IP and Fast Moving Consumer Goods

I have had a number of interesting discussions with people working in innovation in the Fast Moving Consumer Goods (FMCG) industry in the past month. A few of these occurred at the 'Innovating for the Future' workshop in Sydney a couple of weeks ago, at which I spoke on intellectual property in the food industry.

What I am seeing from these companies are a lot of 'light-bulb' moments where they are finally starting to see the value in strategically protecting their technology- and design-related intellectual property (IP).

One of the reasons why this value may not have been so evident in the past is due to the nature of the industry. The IP system is fundamentally set up to encourage innovation in situations where innovation might not naturally occur. However, part of the nature of the FMCG business is that innovation has been a given: new features, new flavours, new packaging are a must to compete in a crowded shelf space. No special incentives have historically been necessary in a world where products lives are relatively short and competitors are continually pushing for market share.

That is the way things have been. But that is changing.

Throughout the developed world, and especially so in Australia, the rise of the 'private label' or house brand product in the various supermarket chains means your biggest threat now comes from your main customer! Where those customers are large and dominant in the market place, which is certainly the case in Australia's concentrated retail environment, the FMCG manufacturer is being squeezed continuously.

Most significantly, the retailers are adept and pressuring the innovative manufacturer to 'hand over' any successful innovation for use in their own private label range. This, over time, because a severe disincentive to innovate, as the expense and energy required to deliver innovation now provides almost no period of exclusivity in which the innovator can recoup and profit on their investment in innovation. There are always contract manufacturers who the retailers will set up to copy innovations almost immediately if the innovator is reluctant to share their work with the retailer.

And so enters the IP system, where innovation is has been disincentivised, a new tool can be found to, if not stop, at least slow down the march of innovations from the innovator to the retailer. Judicious use of the patent and design systems can create a better power relationship between the innovator and the retailer. The contract manufacturer can no longer step in with impunity to copy a protected new package, product, ingredient etc. In turn, the retailer has to wait longer, or pay more, for innovative FMCG products.

I expect to see this as a trend amongst the more 'switched on' FMCG companies.


by Adam Hyland