Fake Bourbon in the Premium Whisky Sector – How To Prevent It?

In 2019, a whopping 6.2 million liters of whisky were consumed worldwide, generating a record-high global revenue of over 89 million US dollars. After a dip caused by the Covid-19 pandemic, the international whisky sector is expected to pass the $91 million in 2022 and continue growing at a CAGR of over 6% over the next 3 years. 

What’s more is that whisky investments can generate returns as high as 4,700% – something that continues to attract millions of investors and grow the global premium whisky investment market.

These statistics say it all – the sector is booming, and there are endless growth and expansion opportunities for Scotch whisky and bourbon producers alike. 

At the same time, increased demand and expansion almost never come with greater risks. In particular, in the premium whisky sector, fake whiskey can affect your brand reputation, pose a health risk, and hurt the global economy. 

In this guide by the product authentication experts at Authena, you can find out more about the damage of fake bourbon and counterfeit alcohol – and learn about the solutions that can help you protect your brand.

Plague of Fake Bourbons in The U.S.

The roots of whisky production can be traced back to the Mesopotamian civilizations – making it one of the oldest alcoholic drinks. However, over time, the production of whisky and bourbon has increased and expanded. Today, the market is dominated by the main whisky-producing countries, including Germany, Taiwan, Sweden, India, Canada, Japan, Ireland, and Scotland.

In terms of bourbon, there is one reigning producer: the United States. However, with such an extensive and growing market also come challenges and risks. In particular, counterfeit bourbon is becoming an issue as refilled bottles of rare American whiskey, such as Pappy Van Winkle and Col. E.H. Taylor. 

According to a New York Times investigation, the reason behind this plague is connected to the increase of premium bourbon whisky bottles on the market. Indeed, in the past, luxury bourbon was considered an oximore. 

Today, the number of premium American bourbon bottles on the market has skyrocketed, and the supply is nowhere near meeting the unprecedented demand of amateurs, enthusiasts, and investors. 

While states like Kentucky and New York have started to implement stricter regulations to prevent the sale of counterfeit goods, secondary, unregulated, and fake-goods markets are thriving.

The Problem of Alcohol Counterfeiting in the United States

In the US, counterfeit alcohol falls under two main categories: “moonshine” (illicitly produced liquor) and refilled bottles. While the first one is easily spotted and contained, the second is a common and dangerous fraud. As fake bottles become more similar to authentic ones, it is harder for producers and investors to be sure about the authenticity of the whisky bottle they have just invested in. 

But the problem goes far beyond the world of whisky. For example, wine fraud is more common than ever. 

And, with studies estimating that nearly 30% of the alcohol produced worldwide is illicit or fraudulent, it is easy to see how widespread the problem of alcohol counterfeiting is in the US and beyond. For example, in the EU, counterfeit spirits and alcohol products cost the economy a whopping 2.7 billion Euros every year. 

Internet Encourages the Spread of Illegal Alcohol

Since the start of the pandemic, online sales of alcoholic drinks and spirits skyrocketed by 234%. And, as more consumers used the Internet to buy alcohol, more distribution channels came into operation. 

Some channels are just the online portal of certified whisky and bourbon producers and retailers. However, there are some other unregulated channels that fostered the growth of an illicit alcohol market. 

For example, certain social media groups spread illegal and counterfeit versions of well-known brands. These channels not only spread counterfeit goods but also lead to health risks and financial fraud for buyers. 

How Do You Spot Fake Alcohol? Is It Possible?

Spotting fake, counterfeit, and adulterated alcohol bottles have become increasingly tricky, especially if you are not a spirit connoisseur. Luckily, there are some telltale signs that can help you protect yourself and your finances from fake goods. 

The video below provides an overview of the checks to complete before investing in a certain premium bottle of Scotch, bourbon, or other spirits. Or, check out the checklist below. 

According to theWine and Spirits Wholesalers of America, some of the telltale signs to look out for before investing in a bottle of premium alcohol include:

• Only purchase alcohol from reputable places, such as certified online and offline retailers. Or get in touch directly with the manufacturer
• Focus on brands that you recognize and avoid purchasing mixed drinks. You might also opt for researching the brand or product before the purchase.
• Take the time to analyze the packaging. If you notice poor labeling, spelling mistakes, torn or peeling labels, or a lack of seals, avoid that product.
• Research the market price of a certain product and beware of cheap imitations.

Alcohol Counterfeiting Statistics in the US and Globally

Understanding what the market for fake alcohol bottles and fake spirits look like can be challenging, especially as it continues to change and evolve. As we have seen above, the world consumes 6.2 million liters of whisky each year, generating a revenue of nearly $90 million. But there’s more!

The Size and Shape of the Global Illicit Alcohol Market report by Euromonitor International offers a clear overview of the alcohol counterfeiting market:

• The legal global alcohol market is worth over US$1.6 trillion
• Nearly 26% of the 43 million hectoliters of alcohol consumed each year is illicit
• Millions of dollars in revenue deriving from illegal alcohol sales are used to fund criminal activities
• 81% of illicit alcohol drinks on the market are fake liquor bottles and spirits

What’s more is that during the pandemic, alcohol consumption increased by over 40% and online sales of alcohol grew by 80% just in 2020. Since the number of US small businesses selling on Amazon has passed the 1-million mark in March 2020, the US Senate Finance Committee estimated that fraudulent and counterfeit goods could cause billions in losses in any given industry.

The Dangers of Counterfeit Alcohol

Undeniably, the counterfeit whiskey and fake alcohol market can have severe financial consequences. But the impact of these illicit markets goes far beyond financial losses. Here are some of the risks of fake liquor for brands, consumers, and the entire economy alike. 

Counterfeit Alcohol Can Threaten Your Brand Name and Reputation

Building brand reputation and managing your current one can take weeks or months – or, as Warren Buffet says, over 20 years! And a solid reputation is essential to improve loyalty and brand awareness. 

Counterfeit and fake goods that carry your brand’s imagery, logo, or tagline can deceive buyers and deliver a suboptimal customer experience. In turn, this can significantly impact our brand reputation.

Counterfeit Spirits Reduce Authorized Sales, Profits, and R&D funds

Counterfeit bourbon and fake whiskey bottles are often found at a cheaper price than their authentic counterparts. Because of this, they actively compete against real goods and cause significant financial losses. 

The Global Brand Counterfeiting Report shows that luxury brands lose over $30 billion each year to counterfeited goods – and the premium whisky sector isn’t immune to this risk!

By reducing authorized sales in favor of counterfeit goods, the fake liquor market also reduces profits and cuts down on the funds destined for research and development.

Fake Whiskey May Represent a Health and Safety Risk

News about people poisoned or killed by fake alcohol products, spirits, and liquors isn’t rare. If you are looking to protect your brand’s reputation, stopping the circulation of counterfeit goods is essential. Indeed, fake – and dangerous – liquors sold under your brand name can affect your reputation and even lead to public health scandals. 

Counterfeit Liquor Comes With Greater Environmental Risks

Combating illicit trade is essential to pursue the sustainable goals set by the UN 2030 Agenda for Sustainable Development. Indeed, counterfeit and illicitly produced goods do not follow local and international regulations introduced to limit emissions and pollution. In turn, these products can be greatly damaging to water, soil, and wildlife. 

Counterfeit Goods Lead to Loss of Jobs and Taxpayer Money

Just in the US, the counterfeit goods market causes the loss of over 750,000 jobs across a range of industries. 

Since manufacturers’ operations expand and shrink according to the number of sales, when a brand loses a portion of the market (and profit!) to counterfeit goods, the number of workers and professionals needed is reduced. 

All this also causes millions in taxpayer money to be lost in illicit sales – which prevents the whole country’s sustainable economic development.

Solutions for the Whiskey and All Alcohol Sector

The global trade of whisky and bourbon continues to expand to meet the increased customer demand. However, as the supply chain becomes more layered and extended, it is essential to introduce a highly innovative end-to-end technology frameworkthat can:

• Protect your brand and its reputation
• Offer product security and avoid public health risks
• Provide traceability throughout the supply chain to avoid adulteration and distribution channel diversion

Whether you are looking to combat fake bourbon or you are trying to provide more transparent information to your consumers, the right product authentication solutions can help. Here are some product authenticationstrategies designed specifically for the food and beverage sector. 

Tailored Smart Packaging Solutions

Smart packaging is a type of product packaging solution that is enhanced by technology. The aim of smart packaging is to provide far more active and proactive service to manufacturers and consumers. 

For example, so far, your whisky bottles might have only had the task of containing the liquor. However, thanks to smart bottles and packaging solutions, you can gain better control over the quality, authenticity, waste, and utility of each bottle. 

Smart packaging solutions – also known as intelligent packaging – leverage developing and emerging technologies such as NFC labels, QR codes, RFID tags, blockchain-based solutions, and product authentication software to:

• Allow manufacturers to trace the product’s journey through the supply chain
• Guarantee the alcohol product’s authenticity
• Provide consumers with manufacturing information and other details about the whisky bottle
• Prevent counterfeiting issues, including adulteration, distribution channel diversion, and fake imitations. 

However, not all the previously mentioned technologies can offer the same level of security. While RFID and NFC tags are exceptionally tough to clone, most of all when they are secured through a blockchain system, this is not the case of QR codes. Being printed, thus clearly visible on the packaging, they can be easily copied and re-used to authenticate fakes. Among the latest technologies for the food and beverage sector is Non-Fungible Tokens (NFTs) which can help secure your product and prevent counterfeiting through the tokenization process.

Digital Product Passports

Another solution you can use to reduce the risk of fake whiskey bottles entering the fake goods market under your brand name is introducing Digital Product Passports (DPP) for each item, registered on blockchain. 

Once each bottle is enhanced with a tamper-proof ID, it can be tracked through the entire supply-chain process and beprotected against fraudulent refilling.

Thanks to custom DPP solutions, you can digitally record a range of information about your product (as its opening) and its journey from the manufacturer to the consumer. 

Some of the tools that can help you map your product include:

• Customizable and tamper-proof tags based on NFC or RFID
• Transponders
• Geo-locators
• Environmental sensors

Physical-Digital Seals

Physical-digital seals can be labels or tags that are permanently connected to the product’s packaging. One of the best ways to apply a permanent physical-digital seal to your product is through Near Field Communication (NFC) labels. 

These labels guarantee the secure exchange of information and can provide alerts in the case of fraudulent refilling and dilution activities. 

What’s more is that NFC labels allow your customers to interact with the product, get to know the producer, obtain information about the supply chain, and avoid fake imitation of their favorite whisky or bourbon. 

Blockchain-Based Track and Trace Solutions

Blockchain technologies have been in use for over 20 years, but, because of their unexplored potential, they are still emerging innovations. One of the most sought-after features of blockchain systems is that they allow the creation of immutable and permanent digital records. 

This allows manufacturers to record each product transaction through the supply chain – and can deliver detailed information about the product and its journey to the manufacturer. In particular, blockchain systems are useful to pinpoint any distribution channel diversion that might cause your brand’s whiskey bottles to end up in illicit or counterfeit markets.

Partnering With a Product Authentication Expert

Over the past years, emerging technologies and the pandemic have accelerated trends that were already underway. Since the global supply chain is more complex than ever and the international market for fake spirits is thriving, product authentication solutions are essential for any premium whisky and bourbon brand. Make sure to partner with a product authentication expert such as Authena to find the right solution for your needs and budget.