Vins et spiritueux

Counterfeit Wine: Protect Wine-Producers’ Revenue and Interact With Consumers

Wine: A valued beverage around the 5 continents

With more than 34 billion bottles consumed in the world, wine is one of the most widespread alcohol beverages. Consequently, this market draws fraudsters’ attention. Thus, counterfeit wine is an alarming industry causing € 1.3 billon of revenue loss in Europe.

Despite a global consumption, this one remains concentrated. Indeed, only 5 countries (the United-States, France, Spain, Germany and China) gather 48% of the worldwide consumption.

In addition, French production has a singular position in the wine-making industry by having a premium positioning of its exported production. France remains the first wine exporter in value but it is the second one in term of volume.

Counterfeit Wine - Global Wine Production and Consumption

Global Wine Production and Consumption

New ways of consuming wine

New countries get more and more open up to wine consumption around the world. Indeed, 39% of European wine is consumed out of the European borders. This trend should keep on soaring since Chinese & American consumption does not cease to grow. However, consumption per capita in these countries is far to reach the European one. These new regions are consequently promising markets.

Moreover, the traditional sales channel tends to change. As a result, online sales have significantly increased, from 2% in 2010 up to 10% in 2015. This trendy point of sales should keep on gaining market shares in the next years.

In parallel with digitization of sales, consumers are looking for information about the product itself (opinions, food pairing, traceability …). According to a poll, 8 out of 10 wine-buyers want to get informed before buying. Thus, smartphone applications dedicated to wine are massively increasing.

Wine: a market submitted to counterfeiting

Owing to globalized sales, the wine distribution circuit can sometimes present flaws in which fraudsters can intervene. Here is an overview of the various fraudulent practices in the wine-making industry:

  • Gray market & parallel trade

This type of fraud corresponds to the sale of a product intended for market A and sold in market B. As a result, this issue may take the form of a geographical change or a change in the type of distribution.

It is sometimes difficult to demonstrate the illegality of this type of practice. Yet, gray market disrupts the trade channels and the tariff agreements of the trademark owner.

  • Counterfeiting

This is an imitation or a reuse of an identical bottle. There are three types of counterfeits:

– Poor copy: a bottle of wine produced in China trying to copy the design of a bottle of French wine.

– Medium quality: wine with labels strongly resembling to the original.

– Re-filling: this principle consists in re-using a bottle of genuine wine by refilling I with a non-authentic beverage.

In brief, counterfeit wine leads to deterioration of the brand equity and erosion of sales revenues.

Counterfeit Wine - Illicit Trade Methods for Wine

Illicit Trade Methods for Wine

According to a study conducted by the “Wines and Spirits Committee”, there is a real industrialization of counterfeiting in the wine market.

Thus, the first threat would come from some unscrupulous importers and distributors. These ones are continuously seeking to lower the purchase price, as well as increase the availability of brands. They typically offer high-quality counterfeit wine.

Moreover, counterfeit wine mainly comes from Asia. According to wine experts, “the volume of counterfeit wine in China is much more significant than authentic one”. The market share of counterfeit European wine reaches almost 55% in this country.

Counterfeit wine impacts every stakeholders

  • Financial losses

As per some OECD estimates, the average annual growth rate of counterfeit wine would be 15.6% until 2019. In addition, according to a study, Chinese citizens consume 1.5 times more counterfeit French wine than authentic one.

EUIPO has attempted to quantify the impact of counterfeit wine in Europe. Here are the worrying results of this study:

– 2.2% of loss sales

– 4800 job losses

  • Tax losses:

By way of comparison, counterfeit alcohol would cost to the British treasury € 1.45 billion  a year. Tax losses for Colombia, Ecuador, El Salvador, Honduras, Panama and Peru zone amounted to more than € 500 million in 2012.

  • Damage to human health:

Counterfeiters hardly care about the impact on human health of their diverted production. By adding toxic substances to counterfeit wine, they endanger the health of consumers.

In Russia more than 12,000 people died in 2011 due to counterfeit alcohol consumption.

Counterfeit Wine - The dangers of Counterfeit Wine

The dangers of Counterfeit Wine

The different features to protect

There are 4 main elements to protect on a bottle of wine:

– Top

– Label / the back label

– Bottle

– Packaging

The graph below underlines the different specificities of each part of a bottle.

Counterfeit Wine - Features to Secure to Combat Counterfeit Wine

Features to Secure to Combat Counterfeit Wine

Wine producers’ priorities

According to a study conducted by the GS1 organization, the priorities classified by wine producers are:

  • Priority 1: BtoC relationships improvement

Implementing a direct relationship with the final consumer is the first priority in order to respond to customers’ requests for information. Digitization and new digital tools via smartphone offer the opportunity for brands to interact directly with the consumer. At the same time, this interaction also enables brands to obtain data, strengthen customer loyalty and implement innovative marketing tools.

  • Priority 2: unitary identification

On the one hand, assigning a unitary code is a prerequisite to establish a direct interaction with the consumer.  On the other hand, this is also a need to set-up a traceability process. Since the wine sector is highly internationalized, producers need a clear and shared identification in order to guard against the risks of products diversion.

  • Priority 3: combat counterfeit wine

The fight against counterfeiting comes only in 3rd position but remains a common request from wine producers. However, brand owners examine the idea to involve consumers in the authentication process.

Key steps for an adequate solution

  • Analysis of the distribution circuit:

First, it is necessary to analyze logistics and distribution channels in order to detect any discrepancies. Several levels of analysis are required:

– Supply chain: each stakeholder involved in logistics must be studied from transporters, to wholesalers, via traders and importers.
– Distribution circuit: the point of sales (cellar men, retailers, supermarkets, e-shops…) should draw wine producers’ attention. Meaning that brand owners must check meticulously authenticity and compliance of their product.

The use of an online brand protection solution would be a first step to assess the impact of fraud. Indeed, this solution aims to highlight counterfeit products and target the elements of the bottle to be protected (cap, label …).

  • Problem definition:

Secondly, the objective is to determine what the main problem is: Counterfeiting? Products diversion? Bottles re-filling? Using a domain name? Need to reassure customers? We might face all of these issues for one product.

  • The place of the consumer:

At last, involving or not the consumer in the anti-counterfeiting policy will influence the type of solutions to be deployed. Actually, this decision is specific to each brand. Some of them do not wish to join the consumer to the authentication process. However, including the consumer in an anti-counterfeiting policy offers many benefits for brands (see White Paper) and exponentially increases the number of checks.

Counterfeit Wine - Brand and Consumer Interaction to combat Counterfeit Wine

Brand and Consumer Interaction to combat Counterfeit Wine

Arjo Solutions’ Offer

Armed with a strong experience in protecting wine against counterfeiting, Arjo Solutions has the capabilities to offer a large technologies portfolio enabling to secure every features of a bottle (from label, glass, to back label, etc.). We may provide authentication and traceability to both brand experts and consumers.

Arjo Solutions paves the way to consumers’ authentication and direct interactions between the brand and the wine producer. Thus, brands may extend consumer experience and build up a bond of trust and loyalty with their clients. The bottle of wine does not only become a smart product but also a downstream and upstream medium.