With the advent of social media and increasing competition intensity, retail and FMCG players believes that meeting the expected quality in products and services is the only way forward to retain customer loyalty in the long run.

Unlike in the earlier decades when the options were limited, consumers now have a greater knowledge and awareness of various products and services.

“The awareness levels of consumers are changing. Their expectation levels too are changing. So it is necessary to introduce changes in products and services that meet their requirement to retain customer loyalty,” said Adarsh Gupta, executive director, Liberty Shoes.

“The customer loyalty is no longer static. This makes it more important for companies to closely monitor the pace of change in consumer expectations and preferences,” noted Utsav Seth, MD and CEO, Pavers India while speaking at a seminar organised by FICCI in Mumbai.

The industry participants admitted that social media has now emerged as a double-edged sword that could make or break a brand.

“Social media has the ability to cut both ways. With the proliferation of social media, consumers are getting back to the company in a big way. Their numbers are quite huge. Companies in the retail and FMCG industry should have a planned strategy to handle the social media,” said V.L. Rajesh, chief operating officer, food business, ITC.

According to him, social media has become one of the powerful mediums to build customer loyalty.

What do fast-moving consumer companies do when faced with stingy consumers? Bombard them with more advertisements for products they’re missing out on.

Advertising expenditure for FMCG companies was up 16 per cent for the nine months to December 2013, even as their sales grew only by 12 per cent.

The sector, the largest spender on advertising, was an exception though. Other big advertising spenders such as consumer durable and automobile makers dealt with the downturn by shrinking their ad budgets in 2013.

Spending spree

The FMCG sector became the top advertiser in both television and print media last calendar, according to the KPMG FICCI Frames Report for 2014. With many players crowding the market and consumers trading down to cheaper unbranded products, FMCG companies re-launched their brands, offered discounts and rolled out new products, all of which call for higher promotional spending.

From eating up around 12 per cent of sales in the December 2012 quarter, their adspend rose above 13 per cent by the December 2013 quarter.

A big share of spends went to fiercely competed personal care products. Other competitive categories seeing a push include laundry and hair care.

While FMCG companies hiked adspends in response to rising competition and slowing sales, telecom companies did the opposite. Idea Cellular spent 5 per cent less on advertising in the April-December 2013 period than the previous year. Bharti Airtel hardly changed the amount it spent.

Who’s spending

Hindustan Unilever (HUL), with its enormous product portfolio, is the largest advertiser in the listed space, forking out ₹3,232 crore towards promotions for 2012-13. That’s more than the annual sales number for GSK Consumer Healthcare or Colgate-Palmolive.

HUL is followed by Godrej Consumer and Dabur India, which are expanding their international footprint while also protecting their leadership positions in niche categories (household insecticides and health foods) in domestic markets.

Bharti Airtel is the next biggest spender, and ranks among the top ten spenders on television advertising, according to the KPMG report.

But even as the amount spent is high, it accounts for less than 2 per cent of sales, unlike FMCG companies, where the adspend to sales ratio is upwards of 4 per cent for even small companies.

A few weeks ago, PepsiCo chief executive Indra Nooyi informed investors about a fundamental shift in consumer habits towards healthier food options. However, closer home, the New York-based company's Indian arm has come face to face with a stubborn adversary called the Indian food palate, which simply refuses to give up taste in preference to health. Caught in the crossfire are important brands in PepsiCo India's portfolio.

PepsiCo India's BFY (better for you) products, Aliva range of baked crackers and Lay's Baked potato chips, are the latest victims of low sales and are conspicuous by their absence from the market. It is learnt that PepsiCo India has stopped making Aliva products, which was launched with much fanfare around two years ago with Bollywood stars Chitrangada Singh and Vidya Balan as brand ambassadors. The Lay's Baked potato chips that was introduced earlier this year, keeping in mind the health conscious Indian consumer, is not available in most mom-and-pop stores.

When contacted, a PepsiCo India spokesperson said: "Consumer demand is diversifying towards healthier products, but given low penetration levels and low per capita consumption in India, this is slow process and healthier products take a longer time to become part of consumers' consumption basket. While Aliva's performance was below our expectations, at a portfolio level, we will continue to innovate against this opportunity. But Lay's Baked does well with health conscious consumers and we will continue to invest behind it."

However, PepsiCo India's other BFY offerings, such as, Kurukure Desi Beats, a variant of which flaunted wheat as one of the primary ingredients, had also met with a similar fate earlier despite having Kareena Kapoor as brand ambassador. This forced PepsiCo to withdraw the product from the market.

Rachna Nath, leader retail and consumers at consulting firm PwC India, feels that Indian consumers are more concerned about taste than health. "Many brands have failed to crack the health segment here because it's tough to walk the tightrope between the unique taste and health preferences of Indian consumers. For instance, if you are famous for your pizzas and burgers, consumers might not come to you for salads. For health food, they would rather go to someone who specializes in it," she says.

Even Nestle India is finding it difficult to push its Maggi Vegetable Atta Noodles, a BFY take on its popular refined-flour instant noodles. According to sources familiar with the situation, stocks of Atta Noodles are piling up, while packets of its less-healthy cousin are flying off the shelves. A Nestle India spokesperson did not respond to a questionnaire from TOI.

Apart from PepsiCo and Nestle, FMCG companies like Parle and Marico also had their share of BFY failures. While Parle had launched its 'non-fried' Monaco Smart Chips with Aamir Khan as brand ambassador, Marico had introduced its baked snack under the name of Saffola Zest. Both products bombed and were promptly withdrawn.

According to a PwC-Ficci report, nutrition foods, beverages and supplements comprise a Rs 14,500-15,000-crore market in India, growing at a CAGR (compounded annual growth rate) of 10-12%. The BFY category is the smallest (3-5% of the total market) and yet the fastest growing segment, with categories, such as, snacks, soups, beverages, biscuits and dairy among others.

Underlining the need for more investments in the manufacturing sector, a study has said that India can surpass China as a global production hub for consumer durables with rationalisation of tax structure and policy support from the government.

According to a study by the Federation of Indian Chambers of Commerce and Industry (FICCI) and PricewaterhouseCoopers (PwC) — conducted on behalf of the National Manufacturing Competitiveness Council (NMCC) — “despite its present lead in manufacturing consumer durables, China may become less attractive for international investments after recent changes in tax regulation, currency appreciation and demand saturation in urban markets. China’s loss may be India’s gain. India has a huge untapped domestic market as well as favourable demographics to lead its way.”

Suggesting tax rebates for high-end technology companies that set up research and development centres in India, the study has asked the government to reduce overall tax levels and simplify tax structure; and to avoid cascading effect of taxes, the government should speed up the introduction of the Goods and Services Tax (GST).

“Consumer durable manufacturing in India is constrained by absence of a well-developed supplier base. Lack of large volumes and an ecosystem of finished goods players and hence lack of scale economies have been disincentives for significant capital investments in the component manufacturing space in India. This needs to change. Further, we have to incentivise domestic value addition and focus on developing vendor base and raw material supply” said NMCC Chairman V. Krishnamurthy.

According to FICCI Secretary General Amit Mitra, “of late, India has entered into the world map for manufacturing of consumer durable items. However, we still continue to import a large amount of these items from the world and especially from China. Time has come that India has its own manufacturing facilities for various consumer durable items.”

China is the current leader in manufacturing of consumer durables, but this scenario may change for international investments follwoing recent changes in tax regulation, currency appreciation and demand saturation in Indian urban markets. China’s loss may be India’s gain. India has a huge untapped domestic market as well as favourable demographics to lead its way, says a study carried out by PricewaterhouseCoopers (PwC) and FICCI for National Manufacturing Competitiveness Council.

The study focuses on six consumer durable product categories–television, refrigerator, washing machine, air conditioner, toys and mobile phones. China has benefitted the most from global outsourcing trend in consumer durable manufacturing. For the six categories mentioned above, 54% of the total production takes place in China catering to the export market. China accounts for 72% of the global air conditioner production, 47% of refrigerator, 45% of television, 35% of washing machine and over 52% of mobile phone production.

The major reason for China taking a leap in consumer durables manufacturong is the policies adopted by its government. For instance, foreign direct investment (FDI) brought technology transfers and transfer of best practices and know-how, which benefitted China’s semiconductor industry. The Chinese policy of mandatory sourcing of 10% of components domestically for original equipment manufacturers of mobile phones led to development of domestic supply chain. Special economic zones have also been responsible for encouraging FDI in manufacturing.

The study points out that with its favourable demographics and untapped market potential, India is emerging as an attractive market for consumer durables. The key recommendations in the report include promoting technology development, taking measures to increase the demand base, rationalising tax policies, incentivising domestic value-addition and measures to develop vendor base and raw material supply.

V Krishnamurthy, chairman, NMCE, said, “Consumer durables constitute an important segment of the manufacturing sector. In the last decade, China has been successful in developing large home-grown companies and has grown into a large manufacturing hub for consumer durables. FDI inflows in China have played a key role in transferring of the best practices and have spurred technology development in Chinese companies.”

China may soon become less attractive for international investments after recent changes in the tax regulations and currency appreciation. However, this bodes well for India.

The huge untapped domestic market and favourable demographics are set to help India attract investments to the manufacturing sector.

These insights are part of a study on the comparative advantage enjoyed by consumer durables manufactured in India vis-à-vis China.

The study was undertaken by PriceWaterhouceCoopers (PwC) and FICCI on behalf of the National Manufacturing Competitiveness Council.

The report highlights that China has emerged as the key beneficiary of the global outsourcing trend in consumer durables manufacturing.

Domestic consumption has also helped China emerge as an attractive manufacturing hub. Over the years, the Chinese Government's initiatives have helped develop the technological capability of the Chinese companies with an increased FDI inflow into the country.

However, all this is set to change with the Chinese Government shifting focus from export-led growth to increasing consumption in the domestic market.

The Chinese Government recently abolished preferential tax rates for foreign companies and product recalls have lowered the attractiveness of China as an investment destination.

In such a scenario, the PWC-FICCI report suggests that India should be promoted as a manufacturing hub for consumer durables by promoting technology development, taking measures to increase the demand base, rationalising tax policies and incentivising domestic value addition.

Strong domestic demand coupled with China’s abolition of preferential tax rates for foreign companies might turn India into a major manufacturing hub and help the country to better China’s consumer durable sector, said a joint analysis conducted by the Federation of Indian Chambers of Commerce and Industry ( FICCI) and global consulting major PricewaterhouseCoopers ( PwC).

The study, sponsored by the National Manufacturing Competitiveness Council ( NMCC), said, “ Chinese government has started to shift its focus from export- led growth to increasing consumption in the domestic market. Abolition of preferential tax rates for foreign companies, appreciating currency and product recalls has lowered China’s attractiveness as an investment destination.” Moreover, average increase in labour costs per hour being higher in China than India could be another reason for the multi- ‘ Mfg sops can help India beat China’ By Mail Today Bureau in New Delhi nationals to look at the Indian market for setting of manufacturing facilities. It is estimated that labour cost will further increase by 30- 50 per cent over next three years in China.

The report added, “ Urban markets in China have almost saturated due to the high penetration for consumer durables, whereas, with its untapped market potential, India is now emerging as an attractive market for consumer durables.”

Citing the need of making the Indian manufacturing industry stronger and robust, V. Krishnamurthy, chairman, NMCC, said, “ Consumer durable manufacturing in India is constrained by absence of a welldeveloped supplier base. Lack of large volumes and an ecosystem of finished goods players and hence, lack of scale economies have been disincentives for significant capital investments in the component manufacturing space in India. Also, the contribution of the manufacturing sector to the nation’s GDP ( gross domestic product) is low.”

He recommended, “ We need to bring up the contribution of the manufacturing sector to as high as 35 per cent.” The report also gave some key proposals to boost the manufacturing sector in the country.

The report also recommended tax rebates for high- end technology companies that set up research and development ( R& D) centres in India. To rationalise tax policy, it asked for reducing overall tax levels and simplify tax structure.

“ Indian market is still underpenetrated with a huge untapped potential. We need to focus on policy initiatives such as tax breaks for venture capital firms to invest in high technology firms and also tax incentives for reinvestment of profit as is available in China,” said N. V. Sivakumar, India leader for consumer and industrial products, PwC. According to Krishnamurthy, the government should speed up the introduction of goods and services tax ( GST) to avoid cascading effect of taxes.

Also, during the last decade, China has been successful in developing large home- grown companies and has grown into a large manufacturing hub for consumer durables, he added.

FICCI secretary- general Amit Mitra said India still continues to import a large amount of these items from the world and especially from China. The report suggested the government should consider providing priority sector treatment for component manufacturing and electronics hardware.

India can surpass China as a global production hub for consumer durables with rationalisation of tax structure and policy support from the government, says a study by the industry body, FICCI, and financial consultancy company PricewaterhouseCoopers (PwC).

The study suggested tax rebates for high-end technology companies that set up research and development centres in India. To rationalise tax policy, it asked for reducing the overall tax levels and simplification of the tax structure. To avoid the cascading effect of taxes, the government should speed up the introduction of Goods and Services Tax.

"The Indian market ... is still under-penetrated with a huge untapped potential ...
there exists an opportunity for India to develop itself as a manufacturing hub for consumer durables ... we need to focus on policy initiatives," PwC executive director (financial advisory services) said. During the last decade, China has been successful in developing large home-grown companies and has grown into a large manufacturing hub for consumer durables, NMCC chairman, Mr V. Krishnamurthy, said. FICCI secretary general, Mr Amit Mitra, said that India still continues to import these items from the world.

The National Manufacturing Competitiveness Council (NMCC) has entrusted PwC and FICCI to conduct the study.

India may now become a hotter destination than China for manufacturing consumer durables, says a study conducted by Pricewaterhouse Coopers (PwC) and FICCI for National Manufacturing Competitiveness Council.

Despite its present lead in manufacturing consumer durables, China may become less attractive for international investments after recent changes in tax regulation, currency appreciation and demand saturation in urban markets.

To get the maximum benefit out of this situation, India needs to promote technology development, along with the development of small and medium scale enterprises, rationalisation of tax structure and developing more special economic zones, the report suggested.

The study shows that the average consumer prices in China are 15-25 per cent lower than those in India owing to much lower indirect tax rates there. This creates a comparative cost disadvantage for India and also leads to lower domestic demand.

India can surpass China as a global production hub for consumer durables with rationalisation of tax structure and policy support from the government, says a study by industry body FICCI and financial consultancy company PricewaterhouseCoopers.

The study suggested tax rebates for high-end technology companies that set up research and development centres in India [ Images ].

To rationalise tax policy, it asked for reducing overall tax levels and simplify tax structure.

To avoid cascading effect of taxes, the government should speed up the introduction of Goods and Services Tax.

"Indian market . . . is still under penetrated with a huge untapped potential ... there exists an opportunity for India to develop itself as a manufacturing hub for consumer durables . . . we need to focus on policy initiatives," PwC executive director (financial advisory services) said.

During the last decade, China has been successful in developing large home-grown companies and has grown into a large manufacturing hub for consumer durables, NMCC chairman V Krishnamurthy said.

FICCI secretary general Amit Mitra said that India still continue to import a large amount of these items from the world and especially from China.

The National Manufacturing Competitiveness Council has entrusted PwC and Federation of Indian Chambers of Commerce and Industry to conduct the study.

Citing an example, Mitra said India imported mobile phones worth $2.8 billion during April-December 2008-09, out of which 75 per cent were from China alone.

The study said abolition of preferential tax rates for foreign companies, appreciating currency and demand saturation in urban markets have lowered the attractiveness of china as an investment destination. "China's loss may be India's gain."

The NMCC Chairman said this is the right time for India to have an integrated industrial policy to speed up the growth of the manufacturing secor. "We believe that the contribution of manufacturing sector to India's GDP can go up to 35 per cent from the present 15-16 per cent.

A firm recovery in the country’s industrial output appears to be under way.

Industrial production grew 9.1 per cent in September, higher than the 6.03 per cent growth recorded in the same month last year, the latest official data show.

The increase in the output of capital goods and consumer durables in September confirmed that investment sentiments in the economy had picked up and Indian industry is emerging out of the downturn phase.

Capital goods output grew 12.8 per cent on a year-on-year basis in September 2009 compared with 8.3 per cent in August and 2 per cent in July. Consumer durables continued to shine in September with a growth of 22.2 per cent, according to the Index of Industrial Production (IIP) data released by the Central Statistical Organisation (CSO) here on Thursday.

Stimulus helps

The Government’s efforts to support growth through fiscal stimulus measures in an environment of global economic downturn seem to have paid dividends. From June, there has been a smart recovery in industrial output even as the growth in September was lower than the revised growth rate of 10.95 per cent in August.

All the major sectors — manufacturing, mining and electricity generation — recorded higher growth in output in September than the previous month. While manufacturing output in September grew 9.3 per cent (5.5 per cent in August), the corresponding increase for mining and electricity was 8.6 per cent (8.4 per cent) and 7.9 per cent (6.6 per cent) respectively.

For the first half of the current fiscal, industrial output grew 6.5 per cent, against the five per cent growth recorded in the same period last year. While the manufacturing sector output grew 6.3 per cent (5.3 per cent in April-September 2008), mining and electricity too recorded smart growth in output during the first half of the current fiscal.

In terms of industries, 12 out of the 17 industry groups had shown positive growth during September, the CSO said.

The better than expected industrial output performance in September is going to add to the ongoing debate on an appropriate time for exit from fiscal stimulus.

Already, the Government has indicated that the stimulus would be wound down next fiscal.

It remains to be seen if all of them will be wound down in one go or in phases. The recovery in industrial output will only push the decision in favour of an early exit, industry observers said.

Reacting to the latest IIP data, the FICCI President, Mr Harsh Pati Singhania, said today’s numbers confirm that a sustained recovery was under way.

“This growth comes on the back of a muted performance of the core sector in September as it grew by about 4 per cent and therefore indicates that the rest of the industrial economy was growing at a fast clip.

“If the policy framework is left untouched, we can expect this performance to continue in the months ahead. And if the Government pushes ahead with the critical reforms that are on the table then this growth would be accelerated,” he said.

The recovery in industrial output in the second quarter has also helped to some extent curtail the decline in indirect tax collections.

India can surpass China as a global production hub for consumer durables with rationalisation of tax structure and policy support from the government, says a study by industry body FICCI and financial consultancy company PricewaterhouseCoopers (PwC).

The study suggested tax rebates for high-end technology companies that set up research and development centres in India. To rationalise tax policy, it asked for reducing overall tax levels and simplify tax structure. To avoid cascading effect of taxes, the government should speed up the introduction of Goods and Services Tax.

"Indian market ... is still under penetrated with a huge untapped potential ... there exists an opportunity for India to develop itself as a manufacturing hub for consumer durables ... we need to focus on policy initiatives," PwC Executive Director (Fina ncial Advisory Services) said.

During the last decade, China has been successful in developing large home grown companies and has grown into a large manufacturing hub for consumer durables, NMCC Chairman, Mr V Krishnamurthy said.

FICCI Secretary General, Mr Amit Mitra, said that India still continue to import a large amount of these items from the world and especially from China.

The National Manufacturing Competitiveness Council (NMCC) has entrusted PwC and FICCI to conduct the study.

Citing an example, Mitra said India imported mobile phones worth $2.8 billion during April-December 2008-09, out of which 75 per cent were from China alone.

The study said abolition of preferential tax rates for foreign companies, appreciating currency and demand saturation in urban markets have lowered the attractiveness of China as an investment destination. "China's loss may be India's gain."

The NMCC Chairman said this is the right time for India to have an integrated industrial policy to speed up the growth of the manufacturing sector. "We believe that the contribution of manufacturing sector to India's GDP can go up to 35 per cent from the present 15-16 per cent.

The country’s fast moving consumer goods (FMCG) sector has defied the global economic slowdown and continued to grow at 10-12 per cent, according to a report on the FMCG sector released by Federation of Indian Chambers of Commerce and Industry (FICCI) and Technopak.

The report has also made wide-ranging recommendations to iron out the problems in the industry’s growth trajectory.

The FICCI-Technopak report has urged the Government to rapidly implement Goods and Services Tax (GST) which would replace multiple indirect taxes currently levied on FMCG products. This would have several benefits including uniform, simplified and single point taxation which would reduce prices to the end consumer.

Mr Arvind Singhal, Chairman, Technopak Advisors Pvt. Ltd., said that FDI in retail would boost the FMCG sector.

He said, “Penetration of modern retail outlets would drive the growth for the FMCG sector.”

He added that little had been done to bring FDI into multi-brand retail and work needs to be done by the Government in this respect. While the current penetration of modern retail stores is a meagre 4 per cent, Mr Singhal expects this to grow to 17-18 per cent.

Despite the economic slowdown, India’s Fast Moving Consumer Goods (FMCG) sector has grown consistently during the past three to four years, reaching a size of $25 billion (Rs 120,000 crore) at retail sales in 2008. The industry is poised to grow 10-12 per cent yearly for the next 10 years to reach $43 billion (Rs 206,000 crore) by 2013 and $74 billion (Rs 355,000 crore) by 2018.

Implementation of the proposed Goods and Services Tax (GST) and opening of Foreign Direct Investment (FDI) are expected to fuel growth further and raise the industry’s size to $47 billion (Rs 225,000 crore) by 2013 and $95 billion (Rs 456,000 crore) by 2018, according to a new FICCI-Technopak report.

The report has made wide-ranging recommendations to iron out the rough patches in the industry’s growth trajectory, urging the government, FMCG companies and retailers to put their act together. It suggests the government needs to rapidly implement GST to replace the multiple indirect taxes currently levied on FMCG products. This would have several benefits, including uniform, simplified and single-point taxation and reduced prices. Consumption growth and improved tax compliance will result in an increase in tax collections.

The 30-35 per cent taxation levels in India are much higher when benchmarked internationally, argues the report. Also, the tax structure creates logistical delays because of its multi-level system at central and state levels, with each state itself having different tax structure.

The study also urges the government to enforce Trade Mark and Copyright Laws to drastically reduce counterfeits, and protect the rights of consumers and FMCG companies. Counterfeit products account for almost 5 per cent of the industry and pose serious challenges in its growth and also impact the government’s tax collections significantly.

Modernisation of labour laws, the study says, will enable Indian manufacturers to improve efficiency, serve consumers better and also raise exports from India.

The study simultaneously calls on traditional retailers to invest in better customer service, product display and store ambience and invest in infrastructure, especially for products that require a controlled temperature environment. Its advice to modern retailers is to work with FMCG brands to improve fill rates, capture consumer and shopper needs better, and explore co-branding and co-promotion opportunities.

The report also highlights the sector’s contribution to the socio-economic front. With about eight million kirana stores selling FMCG products, it supports the livelihood of 13 million people. Another 25 million people are employed as wholesalers, distributors, stockists, etc. Also, $2 billion (Rs 9,600 crore) of agricultural produce is purchased by the FMCG sector, processed and converted into value-added products. And 40 per cent of media industry earnings from advertising come from the FMCG sector, a contribution of $2 billion (Rs 9,600 crore). About 10 per cent of FMCG production is outsourced to contract manufacturing units, with ancillary industry contribution at about $1.5 billion (Rs 7,200 crore).

The FMCG sector is also one of the major contributors to the exchequer with $6.5 billion (Rs 31,000 crore) paid through direct and indirect taxes.

The fast moving consumer goods (FMCG) sector is expected to grow to $74 billion by 2018, as modern retail and deeper penetration will drive the growth.

According to a recent study by FICCI and Technopak, the FMCG sector is predicted to grow from $25 billion in 2008 to $43 billion by 2013 and touch $74 billion in a decade.

In the current year, the sector grew by 15% over the last year and is expected to grow by 10-12% by next fiscal.

"The penetration of FMCG products like shampoo, soaps, and toothpaste etc are lowest in India, which will grow. I believe modern retail, which currently is at 4% of the market, would grow to 17-18% in the next 10 years as foreign direct investment in multi-brand retail and back-ended infrastructure development would eventually drive growth," said Shantanu Khosla, managing director at Procter & Gamble India and chairman of FICCI`s FMCG committee.

In the Budget on Monday, finance minister Pranab Mukherjee announced investment-linked tax benefits for certain categories of businesses, such as setting up and operating of cold chain facilities for specified products and warehousing facilities for storage of agricultural produce.

Khosla further added that implementation of goods and services tax (GST) would further simplify taxation and may not only help companies with lower taxes, but also the government with higher revenue.

"We still have to see the finer details of GST when it would be finally implemented, even its execution would be a challenge. But we have seen in other markets where GST has been implemented, even with lower tax slabs, the tax revenue proceeds of the government has increased due to higher volumes," said Arvind Singhal, chairman at Technopak Consultants.

The FMCG sector contributed $6.5 billion through taxes to the government last year.

The study further said that the government should enforce trademark and copyright laws to drastically reduce counterfeits, as such products account for 5% of the industry.

Imitation is not the best form of flattery for many FMCG majors in India. Walk into any retail outlet in semi urban or rural markets in India and you will find a number of copycat brands parading as original brands. On my recent visit to Pune, I encountered look-alike brands of Fair & Lovely, Liril, Lifebuoy and Vicks in a shop on the outskirts of Pune.

Clever manufacturers have copied the same colour and packaging of the original brands, but have slightly changed the spelling of these brands to lure innocent consumers. While ‘Super Vikes’ is parading as Vicks, Fair & Lovely is selling as Fare &Lovely and Lifebuoy is spelt as Lifebuy. Clearly, it’s the survival of the smartest.

Today, one of the major issues in the Rs 82,000 crore Indian FMCG industry is the proliferation of copycat or counterfeit brands. According to industry analysts, the magnitude of the problem is increasing everyday. In the FMCG sector alone, the government is currently losing Rs 2,000 crore annually in taxes due to counterfeits.

To curb the growing menace of counterfeit brands, FICCI’s Brand Protection Committee is planning to take stringent steps in the next few months. To start with, the committee has appealed to all Indian companies to recognise counterfeits as a serious issue. As a next step, the committee is planning to revamp regulatory mechanisms at customs level to prevent entry of counterfeits and grey market brands in India.

According to a recent study conducted by FICCI, there were 54 pass off strips of ‘Action 500’ cold tablets for every 100 genuine strips sold. While Parachute Oil had 128 different look-alike brands, Fair &Lovely had 113 copycat brands.

Bharat Patel, chairman, FICCI’s Brand Protection, has stressed on the need to set up Economic Offence Wings in all major cities (by the police) to improve law enforcement. To fight the menace of counterfeits, Patel wants the industry to work with the government for exploring the possibility of enacting new legislations on the basis of the UK and US models, which have also faced similar problems with counterfeit goods.

In Iraq, a leading oral care product of Unilever is available, which mentions that it is manufactured in France. There is nothing strange about it unless you know that Unilever does not do business in Iraq. Moreover, the company has not been manufacturing in France for the last 10 years.

In India, a market where the multinational company is the largest fast moving consumer goods (FMCG) player, there are over 113 look-alike of its leading fairness cream, Fair & Lovely, available.

Vicks, Axe, Ariel, Parachute, Johnson’s Baby Powder, Clinic Plus, Dove, Lux, Colgate, Pears, Fair & lovely, Coldarin are just a few of the brands that are affected by pass-offs and counterfeits.

“Of the Rs 113,000-crore FMCG market in India, counterfeits and pass-offs account for a revenue loss of Rs 5,000 crore to the sector,” says Bharat Patel, chairman, Procter & Gamble and chairman of Brand Protection Committee, FICCI, while speaking at a FICCI-organised event in Mumbai.

Pass-offs are look-alike products that resemble the original products, mainly through misspelling of the trademark. For example, Sunslik instead of Sunsilk, Clemic Plus or Climic Plus or Cosmic Plus instead of Clinic Plus, Collegiate for Colgate, Vips Rub or Vives Rub as a pass-off for Vicks Vaporub.

Whereas counterfeits are the infringement of trademarks and copyrights, duplicate/fake products are passed off as products of the company.

According to AC Nielsen, a global marketing research firm, 10-30 per cent of cosmetics, toiletries and packaged food are counterfeits. “The bigger the brand, the larger the problem. The top two brands within any category be it pharma, cosmetics, soaps and detergents or tyres are effected the most by counterfeiting and pass-offs,” said E S Chakraborti, assistant director, Western Regional Council, FICCI.

Counterfeits and pass-offs not only present the companies with a loss of revenues, but also employment and income tax loss (at least Rs 2,000 crore) to the government. “Duplicates and pass-offs result in a 8-10 per cent revenue loss for FMCG companies,” said Dilip Dandekar, chairman and managing director, Camlin, and executive committee member FICCI.

Besides revenue losses, counterfeits and pass-offs also effect the brand as they are unsafe or adulterated and could hit the customer confidence as the fake product does not give the desired results promised by the brand. “It is a double whammy for FMCG companies as besides revenues, the brand takes a hit,” says Patel and explains, “In eight out of ten cases, customers do not realise that they have purchased a pass-off and they felt cheated.”

Highlighting the fact that the losses arising from counterfeits and pass-offs would be much higher then what the various reports mention, Nitin Paranjpe, chief executive officer, Hindustan Unilever (HUL), says, “This is a big problem and the advancements in technology makes it easier for counterfeits.”

The magnitude can be estimated when a reluctant Patel tells Business Standard, “Close to 10-15 per cent of people within the retail sales and distribution channel sell counterfeits and pass-offs.” He says Procter & Gamble is engaged in various initiatives to train its sales force and field staff to create awareness on the problem and also initiate action at the point of sale where counterfeits and pass-offs are available.