Unilever Losing to Fakes Selling to Illiterate Indians: Retail

By Malavika Sharma - Apr 19, 2012

Sunita Kumar, a factory worker’s wife in the Indian village of Hazratpur, has added talcum powder and face cream to her little make-up box for weddings and festivals. She doesn’t know they are fake.

Sitting cross-legged on the rough cement floor of her home, head covered by a red and green sari, Kumar said she’s illiterate. She can’t read the label on her tube of Fairy Love lotion, an imitation of a popular brand called Fair & Lovely from Unilever (ULVR)’s Indian subsidiary.

The village of Hazratpur, where open drains flow near poorly paved roads and informal retailers sell under trees, is a symbol of rural India, where high illiteracy allows imitations to siphon sales from companies such as Unilever and its Indian competitor Emami Ltd. (HMN) About a third of India’s villagers can’t read even though rising incomes are expected to boost rural consumer goods sales tenfold to $100 billion by 2025.

“It’s a huge loss to the companies in the sense that they spend so much of money building these brands,” said Saroj Kumar Mohanta, a partner at MART, a consulting firm in New Delhi.

As rural shoppers spend more, companies such as Hindustan Unilever Ltd. (HUVR), the Indian subsidiary of the London- and Rotterdam-based company, are marketing more facewash, conditioners and lipstick in villages. Low familiarity with brand names and illiteracy are allowing fakes to get in the way.

Between 10 percent to 30 percent of the cosmetics, toiletries and packaged food products sold in India are fake, the Federation of Indian Chambers of Commerce and Industry estimates.
High Illiteracy

Winning over rural India is important to Unilever, Procter & Gamble Co. (PG) and Emami because about 69 percent of India’s 1.2 billion people live in villages. Hazratpur, population 2,500, home to farmers, electricians and masons in the North Indian state of Uttar Pradesh, shows how illiteracy is hurting big brands even as rural shoppers become more aspirational in their spending.

Kumar, who veils her face when men pass by and doesn’t go to the market herself, relies on her husband, Satish, to buy her beauty products. Satish, who has never been to school and can’t read, said he intended to get her the Unilever skin cream brand and didn’t know he was being sold a fake.

His wife’s vanity case included a misspelled version of Kolkata-based Emami’s BoroPlus powder, another copy the factory worker wasn’t aware of. Satish, who earns 5,500 rupees ($107) a month from the factory and some farming on the side, said he likes “good company” brands and doesn’t mind paying up for them. “Even if it is more expensive, I get a good product,” he said of Unilever and its branded competitors.
Increase in Lookalikes

Imitation products “impact revenue of genuine companies,” Hindustan Unilever said in an e-mailed statement. The company, which has seen an increase in lookalikes of its leading brands, conducts market surveillance and provides information to authorities, helping them seize fake goods valued at 560 million rupees in 2011, according to the statement.

Hindustan Unilever, one of the earliest multinationals to enter India in 1888, dominated the beauty and personal-care market with a 33 percent share in 2010, according to Euromonitor International figures. Colgate-Palmolive Co. (CL) had a 6.8 percent share, compared with 5.4 percent for Procter & Gamble, 4.9 percent for Dabur India Ltd. (DABUR) and 1.5 percent for Emami, the data show.
Informal Manufacturers

Rural shoppers like brands because of advertising they see on television, said Ankur Bisen, associate director of retail at New Delhi-based consultancy Technopak. A fake version of Hindustan Unilever’s Fair & Lovely brand can get sold despite that marketing because of the illiteracy of the rural consumer, Bisen said.

About 69 percent of the rural population is literate, according to the Indian government’s census.

MART’s Mohanta said he has seen fake toothpastes sold under the name of “Colagate” and imitation versions of herbal tablets made by Dabur. Small, informal manufacturers and sellers usually create the fake goods, he said. “Even if they close down by one name, they open up by another,” Mohanta said.

Mom-and-pop stores have an incentive to sell fake goods. The counterfeits are made at a lower cost even though they sell at the same price as the regular brand, offering retailers and the manufacturer selling fakes higher profit, according to Anil Rajput, chairman of the FICCI’s Committee on Anti-Smuggling and Counterfeiting.
‘Major Concern’

On a recent Friday afternoon in Hazratpur, women crowded around a small temporary shop set up under a tree, where a man laid out merchandise that included creams, earrings, hairclips and lipsticks on a faded blue sheet.

The salesman, who wouldn’t answer questions, offered his customers “Voroline,” an imitation of Unilever’s Vaseline brand. Also laid out on the sheet were tubes of “Fair & Gomarks” cream that, like Sunita Kumar’s tube, is an imitation of Fair & Lovely.

Dabur said it has helped Indian authorities conduct raids on makers of fake products in several parts of the country.

Counterfeits in India are a “major concern” for the consumer-goods industry, Emami said in a statement. The company keeps innovating on packaging and tries to educate retailers on identifying fakes, it said.

Of course, not all rural shoppers are buying fakes, and increased spending in villages is helping to drive up corporate profits. Rural demand for so-called fast-moving consumer goods will grow to $100 billion in 2025 from $9 billion in 2010, according to Nielsen Co.
Rising Affluence

Hindustan Unilever’s net profit, including that of units, is estimated to rise 12 percent to 25.8 billion rupees in the year ended March 31, according to the median of 16 analyst estimates compiled by Bloomberg. The company will announce its financial results on May 1.

To reach more villages, the company started hiring rural women in 2000 as brand ambassadors who travel to sell directly to nearby villages. Its spending on advertising and promotions rose 16 percent to 28 billion rupees in the 12 months ended March 2011.

Some effects of rising incomes can be seen in Hazratpur, where large, modern houses stand next to tiny, dingy homes. One family proudly pointed to the washing machine for which they use Unilever’s Surf detergent. Kumar, the factory worker’s wife, wore maroon lipstick even as she covered her face when men passed by.

“The generation that is now coming into the consuming class no longer sees austerity as a virtue,” Hindustan Unilever Chief Executive Officer Nitin Paranjpe said in a February interview. “Self indulgence is all right.”

To contact the reporter on this story: Malavika Sharma in New Delhi at msharma52@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net
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