Pyramid sales and hidden marketing, Antitrust fines the US giant NewAge - ARIIX - Gift - Great Italian Food Trade

The Italian Antitrust has imposed a fine of 960 thousand euros on the US giant NewAge Inc. and its subsidiary Ariix Italy Srl, jointly and severally, for unfair commercial practices, marketing occult and pyramid selling. (1)

'Slimming' food supplements, cosmetics, personal care e homecare. From the 'Body purification pack' from 500 euros up to the air purifier for 2.500, the big package is served. With lots of Social marketing on Instagram.

1) NewAge, health and wellness in poor health

New Age Inc. (Nasdaq: NBEV) is a US giant in the sector health and wellness, with distribution omni-channel based on E-commerce and direct sales through a network of over 400 thousand 'independent representatives' in over 75 countries. In 2020, it acquired five companies:

• ARIX, founded in the USA in 2011, distributes food supplements and other products through multi level marketing,
• Zennoa (Utah, USA, 2016) sells various food supplements and nutraceutical products including Noni juice, (2)
• LIMU Company, producer of functional foods based on brown algae rich in the polysaccharide fucoidan,
• MaVie, (Advanced Wellness Solutions Pte. Ltd., Singapore). kits DNA testing and personalized services/products,
• Shannen industry established in Indonesia in 2018, cosmetic sector. (3)

The health of the colossus The USA is also precarious, despite the growth in turnover (US$ 439,53 million, +77% compared to the previous year). As shown by the collapse of the market cap (-100% in one year), the recent opening of insolvency proceedings and the accusation of millionaire fraud against investors by the Security Exchange Commission (4,5)

2) NewAge Inc. and Ariix Italy, the Antitrust investigation

The Guarantor Authority for Competition and the Market (AGCM, or Antitrust) has launched an investigation against NewAge Inc., as registrant Site websites which distributes the various products globally.

Ariix Italy Srl – an Italian company controlled by NewAge through Ariix LLC (USA) – has in turn come under investigation for the unfair commercial practices described below.

3) Unfair commercial practices, AGCM complaints

The disputes addressed by the Antitrust (AGCM) to the US giant and Ariix Italy Srl concern:

• the establishment of a pyramid selling system, in violation of the Consumer Code (legislative decree 206/2005, article 23.1.p),
• practices of 'marketing occulto', in turn banned by the Consumer Code (articles 20, 21, 22 paragraph 1 and 2, and article 23.1.a). (6)

A third charge – having marketed two food supplements ('Slendeeriz Drops Day&Night' And 'Tahitian Noni') without prior notification to the Ministry of Health is then dropped as they would have been notified under different names ('Day pre-meal drops' And 'Night soothing bedtime drops').

4) Pyramid sales system

Customers of Ariix and NewAge are invited by companies to switch from status of consumers to that of 'appointees' for 'transform their [your] life physically or income-wise'. The leitmotif of the NewAge group. With the promise of easy earnings through the direct sale of products and, above all, the recruitment of newappointees'. Which will enter the system, at a lower level of the pyramid.

4.1) Affiliations and bonds

The affiliation the Ariix pyramid sales system requires the payment of a donation of 30 euros and the purchase of 200 euros of products (200 PV, Value Points). The new Representative will then be able to choose the level of business to aspire to, which corresponds to a different commission.

Who reaches the top level of the pyramid, 'Ultimate', he can get a share on all the commissions of his team of underlings up to the seventh rung down the chain.

Theminimum turnover' to maintain the right to commissions it is equal to 100 euros (100 PV) every 4 weeks. And the platform therefore advises 'appointees' to activate the function 'auto ship'. Automatic orders, hoping to sell instead of going broke.

4.2) Who wins and who loses

To really earn, in the pyramid sales system, is the organizing company. Followed by those who are at the top of the pyramid, whose job is not to sell products but to recruit as manyappointees'.

Every 'charge' guarantees a minimum turnover (230 €) for its affiliation alone, and 100 € every 28 days thereafter). Regardless of the value of individual sales, facing the risk of unsold and unpaid items at one's own expense.

4.3) Inevitable crisis

Economic unsustainability of the pyramid sales system is evident, since the geometric growth of the offer is destined to saturate the market in much shorter times in the case of non-essential or per se competitive goods. Even more so in times of black crisis like the current one.

The data supplied to the Antitrust by Ariix Italia show that 50-55% of the sales made by the company in 2021 were absorbed by the 'appointees' themselves. Who have saturated their homes with useless goods and emptied their wallets in the illusion of becoming 'entrepreneurs of themselves'. And since 'the monthly sales to third parties per Distributor are less than 50 PV, [this] means that the Distributor himself would have to self-consume more than his sales to third parties to meet the qualifying requirement. ' (1)

4.4) Pyramid sales, the ban in the EU

The pyramid selling system built by NewAge Inc. with Ariix Italia – according to what has been ascertained by the Antitrust – corresponds exactly to the pyramid promotional scheme banned in the EU. The Court of Justice of Luxembourg has in fact clarified how the unfair commercial practices in question are distinguished by three characteristics:

• 'the promotion is based on the promise that the consumer will have the possibility of realizing an economic benefit,
• the fulfillment of this promise depends on the entry of other consumers into such a system,
• the major part of the revenues that enable the consideration promised to consumers to be financed does not arise from real economic activity' (6)

5) Marketing occult

Il marketing occult disputed by the Antitrust against NewAge Inc. and Ariix Italia Srl concerns the method of promotion of the products by the 'appointees' through i social media. The 'appointees' of female gender have in fact received a document of instructions to follow for the Social marketing. 'LADY NETWORK – Daily actions on Instagram, a handbook'. 2 or 3 post per day, all the better in the form of stories.

Women included in the pyramid sales system are required to show themselves in their daily lives. Show how they themselves are the first to use the products, how and with what formidable results. The neorealism of the slaves of the pyramid must then bring back thehashtag of the master (#ariix) without specifying – as requested, but not always demanded, by the Antitrust (7,8) – that it is advertising. So too 'consumers' defense and reaction mechanisms are bypassed'. (1)

6) Sanctions

The penalties imposed by the Antitrust on NewAge Inc. and Ariix Italia Srl, following the assessment of the pyramid selling system and Social marketing hidden, amounted respectively to 1 million and 200 thousand euros.

A discount it was then applied, with fines recalculated at 800 and 160 euros for the two violations, having regard to the unfavorable economic conditions of the companies responsible.

The curiosity remains to know what part of these sums will actually be collected.

Dario Dongo and Alessandra Mei

Footnotes

(1) AGCM weekly bulletin, Year XXXIII - n. 1, 2 January 2023 https://www.agcm.it/dotcmsdoc/bollettini/2023/1-23.pdf

(2) Commission Decision 2003/426/EC authorizing the placing on the market of "noni juice" (juice of the fruit of Morinda citrifolia L.) as a novel food ingredient under Regulation (EC) No 258/97 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32003D0426

(3) NewAge Agrees to Combine with ARIIX and Four Additional E-Commerce/Direct Selling Companies to Create a >$500 Million Global Enterprise. https://www.globenewswire.com/en/news-release/2020/07/20/2064579/0/en/NewAge-Agrees-to-Combine-with-ARIIX-and-Four-Additional-E-Commerce-Direct-Selling-Companies-to-Create-a-500-Million-Global-Enterprise.html Global Newswire. 20.1.20

(3) NewAge. Stock reports. https://simplywall.st/stocks/us/household/otc-nbev.q/newage. Simply Wall St. 19.3.22

(4) Bill Peters. Former CEO of NewAge, a drink company that shot to pot-stock fame, accused by SEC of 'multi-year fraud'. https://www.marketwatch.com/story/former-ceo-of-newage-a-drink-company-that-shot-to-pot-stock-fame-accused-by-sec-of-multi-year-fraud-11666139099 Market watch. 19.1.23

(5) Legislative Decree 6.9.05, no. 206. Consumer Code. Text updated on 17.1.22 on Normattiva https://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:decreto.legislativo:2005-09-06;206

(6) European Union Court of Justice (EUCJ). Case C‑515/12, judgment 3.4.14. See point 20 https://eur-lex.europa.eu/legal-content/IT/ALL/?uri=CELEX%3A62012CJ0515

(7) Dario Dongo, Selena Travaglio. Influencer marketing, what rules? GIFT (Great Italian Food Trade). 23.7.20

(8) Dario Dongo. Influencer marketing, our report to the Antitrust. GIFT (Great Italian Food Trade). 25.7.20

Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.

Graduated in Law from the University of Bologna, she attended the Master in Food Law at the same University. You participate in the WIISE srl benefit team by dedicating yourself to European and international research and innovation projects.