What if … a counterfeit or copycat drink threatens your flagship products’ sales and branding?
In the latest of his series of quarterly columns assessing potential shocks which the drinks sector may face, Chris Hart, a partner at business performance consultancy McKinney Rogers, highlights some of the issues companies need to tackle to deal with the threat of counterfeit or copycat products.
Counterfeiting in some sectors of the drinks industry is becoming big business, threatening both sales volumes and reputation. The problem is particularly prevalent in Russia, South America and the Far East. A recent report from the International Federation of Spirits Producers reported that more than 250m counterfeit alcohol items are being seized annually by EU customs officials at border points. And, that number continues to grow.
Copycat drinks, where, for example, the label and bottle are similar to the original product but the product name is clearly different, can also create consumer confusion as the dispute last year over Diageo’s Pimm’s and Sainsbury’s own-brand equivalent, Pitchers, demonstrates.
So what can you do if your brand is threatened by a counterfeit or a copycat product and how can you prevent it happening again?
No doubt, you have already invested heavily to distinguish your best-selling drinks brands from competitors through a combination of distinctive labelling and packaging, as well as advertising. However, this distinctiveness is something that is attractive to companies wishing to launch a copycat drink with a similar packaging and label, most likely at a lower price to the established branded drink. You will almost certainly have secured some intellectual property protection for your brand, but have you ensured that you have taken all the steps you can to protect the distinctiveness of the product, through, for example, registering more than one aspect of product packaging and the shape as trademarks and then nurturing customer recognition of them through appropriate advertising? A recent European Court of Justice case, L’Oreal v Bellure, has provided drinks brands with added protection against lookalikes where they have taken these steps and built reputation for their trade marks. However, you will still need to marshal your legal team into action to fight a trademark infringement, so you need to consider how you are capturing evidence of infringement through your competitor monitoring.
Where elements of packaging that are being copied have not been adequately protected by trademarks, your only course of action may be to develop distinctive qualities in the packaging, get them trademarked and then actively advertise them to build recognition quickly. Is there adequate flexibility in your production process to allow for innovations in packaging to be developed and rolled out quickly? Customers will also be sceptical of new packs, and these in themselves could create further confusion over whether they are the genuine article, so heavy investment in advertising to create recognition will be necessary. Clearly, it is much cheaper in the long run to ensure you are taking advantage of any trademark registrations you are entitled to before a problem develops.
Unlike copycat drinks, the covert and illegal nature of counterfeiting in the drinks industry requires a range of innovative security measures if a popular brand is to be adequately protected. Counterfeiters will look for the weakest link in a supply chain - if one of your best-selling brands is being counterfeited, then the security has failed somewhere along your supply chain. How quickly you can trace authentic products and identify counterfeits in your supply chain will be vital to minimising the damage to your sales and reputation. This will depend largely on the security measures you have introduced.
Thanks to the development of sophisticated technology, most drinks manufacturers are already using visible and, in some cases, invisible identification marks on packaging to help both the end-customer and those in the supply chain identify authentic products. How quickly and easily can you identify counterfeit bottles using these identification marks? Are you keeping employees, authorised agents and customs officials informed of the markers you have included on packaging and labelling? And, if some of your markers are invisible, have you provided the appropriate equipment for those markers to be identified when spot-checks are carried out? In our experience, many larger drinks companies have sophisticated anti-counterfeit systems and technology but fail to execute their anti-counterfeit systems well-enough. Consider, for example, how well you work with the local authorities in every region to execute anti-counterfeit policies.
If attempts to trace counterfeit bottles and their source do not yield quick results, you may be forced to issue warnings on counterfeits and to place greater emphasis on educating consumers about the authenticity markers to look out for. This can be a double-edged sword - sometimes it can have the opposite effect to that desired. In Africa, for example, some brands have died because of this. Understanding the consumer and how to communicate effectively is, therefore, vital.
Have you also considered how easily your markers of authenticity can be replicated by counterfeiters? The more premium your brand, the more vital it becomes to use technologies that are difficult to counterfeit and obtain. Simple holograms on labels can easily be copied. Are you also using special printing techniques, such as specialist inks which have restricted availability from security printers? Or, are you using the latest software to create a complex print design using highly-defined print lines that are difficult to copy? Are you also introducing markers that are not visible to the naked eye but which can aid company personnel, customs officials and authorised agents to easily determine whether products are authentic. The most sophisticated markers will require a special device to make them visible. If you are using these markers, what measures are you taking to ensure such devices are appropriately distributed and how do you prevent them falling into the wrong hands?
In South America and the Far East, refilling of old bottles is a common technique employed by counterfeiters. If you distribute to these regions, are you arranging for used bottles to be bought back from bars in these regions or destroyed to prevent them falling into the wrong hands. And, if they do fall into the wrong hands, what measures are you taking to make a refilled bottle easy to distinguish? Are you using complex closures on bottles which are tamper-evident and have you incorporated anti-syringe properties, for example, by placing capsules over the cap? Are you using labels or shrink sleeves - a popular anti-counterfeiting device used in the spirit industry - over the top of the cap? In South America and the Far East, regular drinkers of a particular brand will know that it should carry a shrink sleeve and, if missing, that it is likely to be a counterfeit product.
Many drinks companies face a threat from counterfeit or copycat drinks at some stage and many already have policies in place to address this. However, they may still fail to execute their policies effectively against counterfeiters. Ensure you are not one of them by taking a closer look at all the scenarios that could occur now and make sure you are well-prepared.
Chris Hart is UK partner of business performance consultancy McKinney Rogers.
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