Get smart to fix weak links

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, anti-theft 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, over-run 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.

Types of counterfeiting

Manufacturers and suppliers need to carefully assess which type of counterfeiting 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 and those that operate within a strict 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 supplychain 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 goat-antelope, 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.

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 over-produced, 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.

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 anti-counterfeiting 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.

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