Economy

The Brands of the Revolution

Traditional brands are competing for the meager purchasing power of Venezuelans with knockoff brands and imported items that pay no taxes or comply with sanitary and quality regulations

Marianela Palacios

Piracy and informality increased in Venezuela during the chavista era, especially in the last decade.

After years of recession, hyperinflation, and massive devaluation, the Venezuelan economy shows some signs of growth, though we don’t know to which point, and we can see that aisles in supermarkets have been replenished. The thing is that, nowadays, brands and formats Venezuelan consumers are familiar with, share the shelves with products of questionable quality that are sold under names, packaging, logos and designs that emulate those of the original brands, and with imported items that enter the domestic market without paying import tariffs or consumer taxes such as IVA (the added value tax Venezuela charges since the 1990s) and in some cases, are sold without invoicing, sanitary registration or compliance with the minimal quality regulations of their respective sectors.

This is how dental paste Corgste is taking market share from Colgate Palmolive, just like sanitary napkin brands Aluays and Alvvays did with Always. Or toilet paper Scottex, deodorant Roxana, cookies called Oieo, soap brand Yahnsan and deviled ham Untherbood compete with Scott, Rexona, Oreo, Johnson, and Diablitos Underwood, respectively.

On June 5th, Alimentos Difresca, the company that produces Diablitos Underwood, denounced in a statement that neither “Diablichos” nor “Diablillos Untherbood’ or similar products are their responsibility.

The difference in price between those invading brands and the traditional ones is huge, which is critical in a market where purchasing power has been so dramatically diminished. For instance, a bottle of Head & Shoulders shampoo, the original one, costs between 6 and 9 USD in stores, while their succedaneous, called Hair & Beauty or Hoed & Shouders, or the imported original product sold on the black market, can cost 3 USD.

“This has a devastating effect on formal commerce. The price differences between original and fake products can reach 70%, which obviously leaves out of the market those who work following the rules,” said the president of the chamber of trade Consecomercio, Tiziana Polesel.

Some Venezuelan brands are dealing with this problem abroad. Some years ago, Empresas Polar denounced that a cream brand copying the graphic identity of its line Mavesa was being sold in several countries with big Venezuelan communities, and that other products in those places were usurping Polar brands like Toddy, Rikesa, and even the flagship Harina PAN. 

Powdered milk La Campiña and drinks Rikomalt and El Chichero, property of Parmalat Venezuela, had the same challenge in Spain, Peru, and Chile. “There are companies focused on exploiting migrants’ nostalgia,”  said back then Antonio Planchart, the legal director of Empresas Polar. 

A Public Health Risk 

The biggest loss is for the consumer, who purchases those fake products in good faith, unaware of the details involved. In most cases, these kinds of products have not passed the quality and sanitary controls that all other products by formal, registered companies have to go through (under the surveillance of a government that loved to stage shows and say they were fighting capitalism by punishing a big brand).

“These counterfeits can carry consequences in the consumer’s health, while causing irreparable damage to the original brand,” warned Consecomercio’s Polesel.  

In fact, even the Instituto de Higiene Rafael Rangel, which reports to the Health Ministry, said in 2019 the risk involved in the commercialization of contaminated toothpaste of pirate brands, after getting a report from Colgate Palmolive. The institute registered cases of skin allergies after using knockoff feminine pads and toothpaste.

Three years ago, the Colombian authorities confiscated in the port of Cartagena de Indias 1.5 million units of fake personal care products about to be sent to Venezuela without any phytosanitary registration. A smuggling ring using a route from China to Mexico, Colombia and Venezuela was introducing the cargo in our country in small quantities, by land, crossing the border using clandestine pathways. And these kinds of things are still happening.

All packaged products that expect to be sold in Venezuela, whether imported or produced in the country, must be registered and verified at the Sencamer, the National Autonomous Service of Normalization, Quality, Metrology, and Technical Rules.

Every item gets a CPE (Control de Productos Envasados) number from Sencamer. If the consumer can’t find such CPE number in a shampoo bottle or a tube of dental paste, this means this product entered the country illegally and doesn’t comply with the proper evaluation and sanitary registry. This is how any consumer can easily tell apart the original product from one that could pose a health risk.

More Than Food and Personal Care

“All this informality in the imports impacts the domestic production, such as the sale of car parts, where you can see a lot of imitation of original brands, especially with lubricants that are sold in any corner, or even tires, sold even in parking lots with no invoicing and any surveillance from Seniat,” said Omar Bautista, president of the chamber of car parts producers Favenpa.

The franchise chamber, Profranquicias, is also worried about the proliferation of stores that illegally use brands like Walmart, Macy’s, Starbucks, Amazon, Dollar Tree and Arturo’s. “We condemn the apparition of stores that use recognized international and Venezuelan brands without license,” said the association.

The Case of Kellogg’s 

The illegal use of the brand has been supported by the State. A relevant case is what happened with the American company Kellogg´s, which produced cereal in Venezuela for almost sixty years until it closed operations and laid off all its personnel in 2018. The government took over the plant and appointed a military officer as a general manager, instead of fulfilling the promise of leaving the plant in the hands of the workers. In 2019, two Kellogg’s products reappeared in stores, Corn Flakes and Zucaritas, but with chavista propaganda in the packaging. 

Kellogg’s announced that it would start legal action against the State. However, according to think tank Cedice, none of the 60 lawsuits introduced by international companies against Venezuela in courts that rule over foreign investment issues (like CIADI or the International Arbitrage Court) came from Kellogg´s. This company hasn’t asked for the intervention of the World Intellectual Property Organization, WIPO.

“WIPO has a mechanism of specialized arbitrage on intellectual property that has been used by individuals and brands in Venezuela,” said lawyer Marcos Carrillo, former vice president of the Asociación Venezolana de Arbitraje (AVA) and professor in arbitrage and mediation at the business institute IESA.

The case MercadoLibre-MercadoPago is an example. 

“With the precedent of Kellogg’s and the infraction in the use of the brand, these companies use the subterfuge of making subtle changes in the name of the brand to avoid some legal actions,” says economist Tamara Herrera, director of consulting firm Síntesis Financiera. “The original brands have no other option but to fight in the arena of media and publicity, while trying to make any progress in the courts.”

Consecomercio Demands Effective Customs Control

The Venezuelan law contains dispositions that can be used by companies affected by violations to their property rights, especifically on branding, but these abuses continue to take place because the State doesn’t do its part in overseeing the market and enforcing the law. 

Consecomercio and other business chambers like Fedecámaras and Conindustria have asked the government, on several occasions, to correct these institutional flaws, with no results. “The different governmental offices must do their job and stop this with the corresponding sanctions. Customs must be effectively controlled, for example,” the president of Consecomercio demands.

It’s also true that the Bolivarian revolution brought new brands to the Venezuelan marketplace that are legally competing with the traditional ones. This is the case of dozens of Turkish soap brands that fiercely compete with domestic products or soaps imported from North America, Latin America, Europe and Asia.

The traditional domestic brands must defend their market share from many new legit brands of coffee, cocoa, cured meats, beef, milk products, eggs, liquor, rice, and pasta. Now, there are cooperatives and small startups in Venezuela producing personal care products, bread, desserts, drinks, and clothing. 

Some of them are included in CLAP bags with foreign brands imported by the chavista administration. 

The Maduro government just said that there are more than 370 brands of gourmet coffee in the country, but that includes brands derived from expropriations, like the one involving the old company Café Fama de América. Some companies that were taken over by the State were sold in recent years to private actors close to PSUV, according to research by Armando.Info

In any case, there are more competitors in the current Venezuelan market, but if free competition would be guaranteed, the prices would tend to drop without the State intervening, instead of increasing. But Venezuela still has one of the highest inflation rates in the world: in May, the annualized rate was 167%, according to the Central Bank.

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