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Economic adulteration and counterfeiting of global food and consumer products cost the retail industry $10 to $15 billion per year, according to a new study released today by the Grocery Manufacturers Association and A.T. Kearney.
The study, “Consumer Product Fraud – Detection and Deterrence: Strengthening Collaboration to Advance Brand Integrity and Product Safety,” uncovers motivational drivers for economic adulteration and the structural weaknesses at both the industry and governmental levels that have inadvertently created opportunities for economic adulteration to thrive. It concludes that a fundamental change in the way industry and governments respond to product fraud and ensure product safety is critical to minimize risk and protect consumers.
“This study identifies and measures the consequences of consumer product fraud, but more importantly, [it] provides specific recommendations for consumer product companies and governments on how these organizations can better work together to address the consumer product fraud issue,” said Washington-based GMA.
The study objectives were threefold:
—To broaden industry stakeholders’ understanding of economic adulteration and counterfeiting, and the implications
—To provide strategic recommendations and tactical options to minimize risks associated with these practices
—To establish a basis to advance public and private partnerships to monitor and address the threats of economic adulteration and counterfeiting of each
The recent melamine incident was a trigger point illustrating how economic adulteration could have both safety and economic implications. With a $10 billion price tag, 290,000 consumers affected around the world, and at least six fatalities in China, this incident proved that economic fraud could have global market consequences affecting consumers, companies, industries and countries.
“It is critical that consumer product company C-level executives take a strategic risk management approach to the sourcing of product ingredients,” said Jim Morehouse, partner at Chicago-based A.T. Kearney. “A single consumer fraud incident has the potential to shatter consumer confidence in a specific brand, as well as cause major financial dislocations for a company.”
The study provides specific direction for industry, companies, governments, suppliers and retailers. Among its recommendations:
—Companies should continue to “raise the bar” on their product safety and quality programs by further integrating anti-fraud strategies
—Industry, including retailers and suppliers, must take collaboration to the next level in safety and quality by implementing a clearinghouse model and developing a shared library of ingredient reference samples. Retailers should team with reputable suppliers and manufacturers that employ the highest standards in deterrence and detection programs while verifying the authenticity of the products they receive. Suppliers should implement similar strategies to manufacturers while also considering ways to facilitate appropriate testing procedures, provide increased transparency and collaborate with manufacturers in their efforts to reduce fraud
—Globally, governments can be facilitators in establishing global standards and sharing intelligence on emerging threats, and can protect legitimate businesses through the enforcement of property rights
The study findings are based on about 100 interviews with senior managers in the food, beverage and consumer product industry, 50 responses to an industry-wide survey, a 150-incident repository, and A.T. Kearney research and expertise. The study analyzes recent economic adulteration cases, motivational drivers and the resulting cost implications. Also included are leading practices and success stories related to fraud deterrence and detection, as well as suggested opportunities for manufacturers, industry at large and governments to reduce the risk of economic adulteration, protect brands and enhance consumer product safety.
“Consumer Product Fraud – Detection and Deterrence: Strengthening Collaboration to Advance Brand Integrity and Product Safety” is available for download at www.gmaonline.org/publications.