MNCs, retailers fight brand battle

A serious conflict is brewing between Indian retailers and multinationals over imports of global brands. To stay afloat in the dog-eat-dog world of retail, local retailers have reached arrangements with overseas players to bring in some international brands, rattling many MNCs who manufacture or market these products locally. In some cases, these brands have not yet been introduced in India. Several major MNCs with a long presence in India are invoking the Intellectual Property Rights (imported goods) Enforcement Rules 2007 to stop retailers from importing foreign brands. Hindustan Unilever, L’Oreal, Lancome Perfumes, Oakley Inc, Nivea and Mico have already registered several brands with the Customs department. Sources said other MNCs are expected to follow suit. Market circles perceive this as a move to prevent Indian retailers from getting first access to these brands. Some of the retailers are debating plans to legally contest the move, since they possess a free sale certificate from the source of import. Retailers like Big Bazaar & Food Bazaar, Reliance Retail, Spencer’s and Sankalp Retail (MyDollarStore), among others, have begun importing sizeable consignments of leading consumer brands and their variants for better fill rates, product variety and higher margins. However, the multinationals are not amused, and claim that it leads to loss of business opportunity, unfair competition and product cannibalisation. The fundamental issue here, according to analysts, is that the Indian arms of the leading FMCG companies would like to control the way their brands are marketed and sold. They would also like to determine when new products and variants of existing products should be introduced in India. Retailers sourcing directly from abroad disrupt the extent of control the FMCG companies can wield. The legal issue is whether IPR rules can be used to block such imports. The Customs department has the right to confiscate consignments and alert the owner of the IPR — which could be a trademark, design or patent. The 2007 rules are intended to protect IPR owners from violations of intellectual property by way of import of goods. It seeks to reinforce existing Indian laws protecting holders of patents, copyrights and designs in case of imports. Naturally, retailers are upset: “Our key differentiator is our product assortments, which is a complete store of imported products and brands. Hence, this is a limiting factor to maximise customer delight and availability. After all, we are hardly manufacturing the brands to attract the IPR Act,” said Soumitra Ghatak, CEO of MyDollarStore. Retailers import variants of top brands like Sunsilk, Dove, Rexona, Axe, L’Oreal, Maybelline, Garnier, Lancome, Maggi and Pringles from similar markets like Taiwan, Thailand, China and the Gulf countries (routed through the US). “There is a disconnect between the pace of innovation by FMCG companies and the pace of expansion by retailers. We cannot have empty shelf spaces when we open up new stores, especially when local FMCG companies are unable to offer us the kind of variety needed. The idea is not to displace their brands, but to encourage consumption by building categories,” said Sadashiv Nayak, CEO of Food Bazaar. Another key reason for retailers to step up imports is bottomlines. Profit margins on imported products are around 20% more than local brands, where producers and retailers are at loggerheads over sharing margins. “We are concerned over issues like protecting the properties of our brands, including quality and consumer perception. Such unplanned imports create a brand confusion in the minds of consumers, since the properties of an imported brand is completely different from the domestic ones, which are localised to suit the specific region’s requirements. An unpleasant experience may work against our brand,” said a high-ranking official in a leading multinational, which makes personal care products. Retailers claim they are creating ‘demand in advance’ for the multinationals, who would otherwise have to invest heavily in marketing and ad spends to promote the brands. Analysts say the developments are the natural effects of a globalised market that India is moving towards, which upsets the conventional distribution and trade practices. By Ms.Bobby Aanand, Metropolitan Jury.

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