Who should be making what?
Should you be making your product?
Success in the food and beverage industry is a challenge, you need to be doing many things right. You might have developed a great product or figured out how to address a real need in the market. This does not mean you have the ability or resources to manufacture the product. Often you will hear me say, “Success in this industry is not just about making great products to sell; it is about selling the great products you make”.
I know how much effort people put into their products and how difficult it is to produce or manufacture them. Unfortunately, your customers and consumers do not reward you for this; they buy your product because it has benefits they enjoy or appreciate and because they see it offers the right value to them or their family.
It is not automatic that the person who owns the idea or has developed the product has to produce it. Often I see where this becomes such a distraction it actually impedes the success. After they put so much effort into getting the product produced they are out of energy and resources and it is left to sit on the shelf without the proper program built to make it successful. Perhaps in the beginning you need to make it to ensure you understand and it allows you the opportunity to make changes and ‘get it right’. If you want to grow and get the distribution built up you might need to consider a co-packer.
There are a number of things to consider when you begin the search for a co-packer:
- Do they have the expertise?
- Do they meet or exceed the food safety requirements of the market?
- Is the equipment in their facility right for what you need to do?
- Does the packaging equipment they have work for your product?
- Will the cost they need to charge work within your business plan?
- Is the location right for the markets you want to serve?
- Where will you fit in their priorities and production schedules?
- How is their inventory management with your ingredients and packaging?
- How will your customers perceive them?
- Can you trust them?
This is a complicated relationship and when it works it can be beneficial for both companies. You get the product you need at a fair price so you can build your market and they increase the utilization for their production facility and generate more sales.
Should you be making someone else’s product?
Many food processors have capacity and their bottom line would benefit fro more volume. Not too many processing plants are working at 100% so more product would reduce overhead per unit and perhaps allow you to attain more skilled labour with more dependable volume.
Producing private label product or producing another company’s branded product can be a game changer in your facility. Imagine letting someone else deal with the category managers and you just have to focus on making it. For some that would be a dream come true. If that is you then you should consider being a co-packer. If you are packing private label product it does involve working with the category manager but you do not have to build the brand and invest in the consumer marketing required to pull the product off the shelf.
There are different theories about producing private label. To make the right decision for your business it is important to understand penetration in some traditional food retailers it is as high as 30%. Now we see more success with retailers who focus almost exclusively on private label. In Canada, Farm Boy has been growing with many products in their brand and in the U.S. Trader Joe’s and Aldi are almost all in their own brands. Consumers trust them and see value, which differentiates these stores in the face of serious competition. I believe it can get you closer to your customers, not further away.
There are a number of things to consider when deciding to produce or pack product for someone else:
- Will the increased volume reduce your total cost per unit?
- Can your equipment handle the increased volume?
- Are there opportunities to reduce your ingredient, packaging or freight costs by buying together with your customers?
- Is there a possibility the new products will reduce your branded presence?
- Would private label give you access to markets you would not otherwise get into?
- What is your real strength, producing products or building brands?
- What will be the impact on your labour?
- Do you understand all of the hidden costs in private label production?
- How will you prioritize production for your own products and those you co pack?
- Can you trust these new customers?