ARKANSA S AGR I CULTURAL EXPER IMENT STAT IONDivision of Agriculture University of Arkansas SystemJanuary 2009 Research Report 985

P.L. Brady, S. Seideman,and J.R. Morris

Choosing and Using a Co-Packer

Technical editing, layout, and cover design by Camilla CroneArkansas Agricultural Experiment Station, University of Arkansas Division of Agriculture, Fayetteville.Milo J. Shult, Vice President for Agriculture. Mark J. Cochran, AAES Director and Associate Vice Presidentfor Agriculture–Research. PMC250QX7. The University of Arkansas Division of Agriculture follows a nondiscriminatorypolicy in programs and employment.ISSN:1539-5944 CODEN:AKABA7

This publication is available on the Internet at http://arkansasagnews.uark.edu/1356.htm

Cover photo courtesy of the University of Arkansas Institute of Food Science and EngineeringBack cover photo courtesy of Prospero Equipment Corp.

Choosing and Using a Co-Packer

Pamela L. Brady, ProfessorInstitute of Food Science and Engineering

University of Arkansas Division of Agriculture2650 N. Young Ave.

Fayetteville, Arkansas 72703

Steve Seideman, Extension Food ProcessingSpecialist

Institute of Food Science and EngineeringUniversity of Arkansas Division of Agriculture

2650 N. Young Ave.Fayetteville, Arkansas 72703

Justin R.Morris, Distinguished ProfessorDirector, Viticulture and Enology Program

andInstitute of Food Science and Engineering

University of Arkansas Division of Agriculture2650 N. Young Ave.

Fayetteville, Arkansas 72703

University of Arkansas Division of AgricultureArkansas Agricultural Experiment Station

Fayetteville, Arkansas 72701

Acknowledgments

This publication was prepared as part of a project conducted at the University ofArkansas and supported by the National Research Initiative of the USDA Cooperative StateResearch, Education and Extension Service, grant number 2006-55618-17203.

This document was adapted with permission from material originally preparedby Dr. Luke R. Howard and printed as University of Arkansas Cooperative ExtensionService Factsheet MP423: Choosing and Using a Co-packer.

CONTENTS

Impact Statement ................................................................................................4Introduction ........................................................................................................5Why Use a Co-Packer? ........................................................................................5What Are the Advantages of Using a Co-packer? ..............................................7What are the Disadvantages of Using a Co-Packer? ..........................................7How to Find the Right Co-Packer ......................................................................8What Should Be Done Before Visiting the Co-Packer? ......................................9The First Meeting With a Co-Packer ..................................................................9Things to Consider When Working With a Co-Packer ....................................10

Level of Involvement ..................................................................................10Ingredients and Supplies ............................................................................11Volume ..................................................................................................11Packaging ..................................................................................................11Labels ..................................................................................................11Cost ..................................................................................................11Storage and Distribution ............................................................................12Manufacturing ............................................................................................12Quality Control............................................................................................12Insurance ................................................................................................12

Conclusion ..................................................................................................13

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Impact Statement

Juice and wine grapes hold considerable promise as alternative crops. A USDANational Research Initiative-funded program at the University of Arkansas was devel-oped to provide research and training to help small- and medium-sized farms in thestate explore the production of grapes as an alternative crop to increase profitabilityand add stability to the family farm.

Although selling grapes for fresh use or to be processed is one means of mar-keting the fruit, many growers are finding they can extend their portion of the revenuegenerated by adding value to the fruit on the farm. Unfortunately, generating incomefrom value-added products made from grapes or any other commodity involves a lotmore than simply deciding to make a product and then putting it on the market. Infact, developing and marketing value-added products can be a lengthy process, requir-ing substantial inputs of time and money, with no guarantee of success.

Co-packing, also known as contract packaging, is when a producer contractswith another company to manufacture and package food items that the original pro-ducer will sell. The use of co-packers has become extremely popular with entrepreneurssuch as producers of alternative crops who would like to make and market a product orproducts from their crops but are not willing or are not able to invest in setting up amanufacturing facility to produce the product.

Working closely with a co-packer experienced in product development andfood processing can be invaluable to getting an idea converted to a marketable product.This publication provides information on the pros and cons of using co-packers andlocating co-packers in your area and also provides guidance for working effectivelywith a co-packer.

INTRODUCTION

Co-packing, also known as con-tract packaging, is when a company con-tracts with another company tomanufacture and package foods that theoriginal company will sell. Products onthe market that have been co-packedrange from nationally known brands tothose sold under private labels. The use ofco-packers has become extremely popularwith entrepreneurs who have a productidea but lack the $100,000 or moreneeded to set up a manufacturing facilityto produce the product. In addition, manyentrepreneurs starting a foods businessfind that, in today’s market conditions,greater profitsare achievedthrough salesand marketinginnovationsthan by what isdone in manu-facturing. So, ifa company haslimited re-sources, theymay get moreprofit usingthese resourcesto develop effi-

cient marketing procedures rather thanspending them on setting up manufactur-ing operations.

WHY USE A CO-PACKER?

Entrepreneurs choose to use co-packers for many reasons. One of themost important of these is that co-packerscan provide entrepreneurs with a varietyof services in addition to manufacturingand packaging products. Scale-up of pro-duction from the home kitchen to thefirst plant trial is not as simple as manythink. Often the initial commercial prod-uct is not at all what was expected. Activi-ties occurring during processing such as

heating, agita-tion during in-corporation ofingredients,holding athigh tempera-tures, andpumping canaffect the wayingredients be-have and canresult in verydifferent prod-ucts fromthose obtained

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Choosing and Using a Co-Packer

Pamela L. Brady, Steve Seideman, and Justin R. MorrisInstitute of Food Science and Engineering

University of Arkansas, Division of Agriculture

(Photo courtesy of Prospero Equipment Corp.)

with preparation in a kitchen. Adequateproduct development prior to the pilotrun will minimize this, but unforeseenfactors may still occur. Working closelywith a co-packer experienced in productdevelopment and food processing can beinvaluable to getting a recipe converted toa marketable product.

Co-packers can help provide thelabor, facilities, equipment, and know-how to customize, formulate, or com-pletely assemble the best recipe andpackaging for a product. They can pro-vide assistance in finding the best sourcesfor raw materials. Because a co-packer al-ready has production capabilities in place,purchases raw materials and packaging inbulk, and has the appropriate equipmentto reduce labor costs, entrepreneurs often

find a co-packer can manufacture productcheaper than they can manufacture itthemselves. Co-packers often have indus-try contacts an entrepreneur does nothave and they can help establish market-ing contacts as well as help with productproduction.

The range of services availablefrom a co-packer will vary depending onthe size and experience of the co-packer,the type of facilities, and the capacity ofthe plant. Some co-packers are in businessstrictly to pack other people’s products.Others may have their own product linesas well. In many cases, co-packers whohave their own line of products are ex-tending their income by selling or con-tracting to others a production capacitythat is greater than their own needs.

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(Photo courtesy of University of Arkansas Institute ofFood Science and Engineering)

The most obvious disadvantageto using a co-packer is loss of control overthe product and its manufacture. An entre-preneur is at the mercy of the co-packer’sproduction schedule, fixed costs, andmethod of doing business. Because theproduct must conform to the co-packer’sequipment and facility limitations, it maynot be possible to get a product that ex-actly matches the entrepreneur’s vision.

Co-packers will almost alwayshave a number of customers and it is notunusual for a co-packer to manufactureseveral competing products. This raises

concerns that confidentiality may be aproblem since formulations, ingredients,and product specifications must be sharedwith the co-packer. This information canbe protected to some degree with agree-ments, but confidentiality can never be to-tally assured. Although giving up a secretformula may seem like a major concern tomost entrepreneurs, it is not as serious asone might believe if they consider that, ifthey wanted to copy a product, the expertsat most spice companies can duplicate aproduct’s flavor profile in 2-3 weeks.

WHAT ARE THE DISADVANTAGES OF USING A CO-PACKER?

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Choosing and Using a Co-Packer

There are many advantages tousing a co-packer. The most obvious is toreduce startup costs for the food entrepre-neur. Capital costs for equipment and fa-cilities can be so great that manyentrepreneurs are not financially able tostart a food processing business. Using aco-packer allows a more accurate predic-tion of overhead costs for manufacturing.It also can reduce the start-up time for anew business since the co-packer alreadyhas manufacturing, packaging, and label-ing systems in place. In addition, the co-packer may have experience with similarproducts, which can prove invaluable inlaunching a new product.

Because co-packers are alreadyestablished in business, using them hasother advantages such as:• They usually already have the proper

regulatory certifications, lines of creditfor purchasing supplies and ingredi-ents, and insurance. In addition, theyhave food industry contacts and estab-lished sources to efficiently manufac-ture and handle the product.

• They should be familiar with qualityparameters, food safety requirements,and shipping needs.

• They will have the proper facilitiesfor receiving and storing ingredientsand can arrange storage of finishedproduct.

• Some co-packers will offer other serv-ices for entrepreneurs, such as productstability testing, nutritional labeling,and product development services suchas formulation assistance and ingredi-ent substitution. In addition, they cansuggest the best options for packagingand labeling the product when workingwith the types of filling, capping, andlabeling equipment in their facilities.

• They can direct the entrepreneur toprofessionals who can assist in the de-sign and marketing of product.

• They usually offer the advantage ofbuying supplies and ingredients inbulk.

• They can arrange palletizing and ship-ping of finished product to meet theneeds of the buyer.

WHAT ARE THE ADVANTAGES OF USING A CO-PACKER?

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Finding a co-packer is not aneasy task. It is generally suggested that, ifat all possible, entrepreneurs work with aco-packer who is in their geographicalarea since several trips to the co-packerare usually required during the initialstages of manufacturing. A smaller co-packing operation may be preferable to alarger one since they may be better able toproduce small batches and may be less in-timidating to someone just starting infood processing.

When choosing a co-packer, it isimportant to thoroughly investigate thecompanies being considered. Get infor-mation such as their reputation in the in-dustry, how long they have been inbusiness, and their track record. For theentrepreneur, the best source of informa-tion about co-packers, their abilities, andhow they work with entrepreneurs isoften other entrepreneurs. A person juststarting a food processing business is en-couraged to take every possible opportu-nity to meet and visit with otherentrepreneurs. This generally involves at-tending state association meetings, foodshows, and trade shows.

Specialized co-packers often ad-vertise in food industry trade periodicalsand directories. State directories of manu-

facturers provide information about man-ufacturing companies. Companies listingprivate-label products are usually co-packers. University extension services andstate food and drug or agricultural mar-keting agencies also can help in locatingpotential co-packers.

Some entrepreneurs have foundit helpful to go to retail food stores or spe-cialty shops and find products similar tothose they plan to produce. Often thelabel of a food product provides informa-tion about the manufacturer and how tocontact them.

The Contract Packaging Associa-tion is an organization of co-packers.Their searchable database of membersfound at www.contractpackaging.org canbe a good starting place for finding a co-packer. Many co-packers participate inand/or attend the Packaging ServicesExpo, a show featuring contract packersand others that is held in May of eachyear. A list of contract manufacturers canbe found at www.packservicesexpo.com.Another useful resource is Contract Pack-aging Magazine, a quarterly publicationfor that industry. They maintain a list ofco-packers that can be found atwww.packworld.com

HOW TO FIND THE RIGHT CO-PACKER

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Choosing and Using a Co-Packer

Before beginning work with aco-packer, an entrepreneur must do theirhomework. Business and marketing plansshould be developed that outline productneeds in terms of size and type of con-tainer, number of units per given period,price to the buyer, and selling price. SmallBusiness Technology and DevelopmentCenters can be of assistance in assemblingthis information.

Requirements for product stabil-ity and safety must also be determined.Technical help for these determinationscan usually be obtained from a university,a consultant, or a testing laboratory. Onceproduct information has been established,preparation and process instructionsshould be prepared along with specifica-tions for ingredients, packaging materials,regulatory compliance, and finished prod-uct characteristics.

WHAT SHOULD BE DONE BEFORE VISITING THE CO-PACKER?

After a potential co-packer hasbeen identified and all processing instruc-tions, formulas, etc. have been established,it is time to schedule a meeting with thepotential co-packer. The goal of the firstmeeting should be to establish a workingrelationship. Itis importantthat the entre-preneurs un-derstand fromthe beginningthat they maynot get every-thing theywant. Intoday’s busi-ness environ-ment, there aremore peoplewanting to use co-packers than there areco-packers. This means that it is impor-tant to develop a strong working relation-ship with the co-packer. The cornerstoneof this relationship is trust. Both partiesare interested in a profitable ventureand achieving this goal means working

together. The co-packer should be ade-quately reimbursed so he/she is availableto help meet future needs. A good work-ing relationship with a co-packer allowsthe entrepreneurs to focus time and re-sources on the sales and marketing of

their product.At the first

meeting withthe co-packer,product speci-ficationsshould be pre-sented. This isthe time to dis-cuss issues ofconfidentiality.Some co-pack-ers will restrict

confidentialityagreements only to written specifications,formulations, pricing, and customer in-formation. Most will not agree to non-compete arrangements, i.e. agreements tonot manufacture a competitor’s product,since that would restrict their livelihoodand their business interests. Established

THE FIRST MEETING WITH A CO-PACKER

(Photo courtesy of USDA Natural Resources Conservation Service)

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co-packers may have model confidential-ity contracts that they have used in thepast which can serve as a basis for estab-lishing these agreements. Try to get allagreements in writing since this will helpclarify what each party has agreed to do.

During the initial visit, ask totour the co-packer’s facilities. Note clean-liness and order. Look at the most recentinspection report. This is also the time todetermine if the co-packer can providethe appropriate equipment to process,label, and package your product and todetermine if the co-packer is operatingunder a quality-control or food-safetysystem such as HACCP. This may be im-portant if potential customers requirethat these systems were used for productsthey buy.

The names of other clientsshould be requested as references. It is agood idea to speak with some of these todetermine what it’s like to work with theco-packer. They can provide valuable in-formation about the co-packer’s commit-ment to schedules and to quality.

Problems or difficulties they had with theco-packer should be considered whenmaking a decision to use a particular co-packer.

Discuss with the co-packer bothpresent needs and future plans. Early inthe relationship, small production runsmay be all that is needed but later morevolume may be required. It is importantto determine if the co-packer can deliveron all required production levels. Alsodiscuss with the co-packer if they will beable to meet product needs during peakseasons. In the specialty foods business,there are often seasonal needs, such asduring the Christmas holidays, whenturn-around time for re-supply of storesmay be short. Determine if the co-packercan accommodate the timeframes of thesespecial situations.

Early in the process, it is usuallynecessary to produce product for stor-age/stability testing. This often involvesproducing samples in alternate sizes ordifferent containers. Check to make surethese can be processed by the co-packer.

In the process of developing a re-lationship with a co-packer, it is impor-tant to put as many of the details aspossible in writing to assure accuratecommunication and to prevent any con-fusion in the future. In many cases, thewritten communication will become partof a formal work contract since it is im-portant that everyone involved under-stand their responsibilities in producing,packaging, and marketing the product.

Obviously, written orders shouldbe placed with the co-packer. Specificationsshould be furnished for supplies, ingredi-

ents, processing, and finished products.Below are some items that

should be considered and discussed witha potential co-packer:

Level of Involvement – Co-packers workat various levels with entrepreneurs. Someco-packers want to be told exactly what iswanted and then they will assume all re-sponsibility for producing it. Others wantthe product owner present during the firstfew production runs to make sure theproducts produced meet expected qualitystandards. When beginning work with a

THINGS TO CONSIDER WHEN WORKING WITH A CO-PACKER

co-packer, establish with them how theyprefer to handle this step. Although co-packers often will request that the entre-preneur be available in the plant duringthe first product run to ensure the prod-uct is made to the customer’s satisfaction,the presence of the customer is generallynot expected for subsequent runs.

Ingredients and Supplies – Some co-packers expect the product owner will beresponsible for buying ingredients andsupplies and the co-packer’s job is simplyto assemble the product. Other co-packerswant to do all of the purchasing them-selves. If the co-packer offers this option,it is often less expensive for the entrepre-neur to have the co-packer buy the ingre-dients and supplies because they generallypurchase in bulk. Co-packers often like touse in-stock ingredients because this as-sures they will be adequately suppliedduring product surges when a lot of prod-uct must be made quickly to replace solditems. At the time contracts are being setup it is important to establish with co-packers the specifics of how ingredientsand supplies will be obtained and thequality of materials that will be used.

Volume – The entrepreneur’s businessplan should specify how much productwill be needed and when for at least thefirst year of business. These requirementsshould be discussed with the co-packer. Itis important to determine if the co-packerhas the capacity to produce the amountsneeded for a specified period of time. Inmany instances entrepreneurs just start-ing out may find that a smaller co-packerwill be the best choice since large-scale co-packers may have minimum batch sizesthat exceed potential first-year sales.

Packaging – There are numerous optionsfor packaging food products, includingvarious types of glass bottles; plastic,vinyl, and foil pouches; and metal cans. Itis sometimes difficult for food entrepre-neurs to determine which of the variousoptions would be best for their product.In general, guidance can be obtained froma co-packer since they have knowledge ofwhat options work well with variousproducts and what they have the capabili-ties to produce. Because a co-packer mayhave equipment that can only handle cer-tain types, sizes, and shapes of containers,the choice of a co-packer may be a factorin how the product will be packaged. Onthe other hand, if entrepreneurs have spe-cific packaging requirements, this maylimit their choice of co-packers.

Labels – Labels are very expensive andmost co-packers want the product’sowner to purchase the labels. However,these labels must be made of the propermaterials and sized to fit the co-packer’slabeling machines. Some co-packers willrequire labels be purchased from labelcompanies and designers they do businesswith to assure the label will work on theirmachines.

Cost – It is critical that the cost of havingthe product co-packed is discussed beforeany work begins. At first the cost mayseem high, but when this figure is com-pared with the cost of building a facility,equipping it, and hiring people to operatethe equipment, the cost may seem muchmore reasonable. Some co-packers willprovide a breakdown of the cost structurewith the cost of overhead, packaging, la-beling, labor, etc. specified. It is not un-usual for the packaging and labeling to

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Choosing and Using a Co-Packer

cost more than the ingredients them-selves. The cost of co-packing productalso will be dependent on the amount or-dered. As the amount of product pro-duced goes up, the cost per unit generallydecreases. When discussing costs, it is alsoimportant to establish how payment willbe made. When working with new cus-tomers, some co-packers will ask for one-half of the cost up front with theremaining amount due on delivery of theproduct. Others may want 10% downwith the remainder on delivery.

Storage and Distribution – Another areathat should be discussed is the cost forstorage and distribution. In most cases,the co-packer will make the product butthe product’s owner must be responsiblefor storing the product and paying fordistribution to retail or sales outlets. Someco-packers may have storage they can renton a weekly or monthly basis but arrange-ments for this should be discussed beforeproduct is made. If the end customer hasany specific requirements for distribution,such as size of pallets, wrapping of theboxes on the pallet, or how the boxes areto be placed on the pallet, this should alsobe discussed with the co-packer.

Manufacturing – As discussed previously,a tour of the facility is an important partof the initial meeting with a co-packer.While making this tour, observe the typeof equipment the co-packer has. Deter-mine if the co-packer has the correctequipment to manufacture a particularproduct. Also discuss details such as howmuch lead time is necessary for futureproduction runs and appearance factors

for the container, such as label placement,closure-gasket materials, closure color,and/or neckband placement, size andcolor.

Quality Control – It is important to letthe co-packer know what quality charac-teristics are expected in the finished prod-uct. This should be specified in thewritten, finished product specifications.Include in these specifications criticalprocessing factors such as pH, packingtemperatures, or heat-processing require-ments. Include a list of the factors thatwould make a finished product unaccept-able. In addition to failure to meet pro-cessing specifications, these might includeappearance factors such as color, contentsseparation, piece size, and texture. It isimportant to understand the system theco-packer uses for batch or lot coding andhis/her recall plan. The co-packer will alsoneed to know if any of the potential buy-ers of the product require that the food bemanufactured under particular quality,safety, or certification systems such asHACCP, ISO 9000, Kosher, or Halal, andmust guarantee these requirements can bemet, if required. The co-packer must beaware of any requirements for third-partyaudits required by the customers.

Insurance – Most food retailers andrestaurants require liability insurance onproducts they purchase. Determine if theco-packer has liability insurance and ifthat coverage will extend to the productshe/she manufactures under contract forothers. Note that, in almost every case, itwill be necessary to furnish liability insur-ance on any product sold to stores.

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Choosing and Using a Co-Packer

Entrepreneurs often find that using a co-packer can make it easier to get into thefood business, by drastically reducing the time it takes to get a product to market andsaving capital for more important things like sales and marketing. In order to make theprocess of using a co-packer as easy as possible for everyone involved, it is important thatthe entrepreneur work diligently to develop a working relationship with the co-packerand to assure that all parties understand their responsibilities by writing down as muchinformation as possible.

CONCLUSION