified.

Between ingredients suppliers and suppliers – and between both of those and manufacturers – there is the risk of adulteration. Smart packaging solutions can be employed to counter this, including blockchain technology for supply chain records and smart tags for rapid record access.

Where manufacturers and distributors meet there is the risk of tampering, overrun or theft, all of which can be addressed by tamper-proof sealing, while smart seals can help track where products are sold and would alert a mindful consumer if they were not sold via approved vendors.

Finally, where distributors and wholesalers link with retailers and food service, there is a risk of diversion and simulation. Both can be headed off by adding technological complexity such as texture or luminescence to packaging, making it more difficult to imitate them convincingly, or making high-tech, country-specific markings for major international brands to help tackle diversion.

The global problem of counterfeiting

Counterfeiting is a problem worldwide and across multiple categories, with evidence suggesting that leading and trending brands are most at risk.

According to US Customs and Border Protection, a record number of counterfeit goods were seized in 2016, worth nearly $1.4 billion. These included fake toiletries that can be harmful to health.

In India, KPMG reported that the estimated value of counterfeit and smuggled goods grew from Rs729 billion in 2012 to more than Rs1 billion in 2014, while in China in July 2017 alone Chinese customs officials at the eastern port of Ningbo reportedly seized over 90,000 fake cosmetic products bound for export.

In the UK, the annual global cost of counterfeiting is estimated to be £1.2 trillion, and is rising in cost and scope by around 15% every year. Everything from pharmaceutical drugs to luxury clothing brands and even alcohol is up for grabs by organised gangs – alcohol was the most counterfeited product seized by Europol in its Opson anti-counterfeiting operation – and multinational brands are thought to be losing approximately 10% of their top-line revenue as a result.

Examples include the 2008 scandal in China, when Chinese company Sanlu was found to be selling baby formula contaminated with melamine, bootleg alcohol seized in Indonesia that was responsible for 60 deaths and the 1.6 million litres of illegally produced alcohol seized this year in Russia.

To compound the issue – and the potential reputational damage for leading brands – social media now means that news of counterfeiting scandals travels quickly, far and wide.

Markets that offer the most potential for growth also have the highest risk. Regions that are most at risk of counterfeit exports include high-value markets such as Hong Kong, along with fast-growing emerging markets such as Turkey, the UAE and Thailand.

Developing countries, where local legal systems have been weak on anti-counterfeiting measures or consumers do not have sufficient knowledge to distinguish between genuine and fake products, are particularly prone to counterfeit goods and also vulnerable.

Six types of counterfeiting

Manufacturers and suppliers need to carefully assess which type of counterfeiting – adulteration, tampering, over-running, theft, diversion or diversion – is most prevalent in their product category in order to identify the right smart packaging solution.

As a general rule, premium products, those that have a strong brand heritage legal environment are the most vulnerable. However, all brands need to understand how counterfeiting impacts upon their category in order to identify how smart packaging can help protect their products.

Adulteration

Some consumers are increasingly concerned regarding allergens due to specific medical conditions or because a backlash against a particular ingredient is trending. Consumers want authenticity, and therefore more details on an ingredient’s provenance.

Labelling laws are becoming increasingly strict, increasing calls for more information to be available to consumers. Food safety reports and scare stories spread quickly via social media, meaning that manufacturers require rapid access to full supply chain information in order to deal with negative publicity.

Key areas that are prone to adulteration include dairy products such as milk from cows that has been added to other types of milk from sheep, buffalo and goatantelope, but also adulterated with reconstituted milk power, urea and rennet, among other products.

Additionally, fruit juices could be watered down or a more expensive juice cut with a cheaper version.

The source of ingredients or raw materials is crucial in determining the genuineness of an end product, as well as making sure that consumers are buying safe products. Therefore an affordable track-and-trace system is a must-have anti-counterfeiting system for ingredients suppliers, enabling them to reassure clients about the quality and source of their goods, as well as to fight against counterfeits.

Moreover, as more consumers demonstrate an increased awareness of food and product safety in reaction to recent food-safety scandals worldwide, such traceability is welcomed, and often demanded, by the general public.

Tampering

Tampering threatens the middle of the supply chain. Consumers are concerned that tampering with products could, unbeknownst to them, remove key product functionalities, meaning that they do not get the desired product properties. In some extreme situations, products that have been tampered with could even be dangerous to consumers.

If tampering negatively affects the product, the brand image would suffer in the eyes of consumers, and in the age of social media, this poor brand image could quickly go viral in a negative way.

Over-run

Production in excess of existing agreements for luxury brands could flood the marketplace with supply and lead to retailers cutting their prices. This may irritate existing consumers that are loyal a prestigious brand.

If more of a product is available than anticipated and the market is flooded, manufacturers could find their negotiating position weakened when trying to secure the highest possible price from retailers. If the brand is aiming for an ‘exclusive’ image, this could also be affected.

Theft

Some consumers may find the idea that their product is stolen unnerving, even if they were unaware of this at the time of purchase. Furthermore, in some countries, they could have it taken away from them without compensation if the theft was discovered, even if the product was unwittingly bought.

For manufacturers, if products are regularly stolen before they are sold to distributors or retailers, it could affect the profitability of an entire operation. Furthermore, relationships with stakeholders could be damaged if the manufacturer fails to get the number of products promised or they appear untrustworthy.

The most straightforward solution that manufacturers can employ to combat simulation is to make pack design difficult to copy. To this end, smart packaging often uses tactile and visual cues to prevent counterfeiters copying the design.

Innovation trends include having more security features that enhance brand identity while at the same time making the identification of genuine products easier. However, another key focus for manufacturers is how to manage products that are overproduced, and making sure information around formulation and packaging is not leaked during the production process. Therefore, a track-and-trace system is also helpful in the tackling of counterfeiting for manufacturers.

Diversion

At the end of the supply chain, distributors, retailers, wholesalers, and foodservice outlets all need to be aware of diversion and simulation.

For consumers, this means that they could be unwittingly consuming products that are illegal in the country of consumption, or products that have not gone through the same health and safety checks that they would have undergone if they had been produced in their home country.

Manufacturers could combine or merge under regulatory pressure from governments if the diversion of their products to other countries is hampering efforts to tax them effectively, or if products are being moved into countries where their consumption is illegal.

A 2015 Forbes survey revealed that multinational brands are losing approximately 10% of their top-line revenue as a result of counterfeiting.

Simulation

Though simulated products are often cheaper than the premium brands they copy, some consumers may believe they are getting premium brands at a cheaper, but still expensive, price and then be disappointed with product quality soon after purchase.

If lower-quality simulations appear to make up a high percentage of a brand’s offerings, consumer opinion of that brand may shift and they will be unwilling to pay premium prices for genuine products.

Distributors need a preventive approach to anti-counterfeiting in the form of counterfeit scanning technology able to identify counterfeit goods quickly and accurately. The most direct way for retailers and distributors to guarantee the purchase of genuine products is to work closely with legitimate manufacturers to find out how to best identify potential counterfeits.

In addition, retailers and distributors can adopt preventive anti-counterfeit measures, as well as focus on the detection of potential counterfeits. Technology such as artificial intelligence, which is now entering the anti-counterfeiting space to aid distributors, can help to accurately identify fake goods, giving peace of mind to retailers and distributors, especially when purchasing products in large quantities.

The future of anti-counterfeiting

In conclusion, consumer-oriented anti-counterfeiting technology that is affordable and easily accessible constitutes a key opportunity for innovation in the future.

Consumers are the biggest victims of counterfeiting of consumer goods, facing financial loss, damaged health, or even life-threatening consequences. As product safety awareness rises among consumers around the world, the demand for consumer-oriented anticounterfeiting technology and services will increase.

That growth is driven by consumers taking the initiative to protect themselves from counterfeits – such technology should be made affordable and easily accessible to avoid consumers being put off by price.

Of the challenges that lie ahead, adulteration remains a key issue faced by operators in various stages of the supply chain; however, it could be solved by giving certification to trusted businesses.

Adulteration, which often comes in the form of products made with fraudulent ingredients, or those that are mislabelled, continues to pose a threat at every stage of the FMCG supply chain. Although technologies such as track-and-trace system are able to help minimise the chance of adulterated ingredients being manufactured and circulated, identifying fraudulent ingredients remains a challenge due to the complexity and scale of the process. In addition to employing technology, another possible solution is working with trusted partners that have been certified as credible ingredient suppliers or manufacturers.

Future improvements in anticounterfeiting include an integrated blockchain system that allows everyone to view how the product has travelled from ‘farm to shelf’.

High transparency and traceability across the FMCG supply chain is crucial. There are already various types of anti-counterfeiting technology on the market, but the sector is looking to implement blockchain for entire supply chains in order to track where and when products are made, stored and handled. This allows for greater transparency for businesses, consumers and the general public.


Examples of anti-counterfeiting products

Companies have been using packaging innovation to make authentication easier for consumers and to offer brands maximum protection against counterfeiting.

Fuska natural mineral water (Turkey)

The packaging features a laser-marked expiry date that cannot be easily removed. This design prevents counterfeiters from copying products, and is particularly important in markets that are prone to counterfeiting.

According to the brand’s company literature, the product is sourced from the mountains of Sapanca, which are covered with snow for five months of the year. The source of water is crucial to the brand’s credibility, particularly when it has a natural positioning. This is where an anti-counterfeiting product would help to convince consumers that the product is genuine.

Patanjali chyawanprash with saffron (India)

This is a traditional Indian ayurvedic supplement drink made with a wide range of fruits, roots, herbs and spices. The pack carries a small holographic anti-counterfeiting label to indicate product authenticity, reassuring the consumer that this is a genuine product from Patanjali Ayurved – a trusted beverage company well-known to locals.

Moreover, trust is of a higher priority in health and functional products, as a fake copy might lead to a serious health impact.

Smart packaging solutions can be used to minimise the risk of tampering.
How counterfeiting compares globally in terms of the largest offending countries.
Blockchain systems could allow everyone to view how products have travelled from ‘farm to shelf’.


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