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Making a match in co-manufacturing | 2019-12-02

Making a match in co-manufacturing | 2019-12-02
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SAN FRANCISCO — Finding a co-packer is like finding a spouse,” said Jonathan Milo Leal, the owner of Milo’s Co-Packing in Athens, Ohio. “You really want to find someone you mesh well with and who you trust.”

Businesses of all sizes may benefit from partnering with a co-manufacturer or co-packer, who, in addition to handling production, may provide expertise and other services ranging from recipe formulation and label design to warehousing and fulfillment.

However, not every product or brand may be suitable for co-manufacturing, and due diligence is required on behalf of both parties.

“Your co-packer is going to be someone you’re really close to because they are making your baby,” Mr. Leal said during a presentation at the Specialty Food Association’s Winter Fancy Food Show, held in January in San Francisco. “Asking lots of questions up front is a way to make sure you’re getting the right fit for yourself down the line.”

Pros and cons

Outsourcing production to a co-manufacturer offers numerous advantages. It is cheaper than purchasing equipment or building a manufacturing facility. It also is more efficient than producing batches in a commercial kitchen.

“That’s the benefit of a co-packer,” Mr. Leal said. “You can put 95% of your energy on getting out there and making the product move … and not spending 18 hours a day in the kitchen turning out whatever it is you’re making.”

A co-manufacturer may identify cost savings opportunities for the customer, too.

“We have people who come to us constantly and say, ‘Here’s our recipe; I need to make this,’” Mr. Leal said. “So, we look at it with them in detail, and we often say, ‘The way you’re doing it now is costing $1 a jar in ingredients.’ We can tweak, tweak, tweak, tweak; it will come out tasting exactly the same and looking exactly the same, and it’s going to come out 60c a jar. Imagine that — 40c a jar times 1 million over the next couple of years. Think about how much money you’re saving by going to somebody who knows what they’re doing.”

Andy Banton, owner of Gil’s Gourmet, a co-manufacturing facility in California, partners with early-stage businesses and said he often provides guidance on pricing and retail channel strategy to his customers.

“Frankly, anyone can make this stuff,” he said in an interview with Food Business News. “We really want to be the one who gets them to the next level.”

In addition to meeting federal regulations, co-packers may help a brand achieve certifications such as organic, gluten-free or kosher.

But there are downsides to consider, too. Partnering with a co-packer may result in relinquishing some control of ingredients, recipes, quality and safety. It may add complexity to the supply chain.

Co-packers may recommend ingredient or packaging changes. Businesses should be willing to compromise, Mr. Leal said.

“If you’re going to a co-packer, you want to use their expertise to figure out how to make your product better, how to make it cheaper, how to standardize it in a way that improves the cost and appeal of the product,” Mr. Leal said.

Products that are unusual or contain odd ingredients or packaging may not be appropriate for co-manufacturing, he said.

“If nobody has made it before, maybe there’s a reason,” Mr. Leal said. “Really think about that before you put your mortgage on the line for some strange new product.”

Concepts should be tested in the marketplace before production is transferred to a co-manufacturer, he added.

“Do some prototypes, find some local stores, figure out what the actual price is going to be,” Mr. Leal said. “There’s a high failure rate in this business. It’s something like 90% or 95%.”

Picking a co-packer

Networking is a common and often preferred approach for identifying and partnering with co-manufacturers, Mr. Banton said.

“Word of mouth I like the most because that tells me somebody has done homework and done research,” he said. “If somebody is referring us, that tells me we have a decent reputation.”

Other brands offering similar products may be willing to share information on where the product is made, Mr. Leal said.

Key considerations must be made when selecting a co-manufacturer. Location is one. Special equipment is another.

“Do you know what is required to make your product?” Mr. Leal said.

Other questions to ask include: Who is responsible for ingredient sourcing? How is inventory managed? What is the minimum production run?

Companies should ask to see the co-packer’s written food safety plan and risk-based supply chain program documentation, inspection records and a list of references.

“Co-packers should be able to give you references,” Mr. Leal said. “They can tell you a lot of information about what it’s like to work with this co-packer before you sign on the dotted line.”

It also is important to understand whether the co-packer has had any product recalls and whether the facility has exposure to food allergens.

“If you’re going after a segment of the market that doesn’t do wheat … if they (the manufacturer) happen to run wheat at other times, is that a problem for you?” Mr. Leal said.

The warning signs of a bad co-packer may include significant delays in communication, poor-quality results in early stages, unexpected price increases and a lack of understanding of regulatory compliance rules. Mr. Leal also cautioned against co-packers who are unwilling to sign a non-disclosure or non-compete agreement.

“Ethical co-packers are something you should be looking for,” he said. “You really don’t want a co-packer to be stealing your recipes.”

Sealing the deal

Co-packers prefer to work with partners who are dedicated and knowledgeable about the business and industry, Mr. Banton said.

“We’ll get a phone call from someone saying, ‘My grandmother made the best salsa, and everybody says I should sell it because everybody wants to buy it,’” Mr. Banton said. “I’m like, ‘Ok, fantastic, who’s going to buy it?’ ‘Oh, everybody.’ That’s not an answer.

“If someone actually took the time to make a product inside a commercial kitchen, invested in going to a Fancy Food Show … and has done the time to actually do market research and understand it, if they spend some time learning who their customer is and where they’re going to sell it and doing some numbers and understanding margins and product costs and things along those lines, that’s the person I want to talk to.”

Customers who have unreasonable expectations, are vague or unclear about recipes and processes, or fail to communicate or pay are bad partners.

“Two things a co-packer really wants to know is, ‘Do you have any money?’ and ‘What kind of business are you going to give me this year if we make this work?’” Mr. Leal said. “Give them an idea of what you think you’re going to bring to the table. The more you bring, the more seriously they’re going to take you.”

Maintaining a successful long-term relationship with a co-manufacturer requires trust and communication.

“If you’re not on the same page, there’s going to be friction,” Mr. Leal said. 

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