Top Legal Pitfalls in FMCG: How to Protect Your Business

Running an FMCG business can be fun and exciting, but it’s also a legal minefield. Time is of the essence and there are far more engaging priorities than ensuring the foundations of your business are legally sound. However, adopting a carefree attitude to the law can be extremely costly and whilst you’re busy pursuing rapid growth, it’s important to keep an eye on the legal landscape to avoid painful missteps. By taking a proactive approach, you can avoid legal ruin and focus your energy on what you do best: selling great products to happy customers. 

To help, the FMCG legal team at Ranged have noted some common pitfalls below.

Imitation is not flattery – why brand protection matters 

In FMCG, your brand is typically your most valuable asset. Successful brands are admired because they are notoriously hard to build and can drive consumer loyalty, command premium pricing and serve as a launchpad for new product lines or extensions. It’s not uncommon for potential buyers or investors to walk away from a deal if they are not entirely satisfied that they can acquire the necessary IP to support the brand moving forward. 

Imagine investing countless years of blood, sweat and tears into building a recognisable brand, only to discover that it had been copied by an incumbent or new market entrant. Trademark registration is an effective means of brand protection and can be leveraged to protect your brand names, logos and slogans. Not only does trademark protection help to safeguard your IP, but it also provides you with solid footing to deter competitors from ripping off your brand. 

Mitigating IP risks with co-manufacturers 

Your recipe formulation is central to the uniqueness of your product, and losing control over it can have devastating implications for your business. Most FMCG brands struggle to grasp that their co-manufacturers actually own the IP to their product recipes. This can be problematic for two reasons: 

1. the recipes represent valuable IP which potential buyers and investors expect brands to secure to accommodate a sale or investment; and 
2. your co-manufacturer will have leverage over you should you look to transition to a new supplier (i.e., due to cost, quality, development or capacity constraints). To facilitate this transition, it’s not unusual to see brands spare no expense in purchasing those recipes back from their co-manufacturers or in arranging for new suppliers to reverse engineer their products to extract those recipes. 

Therefore, putting in place robust agreements with co-manufacturers from the outset which delicately address IP ownership is crucial to avoiding costly headaches down the track. 

Navigating a dense regulatory environment     

FMCG brands operating in the food, beverage and/or health sectors are required to adhere to a complex web of regulations, governed principally by the Australia New Zealand Food Standards Code (“FSANZ Code”) and the Therapeutic Goods Act 1989 (“TGA”). Compliance with these frameworks is vital to avoid incurring legal penalties or being subject to product recalls, which can have catastrophic financial consequences and risk tarnishing the brand you had worked so hard to build. 

Consumer trust is paramount in FMCG and given the degree of competitive tension between brands, compliance with the FSANZ Code and TGA also serves as a seal of quality, integrity and transparency, providing consumers with surety that your products are safe, correctly labelled and effective (to the extent a therapeutic claim is made). Hence, investing from the outset in legal compliance is a winning strategy to mitigate your financial exposure, secure your brand’s reputation and ensure your business is well-positioned for sustained success. 

Why it pays to be truthful  

Whether you’re just starting out or scaling your brand, understanding the operation of the Competition and Consumer Act 2010 (“CCA”) and the risks of misleading consumers can help to prevent legal setbacks and should form a core tenet of your brand’s marketing strategy. Rushing product launches and marketing campaigns without properly ensuring CCA compliance can ultimately be an expensive exercise. 

Claims can be made across any format, from product packaging and labelling to online marketing via social channels, such as TikTok, Instagram and Facebook. Therefore, it’s imperative that every word, image and video can stand up to legal scrutiny and that any claims you make about your product (or a competitor’s product) can be substantiated with solid evidence. Where brands rely heavily on specific claims (i.e., health, wellbeing or environmental) to capture consumer attention, any finding that those claims were false can quickly and irreparably erode the trust and confidence of your customers. 

The ACCC is charged with enforcing the CCA and is vigilant in investigating and prosecuting brands that engage in misleading or deceptive practices. Breaches can give rise to steep financial penalties and can also lead to public corrections, advertising retractions, product recalls and rebranding efforts. When you’re running your business on a shoestring, you can’t afford to assume the financial and reputational exposure that follows enforcement actions. 

It's a team effort 

We encourage you to work closely with experienced lawyers to take proactive steps to ensure you have the right legal foundations in place for your business in order to avoid costly legal obstacles and enjoy long-term success in the future. If you’d like to understand how we can help, please don’t hesitate to contact us.  

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