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Vol. 9, No. 1
January 2019
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Navigating the food and beverage co-packing landscape
2 INSIDER Co-packing digital magazine January 2019
CONTENTS naturalproductsinsider.com
Vol. 9, No. 1 January 2019
Copyright © 2019 Informa Exhibitions LLC. All rights reserved. The publisher reserves the right to accept or reject any advertising or editorial material. Advertisers, and/or their agents, assume the responsibility for all content of published advertisements and assume responsibility for any claims against the publisher based on the advertisement. Editorial contributors assume responsibility for their published works and assume responsibility for any claims against the publisher based on the published work. Editorial content may not necessarily reflect the views of the publisher. Materials contained on this site may not be reproduced, modified, distributed, republished or hosted (either directly or by linking) without our prior written permission. You may not alter or remove any trademark, copyright or other notice from copies of content. You may, however, download material from the site (one machine readable copy and one print copy per page) for your personal, noncommercial use only. We reserve all rights in and title to all material downloaded. All items submitted to NATURAL PRODUCTS INSIDER become the sole property of Informa Exhibitions LLC.
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Q&A: Brands dish on lessons learned from working with co-packersWhether a startup or veteran food and beverage maker, entrusting a contract manufacturer with a formulation and manufacturing process is a huge leap of faith. In this Q&A, Judie Bizzozero queries consumer packaged goods (CPG) companies about their experiences working with co-packers.
Viewpoint: Are you ready to work with food and beverage co-packers?
Food for thought: How to prepare a winning co-packing contractJustin J. Prochnow and Michael R. Goodman, Greenberg Traurig LLP, share key considerations for drafting a contract with a food and beverage co-packer.
Esca Bona supplier hero: New Hope Mills and Russell FarmsJessica Swarner details how New Hope Mills and Russell Farms demonstrate the value of a healthy co-packing relationship while serving up delicious pancake mixes and maple syrup.
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Takeaways: Co-packing
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Key considerations for working with a food and beverage co-packer Food and beverage brands need to choose a contract manufacturer that can help them bring quality, safe and transparent products to market. Judie Bizzozero examines key considerations for working with a co-packer, including benefits such as R&D, formulation, manufacturing, branding, costs and food safety.
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3 INSIDER Co-packing digital magazine January 2019
Are you ready to work with food and beverage co-packers?The global market for functional food and beverages is expected to reach US$255 billion by 2024, according to Allied Market Research, which means brands will be bringing innovative products to market faster than ever. While large, established brands usually have the capacity and resources to scale up, new or smaller brands often don’t have deep enough pockets to see their product to market. The good news is, you don’t have to go it alone.
Co-packers, or contract manufacturers, provide an attractive option for food and beverage brands to quickly launch products in the market because they offer services such as product development, ingredient sourcing, cost containment, packaging, warehouse storage, label review, regulatory compliance and ability to scale up product. Many contract manufacturers also offer in-house research and development (R&D) that can significantly reduce development costs and time to market. Having a partner to handle these details allows brands to focus on the marketing and sales side of the business.
But co-packers operate on many levels and their capabilities, capacities and experience vary. The key is finding the contract manufacturer that can help you bring quality, safe and transparent products to market. This digital magazine examines the contract manufacturing landscape for food and beverages, including how to best choose a co-packer and key considerations about ingredient procurement and supply chain, costs, food safety, compliance and tips on negotiating a win-win contract.
Cheers,
Viewpoint
Judie BizzozeroSenior Editor(480)[email protected]
@judiebizz
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IN THIS ISSUE Viewpoint p.3 Legal insights p.8 Table of contents p.2
Whether a startup or veteran food and beverage maker, entrusting a contract manufacturer with a formulation and manufacturing process is a huge leap of faith. Food and beverage brand owners must balance the protection of the product’s integrity with trusting the expertise of a contract manufacturer. In this Q&A, INSIDER queried consumer packaged goods (CPG) companies about their experiences working with co-packers.
INSIDER: What are your top lessons learned from working with a co-packer?
Ben Hosseinzadeh, senior vice president of operations and supply chain, Foodstirs: Have clear and concise communication during product development and routines because you are one customer out of many that requires a lot of attention. Don’t be afraid to evolve your internal procedures to adapt for efficiency. Proper forecasting and smart demand planning can save a lot of time and money.
Craig Lieberman, founder and president, 34 Degrees: As in the rest of life, communication is key. You’ll have lots of ups and downs, so being willing to come together to talk through the challenges and obstacles, and hopefully come up with solutions, is critical. Understanding the strengths and weaknesses that you bring to the table as a brand and how they fit together with your manufacturing partner is also hugely important.
Anthony Spinato, president, Spinato’s Fine Foods: We’ve had the good fortune to work with wonderful co-packers, but it’s required a great investment in resources at times, and we’ve made some missteps along the way. We’ve learned if a co-packer is willing to take shortcuts to complete production, mistakes will likely be the way that compromise the brand. Anyone can pull a recipe together; however, it’s rare to find
those that take pride in the quality of the finished product. We have passion in every level of our operations, and we hold our partners to the same standard.
CPG roundtable
Brands dish on lessons learned from working with co-packers
6 INSIDER Co-packing digital magazine January 2019
Shari Coulter Ford, CEO and co-founder, Tohi Ventures LLC: A young brand should choose a co-packer that is experienced with—and enjoys—working with startups. The first production run will inevitably have surprises and challenges no matter how well you’ve prepared for it. Make sure you and your formulation partner have fully thought through, and even simulated, the production process at scale.
We also had weekly conference calls with our co-packer, so its entire team had an opportunity to ask questions and express concerns about the process. Many co-packers operate in “just-in-time” mode, so the timing and logistics of material and ingredient deliveries is critical.
INSIDER: Finding the right contract manufacturer can seem as daunting as looking for a needle in a haystack. Describe key considerations brands should keep top of mind when vetting potential partners.
Lieberman: This is likely one of the most important business partnerships you will have, so asking essential questions upfront is paramount. Key points to consider include determining if the business goals and values are aligned, if the manufacturing agreement can be structured as win-win for both parties, and whether you will enjoy working together.
Ford: Specific characteristics of a product—in our case a beverage—drive how you identify and narrow options for choosing a contract manufacturing partner. For example, you need to consider the size and type of can and lid you want, whether the beverage is carbonated or noncarbonated, the complexity of a product’s formulation or process, and the decision to use printed or sleeved cans. Once you’ve narrowed the options based on a co-packer’s capabilities, additional considerations should include cost, minimum run requirements, scheduling flexibility, and availability and logistics.
Spinato: One of the most important factors in vetting potential co-packers for us, or any partner, is the alignment with our company’s mission and principal values. It’s important to understand the core of the people that we align with, whether they happen to be a supplier, employee or customer. We are ultimately in the business of people. You can’t overlook that factor in any business consideration.
CPG roundtable
The first production run will inevitably have surprises and challenges no matter how well you’ve prepared for it. — Shari Coulter Ford, CEO and founder, Tohi Ventures LLC
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Finding a co-packer begins with a great deal of research. Once we’ve identified a potential partner, we entrench ourselves in the “discovery” stage that typically includes interviews, site visits, etc. We want to walk away with a better understanding of whether the partner will uphold the same level of care that we do. We’ve worked with co-packers that are willing to make concessions to fulfill orders. This results in a compromised product. We aren’t willing to cut corners to meet deadlines. Our co-packers must share the same perspective.
An equally important component in vetting a co-packer is what certifications they’ve pursued. Has it been certified as Safe Quality Food (SQF) or USDA Organic? What are its organizational measures for safety and traceability? The goal is having a strong alignment in operational priorities and core values.
Hosseinzadeh: In addition to making sure you have an aligned vision and mission, you need to establish certain roles such as research and development (R&D), purchasing and procurement, regulatory compliance, etc. Also, every facility differs, so ensure the co-packer has the proper equipment required for your product, and it has enough output capacity and scale to meet your brand’s goals.
CPG roundtable
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IN THIS ISSUE CGP roundtable p.5 Table of contents p.2
Businesses are becoming more sophisticated as new developments in technology take companies further into the 21st century. Yet shockingly, many of these sophisticated companies still conduct business without a formal written contract with their partners, instead operating by the proverbial “handshake agreement” and a patchwork of purchase orders, emails and other communications.
The lack of a formal, written contract often leads to divergent views as to what the parties intended when they initiated the relationship. Without something in writing that memorializes the intentions of the parties, companies may be forced to expend large amounts of time and money to sort things out.
Companies in the food and beverage industries are no exception. A well-written contract between business partners for the manufacture, supply and distribution of food and beverage products will help brands alleviate uncertainties and clarify the responsibilities of the parties. Following are some of the central considerations for drafting a top-notch contract.
Defining termsFailure to define key terms can often be the genesis of disputes that lead to litigation
over contracts. Important aspects of the business transacted between the parties must be clearly addressed and, in many instances, specifically defined to reduce confusion.
Identification of the responsibilities and obligations undertaken by each party must be unambiguous, so the full benefits and obligations of the agreement are understood for each party. Identifying and resolving as many of the key issues and questions as possible beforehand will help alleviate future disagreements.
Protecting secretsMany food companies may discount the importance of protecting intellectual property (IP)
in an agreement because they may not have a large patent or trademark portfolio, or proprietary recipes. This is a mistake. IP can encompass a large array of confidential information such as pricing, client lists or specifications—anything that could be damaging if it got into the hands of a competitor. It is important to ensure that the IP rights of the respective parties pre- and post-execution of the agreement are carefully spelled out to avoid fights over ownership down the road.Concerns over IP rights also can spill over to other competitive aspects. Licensing
Legal insights
Food for thought: How to prepare a winning co-packing contract by Justin J. Prochnow and Michael R. GoodmanINSIDER's take
A well-written contract between business partners for the manufacture, supply and distribution of food and beverage products alleviates uncertainties and clarifies responsibilities.
Many food companies unwisely discount the importance of protecting IP in an agreement because they may not have a large patent or trademark portfolio, or proprietary recipes.
More companies have separate contracts addressing the obligations of the respective parties pertaining to quality assurance (QA)—often called a “quality agreement.”
Co-packing considerations p.13
9 INSIDER Co-packing digital magazine January 2019
provisions or separate licensing contracts are often recommended to ensure a company’s trademarks are properly utilized. It also may be worth negotiating a noncompete term that restricts a contract manufacturer from working with the competition. It also may be important to keep the relationship between a company and its contract
manufacturer a secret, both in case any negative publicity comes out about one’s business partner and to potentially prevent competitors from seeking out that manufacturer.
Ensuring quality and protecting a brandTasty food is what attracts new customers, but safe food keeps them. The public
relations nightmare from the news that a piece of metal was found in a company’s products or that people are getting sick from bacteria-contaminated food can have a dramatic impact on business. Environmental monitoring, regular quality inspections and sound recall procedures are just a few of the ways companies can help ensure the quality and integrity of their products. If a company’s name is on a product, the quality of that product is a reflection back on the company.
An increasing number of companies have separate contracts addressing the obligations of the respective parties pertaining to quality assurance (QA)—often called a “quality agreement.” If no separate agreement is prepared, every contract manufacturing contract should have a robust QA section.
The section’s terms should address who is responsible and what will be done. For example, with what frequency will the brand owner or a designated third party perform an audit of the contract manufacturer’s facilities? Does the contract manufacturer have a comprehensive food safety plan prepared in compliance with the new provisions of the Food Safety Modernization Act (FSMA)? What happens when FDA shows up for an inspection—is the manufacturer obligated to contact the private brand owner? And who is responsible for a recall? Negotiating these terms into an agreement is essential to protecting one’s brand.
Forecasting the futureRunning out of materials is a great way to halt the momentum of any business and is
just one example of how accounting for future needs in a contract can be critical. To avoid lapses in business, manufacturing agreements involving parties with a continuing business relationship should have forecasts and performance provisions.
Legal insights
Concerns over IP rights also can spill over to other competitive aspects. Licensing provisions or separate licensing contracts are often recommended to ensure a company’s trademarks are properly utilized.
10 INSIDER Co-packing digital magazine January 2019
First, the brand owner should be willing to provide a forecast of anticipated orders at least several times per year so the contract manufacturer can be stocked and ready for when those orders come. Of course, the contract manufacturer then needs to be able to meet the deadlines for those orders when they come in. The key is to discuss how long it takes for a contract manufacturer to make the brand’s product. If the contract manufacturer cannot meet the deadline, what is the recourse for the private brand owner? If the contract manufacturer is the exclusive manufacturer and no other option is provided for in the contract, the brand owner could be stuck with the manufacturer until it is able to meet the order. A provision that allows for a brand owner to seek out other manufacturers if the contract manufacturer can’t perform can often be critical for a brand owner needing to get products on the shelves. Anticipation of such issues makes the difference between a serviceable agreement and a winning contract.
Negotiating indemnificationsIt seems a day doesn’t go by without another potential class-action lawsuit being filed
against a company—whether it’s for marketing and advertising claims or a manufacturing defect. The division and declaration of the rights and responsibilities of the contracting parties to comply with applicable laws and regulations, as well as a clarification of the indemnifications between the parties, are swiftly becoming some of, if not the, most important aspects of a contract.
While it may seem the responsibilities and obligations of the parties are clear due to the nature of the services provided, when money is on the line, all bets are off. Unless the contract clearly sets each party’s responsibility, the companies may have to spend more money to determine who is ultimately going to be responsible. The companies can shift the burden of responsibility, and the indemnifications are often determined by the respective “power” of the parties in the relationship. Of course, the time to negotiate and obtain any indemnifications is upfront, when the contract is being negotiated and prepared. As things fall apart, there is less chance of compromise.
Leveraging attorneys’ feesThe “American Rule” mandates each party in a court case is responsible for its own
attorneys’ fees and costs unless provided for by statute, rule or agreement. For this reason, an attorneys’ fees provision is often one of the most important elements of a contract.
The inclusion of a strong attorneys’ fees provision can be a big carrot (or stick) in resolving disputes without the need for litigation. It can often be difficult to collect smaller sums of money that are owed as part of a business transaction because the cost of hiring an attorney to recoup the money may be more than the amount owed. If an attorneys’ fees provision is included in an agreement, the company owing the money may be more willing to pay or negotiate if it must pay attorneys’ fees on top of whatever money is owed if the matter proceeds to litigation.
Legal insights
11 INSIDER Co-packing digital magazine January 2019
Scrutinizing the contract and learning from mistakesMost companies have ended up in at least one contract that, if they had it to do over
again, they would have changed some of the agreement’s provisions. The important thing is to make sure a company learns from those mistakes.
For example, business associates should never assume because they are “friends” with the other party that the contract will be completely fair to both sides. Companies often have boilerplate agreements prepared by their counsel that are slanted significantly in their favor with the mindset to see what, if anything, the other party will object to. And, just because a contract was used previously by the company, it doesn’t mean it is a good one or can’t be improved. If there are aspects of the business relationship that are important to a company, they need to get them in the contract. It is much harder to try to resolve issues after they have transpired or attempt to obtain amendments to an agreement once it has been signed. It’s better to try to address everything at the outset when everyone is on the same page.
For these reasons, it is recommended to have an attorney experienced in preparing and negotiating business agreements for food and beverage companies to prepare, or at the very least, review, the agreement before it is signed. A person likely doesn’t try to rewire the lights in his house unless he knows something about electricity or open the back of her computer unless she is an IT whiz, right? So, he shouldn’t put his name on a document that could have a major impact on the long-term success of the company without having someone with the requisite know-how sign off on it. Keeping these things in mind when a contract is formed can help pave the road to success and bring added peace of mind.
Justin J. Prochnow and Michael R. Goodman are attorneys in the Denver office of the international law firm
of Greenberg Traurig LLP. Their practices concentrate on legal issues affecting the food & beverage, dietary
supplement and cosmetic industries. They can be reached at (303) 572-6500 or [email protected] and
This article is issued for informational purposes only and is not intended to be construed or used as general legal advice. The opinions expressed are those of the authors exclusively.
Legal insights
Business associates should never assume because they are “friends” with the other party that the contract will be completely fair to both sides.
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13 INSIDER Co-packing digital magazine January 2019
The US$3 trillion food and beverage market is experiencing phenomenal growth, due in part to consumer demand for innovative offerings and healthier products, according to Allied Market Research. In fact, data from Resarch and Markets revealed the global market for functional food and beverages is expected to reach $255 billion by 2024, which means brands will be bringing innovative products to market faster than ever.
But the process from ideation to final product isn’t easy. Understanding trends, ingredient considerations, supply chain issues and production processes is paramount for success; cost and logistics can present hurdles, too, especially for new or small brands. Fortunately, companies don’t have to go it alone.
Co-packers, or contract manufacturers, are food processors that provide an attractive option for food and beverage brands to quickly launch products in the market. Co-packers often offer additional services, such as product development, ingredient sourcing, cost containment, packaging, warehouse storage, label review, regulatory compliance and ability to scale up product. What’s more, co-packers may operate on many levels—from manufacturing their own brand to manufacturing several brands—and their capabilities, capacities and experience will vary. The key is finding the right fit for one’s product.
Finding the perfect partnerFinding the right contract manufacturer to meet a brand’s needs is tantamount to
finding the perfect life mate. Most people do a lot of dating before committing to a relationship, and the same is true in business. A key question to ask a potential co-packer is where one’s brand will stand in their food chain. If the co-packer is just producing a new partner’s product as a “side gig,” it probably will be less likely to be a long-term partner—and less likely to invest in helping grow the new partner’s brand. Geographic proximity to the brand and/or its largest concentration of customers also should be weighed when choosing a co-packer.
“You should feel your contract manufacturing partner’s priorities and capabilities are well aligned with your needs,” said Liz Myslik, chief marketing officer at Fresca Foods Inc. “For example, if you need help sourcing and purchasing, can they do that for you? Are
IN THIS ISSUE Legal insights p.8 Supplier hero p.19 Table of contents p.2
Co-packing considerations
Key considerations for working with a food and beverage co-packer by Judie Bizzozero
INSIDER's take
Co-packers, or contract manufacturers, are food processors that provide an attractive option for food and beverage brands to quickly launch products in the market.
Using a co-packer can reduce startup costs and provide additional services such as formulation and ingredient procurement.
A contract manufacturing partner must be knowledgeable and compliant with federal and state food safety regulations.
14 INSIDER Co-packing digital magazine January 2019
they aligned well in terms of size and scale? A large-scale manufacturer might not be the right fit for a startup if you will not get the same focus and attention you would get at a smaller company.”
In addition to a stellar track record, people, food safety and quality are non-negotiable priorities when considering a co-packer. “Protecting their employees and their partners’ brands is the most important job for any food production company,” Myslik emphasized.
Chris Bekermeier, vice president, marketing and legal affairs at PacMoore Products Inc., agreed, noting trust must be the No. 1 priority when entering a business relationship.
“How can you align yourself with someone you do not trust?” he asked. “Top quality systems and execution are critical, but value (not price) is the most important measure when assessing cost.”
But no relationship is without hiccups, and brands will experience quality issues, cost challenges and other pressures when working with a co-packer.
“If you have a high degree of transparency and trust, you can work through them together,” Myslik said. “If you don’t, it’s likely to make things much harder on both of you.”
Another consideration should be whether the co-packer is willing to share its pricing, training, safety and quality, access to facilities, etc.
“Trust your gut on this one. If you feel uncomfortable or don’t feel like you are getting the full story, chances are you are probably right,” Myslik cautioned.
Pros and cons of using a co-packerMany small brands don’t have the capital for their own equipment and facility. Using a
contract manufacturer reduces those costs (and headaches) so the brand can focus on the marketing and sales side of the business. Many contract manufacturers also offer in-house research and development (R&D) that can significantly reduce development costs and time to market.
“Co-packers that manufacture their own brands generally have market research capability and product development teams for their own interests that they offer to customers, usually at cost to obtain their business.” Bekermeier said. “This is valuable to branded manufacturers that have been scaling down their R&D departments in recent years. The only rub in this is that the tolling fees at a co-packer with these departments are higher to cover their overhead.”
Many contract manufacturers also offer in-house research and development (R&D) that can significantly reduce development costs and time to market.
Co-packing considerations
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Bekermeier cautioned about the potential for competitive concerns in revealing intellectual property (IP) to a co-packer that develops, produces and markets similar products.
“Co-packers that don’t manufacture their own brands often don’t offer these services, but trust in these types of partnerships is more natural, at least in early stages of the working relationship,” he said.
While value-added services such as product development, package design and fulfillment are key considerations, raw input cost and labor cost for processing will always dominate the conversation, Bekermeier noted. The size of a production run and the amount of product that can be processed in a production shift also are key factors and “the impact of the amount of time it takes to clean and re-setup a system between different customers’ product runs can’t be understated.”
Myslik said managing production volume—even small volumes in the early days of a product’s life—can reduce costs, especially for products with longer shelf lives.
“A longer production run is more efficient and less costly. That leads to larger inventory, but with a longer shelf life, the brand has a longer period to sell through,” she said.
Also keep in mind that the more steps in the process, the more expensive the production costs become.
“Working in partnership with your co-packer to simplify and streamline the manufacturing process will help everyone achieve greater efficiency, less waste and lower cost,” Myslik added.
In addition to product development, sourcing, procurement and supply chain management should be top of mind.
Define the must-havesOnce a brand has made the decision to use a co-packer, creating a checklist
of specific needs will help in the search for the perfect partner. Key considerations should include:
Will the brand require product development assistance such as safety determinations, coloring, stabilizers, and emulsifiers or preservatives?
What are special product concerns such as acidity, thermal process, refrigerated ingredients, refrigerated product storage?
Are there special ingredient concerns?
Will the product require specialized ingredients in terms of variety, function or piece size?
Will ingredient preparation such as onsite chopping, peeling, coring or sugaring be necessary?
Can ingredients be purchased ready-to-use?
Are there alternative sources for specialized ingredients?
Source: North Carolina State University Department of Food Science
Co-packing considerations
16 INSIDER Co-packing digital magazine January 2019
“Managing these activities helps us align supply with demand, thereby reducing inventory cost and food waste,” Myslik said. “We also can aggregate purchasing across multiple products and brands, which increases our buying power and reduces our costs. We have built long-term relationships and trust with many of our suppliers, which has helped us have a greater impact on our sustainability goals and manage through common challenges like short lead times and inventory shortages.”
Like any relationship, there can be downsides. One issue to consider is potential loss of control over the product and its manufacture. Brands should develop a contractual agreement to ensure the products are manufactured according to specifications—ingredients, formulation, processing, packaging, etc.—in a timely manner. (See page 8 for mor information on creating contracts with co-packers.) Other disadvantages can arise when equipment and/or facility limitations impact scale-up and production. Production scheduling can also be problematic, especially if the co-packer has multiple clients with similar products.
Navigating food safety and regulatory watersRegulations—local, state and federal—associated with manufacturing food and
beverage products can be complex, costly and time-consuming. However, partnering with a co-packer can help avoid unforeseen expenses and potential pitfalls.
The Food Safety Modernization Act (FSMA), which became law in 2011, increased the regulatory requirements that food, beverage and supplement manufacturers must follow to ensure food safety. By July 2017, the law was applicable to most food and beverage makers, co-manufacturers, ingredient suppliers and importers, and FDA began actively enforcing rules and inspecting facilities.
“For the most part, co-packers have had solid quality departments that ensure products meet the specs of their customers,” Bekermeier noted. “But with the advent of FSMA and other government regulations, co-packers have seen the need to beef up their understanding and execution of quality regulations and their broader downstream impact.”
Myslik agreed, noting it’s critical that brands ensure their contract manufacturing partner is knowledgeable and compliant with federal and state food safety regulations.
Regulations—local, state and federal—associated with manufacturing food and beverage products can be complex, costly and time-consuming.
Co-packing considerations
17 INSIDER Co-packing digital magazine January 2019
“The contract manufacturer is producing your product and acting as your agent, so you should be aware of their track record,” she said. “The best way to do so is to ask for their food safety record, including FDA recall history, third-party audit results, good manufacturing practices (GMPs) and hazard analysis and critical control points (HACCP) documentation.“
If relevant to a product, one can seek a co-packer with certifications such as gluten free, nut free, non-genetically modified organism (GMO), etc. Myslik said other considerations include whether the co-packer has electronic inventory management to ensure traceability and cost control, controlled access to production facilities, and a hold and release policy.
Because brands are responsible for regulatory compliance regarding food labels and product claims, they should consider hiring a regulatory attorney to review labels and claims.
“Beyond food safety and regulatory concerns, there is also a heightened number of lawsuits against brands related to claims such as ‘all natural,’” Myslik pointed out. “A good regulatory attorney will also advise on potential litigation risks of food labels and other product advertising.”
A bright futureThe future is bright for the co-packing industry because it’s been, and will continue to
be, somewhat insulated from economic swings. Bekermeier advised many manufacturers turn to co-packers during tough economic times to cut costs by shedding expensive processing capabilities. On the other hand, many manufacturers take advantage of an upbeat economy by expanding, adding new brands and products.
“New challenger brands emerge, which is what we are seeing today,” he said. “All of this leads to a need for additional capacity, causing opportunities for co-packers.”
Co-packing considerations
18 INSIDER Co-packing digital magazine January 2019
Co-packing considerations
To self-manufacture or co-manufacture?
While more than 80 percent of entrepreneurial brands at some point outsource their manufacturing, there are several reasons why self-manufacturing may be a better choice early in a brand’s life. Liz Myslik, chief marketing officer at Fresca Foods Inc., suggested the following five considerations:
Agility. Young and small brands gain valuable feedback from consumers and retailers. These insights will likely influence the design of a brand’s product—everything from flavor profiles to texture to packaging. When a brand makes the product itself, these changes can be made more quickly and more easily than if it is working with an outside partner. This agility is a valuable advantage, particularly compared to large incumbent brands that are much slower to change and adapt to consumer preferences.
Volume. It may be far more difficult for small brands to find a co-packer willing to take them on because it’s harder for the co-packer to make a profit—and there is a greater risk for smaller brands to fail.
Expertise. No one should know more about a product than its entrepreneur. Even if a brand outsources manufacturing down the line—as most brands do—the knowledge gained by making it themselves early on will give them an advantage in managing quality, cost and the challenges of scaling up.
Strategy. If a brand’s manufacturing process is a source of competitive advantage, it may be better to self-manufacture. For example, emerging plant-based protein companies are investing millions in manufacturing facilities to protect the intellectual property (IP) of their recipes and processes. Self-manufacturing gives them a unique capability no one else can copy. On the other hand, if building a brand platform with multiple products across numerous categories is one’s strategy, self-manufacturing may not be the best approach because it will require setting up and managing multiple facilities to support the wide range of anticipated products. Brands in this category often manage multiple manufacturing partners and focus their resources and capital on marketing and sales.
Capital efficiency. One of the most important and challenging jobs of any business is to use its resources in the most efficient way to deliver value. If a brand’s capabilities and expertise are more on the production side versus the sales and marketing side, an entrepreneur may believe it can deliver greater value managing manufacturing than managing sales. If that is the case, it would need to outsource or hire for sales and marketing talent to help it grow.
19 INSIDER Co-packing digital magazine January 2019
New Hope Mills celebrated its 195th anniversary in 2018, which says a lot about its dedication to its community and environment. A third-generation, family-owned business, New Hope Mills was founded in 1823 and currently operates in Auburn, New York. Its headquarters, production facility, store and café are all located there.
The mill no longer produces flour, but it does churn out 27 varieties of pancake mixes, cookie mixes and other dry mix goods. The mixes sell mostly in the Northeast but are available in country-style stores throughout the East Coast as well. It also packs goods for Russell Farms, among other clients.
Russell Farms has operated in the Hudson Valley since 1976 and is family-owned, too. The current owner took the reins from the founder, her grandfather.
Longtime partnersDale Weed, previous New Hope Mills owner and father of the current mill owner,
worked with Russell Farms’ owner’s daughter to create a co-packing relationship in 1995 that’s lasted for two generations.
“New Hope Mills approached us about packing our private label pancake mix, and we have been doing business with them ever since,” said Patricia Marks of Russell Farms. “They are a small, family-run business like ours. You know everyone’s name that works there. They are friendly, they don’t treat you like you’re a number and they care about the quality of the product that they sell. It isn’t like an assembly line of machines that have no feelings.”
Lindsay Frye, marketing associate, New Hope Mills, echoed this praise. “We’ve been in business with them for so long that we know who they are,” she said.
“We’ve worked together and supported each other in the good times and the bad.”New Hope acts as a co-packer for a number of other companies besides the farm.“Being a third-generation, family-owned business, we support our co-packing
customers because we understand the challenges they face,” Frye said. “We treat each client and their products as if it was our own brand, and we believe in good, simple food that can help bring families back to the table.”
Supplier hero
Esca Bona supplier hero: New Hope Mills and Russell Farms by Jessica Swarner
INSIDER's take
New Hope Mills and Russell Farms bonded over their family-run legacies and a commitment to their communities, leading to a strong co-packing relationship.
Both companies are proud of their all-natural, preservative-free products, including pancake mixes, syrups, honey and maple cream.
The brands are staying relevant by educating consumers about their products and using social media to share recipes that incorporate their products in unexpected ways.
IN THIS ISSUE Co-packing considerations p.13 Takeaways p.22 Table of contents p.2
20 INSIDER Co-packing digital magazine January 2019
A focus on natural productsRussell Maple Farms sells pancake mixes, as well
as candy, coffee, honey and its specialty, maple syrup. It’s proud that its honey and syrup contain no artificial additives.
“All of our pancake mixes are made with all natural products and are sourced locally, if available, with no preservatives. Most are just ‘add water’ to make. You don’t need to add milk or eggs,” Marks said.
New Hope applies a clean label strategy to its pancake mixes and uses premium ingredients, never preservatives. It also offers low-carb and gluten-free mixes to support its customers who may not be able to eat the regular mixes.
“We believe that our customers should be able to read and understand our ingredient lists, so they can be confident in what they’re taking home to their families,” Frye said.
Recipe for improvementBoth companies celebrate that they have survived
for so long as small, family-owned companies. “We pride ourselves for still being a small, family-run
business that cares about our customers and puts out a quality, all natural product that tastes good,” Marks said.
While the companies both wish to preserve their traditions and legacy, they continue to innovate to stay relevant in changing times. For example, Russell Farms shares recipes online and on social media, as well as articles about the potential for honey to relieve symptoms of allergies and sore throats.
“We treat each client and their products as if it was our own brand, and we believe in good, simple food that can help bring families back to the table.”
Supplier hero
Photos provided by Russell Maple Farms
21 INSIDER Co-packing digital magazine January 2019
New Hope Mills just launched a new website to make it easier for customers to place online orders. They also share recipes through social media, with a focus on finding unexpected ways to use their products.
“We love to inspire our customers with ideas on all the different ways that our product can be multipurposed,” Frye said. “Did you know you can use our New Hope Mills Buttermilk Pancake Mix to make chocolate chip cookies? Or use it as a savory fish fry batter? There are hundreds of ways you can use our recipes—and we love creating and sharing those recipes with families everywhere.”
Editor’s Notes: Photos provided by New Hope Mills and Russell Maple FarmsThe Esca Bona Supplier Heroes is a reoccurring feature of suppliers that fuel
innovation in the good food supply chain. These features explore the brand story, innovation, supply chain investment, research and partnerships that these companies undertake to improve the food system and consumer health. We select suppliers based on their commitment to the good food movement, their story, their sustainability initiatives, their focus on safe and efficacious ingredients, and their partnerships with their finished product customers.
Esca Bona is an event and brand spearheaded by New Hope Network (no relation to New Hope Mills) that champions the good food movement by helping finished product brands improve their supply chain, support the people who create food, and best harness technology and innovation.
If you know of—or are—a supplier with a story to tell, email Sandy Almendarez, editor in chief, Natural Products INSIDER at [email protected].
Supplier hero
22 INSIDER Co-packing digital magazine January 2019
IN THIS ISSUE Supplier hero p.19 INSIDER Contacts p.23 Table of Contents p.2
Takeaways
Co-packing 101 by Judie Bizzozero
The nearly US$3 trillion food and beverage market is experiencing phenomenal growth, due in part to consumer demand for innovative offerings and healthier product, according to Allied Market Research. In fact, the global market for functional food and beverages is expected to reach $255 billion by 2024, according to Research and Markets, which means brands will be bringing innovative products to market faster than ever. But the process from ideation to final product isn’t easy, and brands need to consider key dynamics surrounding partnering with a co-packer or contract manufacturer.
Choosing your co-packing partner. Co-packers may operate on many levels—from manufacturing their own brand to manufacturing several brands—and their capabilities, capacities and experience vary. Brands should look for a co-packer whose priorities and capabilities aligned with their needs, and define who is responsible for certain roles. For example, will the co-packer source and purchase ingredients, or will the brand take on that task? What is the co-packer’s record on food safety and quality?
Benefits of working with a co-packer. Many co-packers often provide additional services, such as in-house research and development (R&D), ingredient sourcing, supply chain management, packaging and regulatory compliance, etc., which can significantly reduce development costs and time to market. Having a partner to handle these details allows brands to focus on the marketing and sales side of the business. That said, issues such as complexity of a formulation and type of processing required can affect costs. A co-packer can help simplify and streamline the manufacturing process so there is greater efficiency, less waste and lower cost.
Drafting a win-win contract. A well-written contract between business partners for the manufacture, supply and distribution of food and beverage products will help brands alleviate uncertainties and clarify the responsibilities of the parties. Ensuring the intellectual property (IP) rights of each party’s pre- and post-execution of the agreement should be carefully spelled out to avoid fights over ownership down the road. The contract also should have a robust quality assurance section that outlines a food safety plan, FSMA (Food Safety Modernization Act) audit procedures and recall procedures.
23 INSIDER Co-packing digital magazine January 2019
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EDITORIALEditor in ChiefSandy Almendarez ................................ [email protected]
Managing Editor
Rachel Adams .......................................... [email protected]
Senior Editors
Judie Bizzozero ...................................... [email protected]
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SALESVice President, Sales, Health & Nutrition Danica Cullins ........................................ [email protected]
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