This week, our team at Sherpa CPG and the good folks at Rodeo CPG teamed up to create one of the most functional and complete Co-Packer Databases ever!
This week, our team at Boyle Brands and the good folks at Rodeo CPG teamed up to create one of the most functional and complete Co-Packer Databases ever! Many of you have already received your co-packer list and have been hard at work searching for all the manufacturers that might be a fit to make your product.
However, many of us at Rodeo and BoyleBrands have received questions around reaching out to and working with manufacturers successfully, so I've created a small crash course in Co-Packing 101 for Food and Beverage CPG brands.
A “Co-packer” is an industry term for a contract food Co-packer that specializes in making food products and packaging them for you based on your specifications.
Within that, co-packers can be broken down into different subcategories. Some of the main categories are:
Depending on the Co-packer, co-packers can manufacture the products, warehouse them, and fulfill them or they will want you to get the goods out of their product right away depending on their preference.
Many food and beverage entrepreneurs ask themselves whether they should invest in their own factory to make their products or if they should utilize an outsourced Co-packer. Except for certain extreme circumstances, If you are working on creating any packaged food product that will sell direct-to-consumer (DTC) online or on a retailer shelf then you will want to use a co-packer.
The US is full of co-packers that have availability and expertise to manufacture your product. If used correctly, co-packing is the quickest and most cost-effective way to launch and scale a food product. They are experts in making products that allow you to avoid the intricacies of food manufacturing and instead focus your time on sales and marketing.
When speaking about co-packers, many food and beverage entrepreneurs immediately think of horror stories they have heard or experienced. I have been on both sides of the table, working with co-packers to develop their program as well as working with brands to find and onboard co-packers. Anytime there is a problem, it 100% stems from either a lack of communication or pushing ahead without following the necessary on-boarding steps.
In order to arm food and beverage entrepreneurs that are new to co-packing, here are industry terms that you can use so that you are speaking their language when reaching out:
Minimum Order Quantity. This is an important marker for the size of the co-packer and matching whether you are the right fit for the size of your business.
Turnkey means the Co-packer will make the entire product for you. They will order all of the ingredients and packaging on your behalf and you will pay for the finished product in one invoice. This is a common option for larger brands that have a large number of products to manage so they don’t have to get into the complexities of supply chain for multiple categories.
Unlike turnkey, tolling means you will provide everything to the co-packer (formula, ingredients, and packaging) and they will only charge you for the use of their machines and labor, charging a “tolling fee” for the product passing through their factory.
A lead-time is how long it takes from a confirmed purchase order to production. Prior to establishing a relationship with a co-packer, you need to be able to determine a reasonable lead-time so you can plan your supply chain accordingly.
A line trial is a small sample-size production run where the formula and packaging is tested to make sure it will work for both the customer and the Co-packer. The line trial acts as a test so you can determine what changes need to happen before scaling to a large general production.
Commercialization is the process of making a formula commercially viable. This includes finding the correct ingredients to match your formula on a commercial scale that also works on the manufacturing equipment of your co-packer. There are likely changes to both the formula and the ingredients that will need to be made to ensure shelf-life.
This is incredibly important. In order to find and work with a co-packer successfully, you need to get the normal customer/client relationship out of your head. You must completely change your mentality and instead think of your co-packer like an investor, especially in the search phase.
Co-packers make their money from brands when a product line has scaled. In most cases, the co-packer will either break-even or lose money while working through the on-boarding and initial orders with your brand. However, they will make money once you scale to truckload purchase orders, which is why they need to make a decision to invest their line time and resources to your product line.
Like any investor, you must collect all of the credibility indicators about your brand and sell the manufacturing group. Explain your long-term vision, the team members that you have in place, and sales strategy. In everything you do, you are courting the co-packer like an investor. If the co-packer doesn’t answer your first calls or emails, call them again like you would a retail buyer or an angel investor.
Once you have found a co-packer you have selected to work with, an important next step would be to develop a straightforward Co-packer Operating Agreement. Many food and beverage entrepreneurs skip this step and go straight into manufacturing, but I would highly recommend getting a co-packer operating agreement in place before you begin producing. As the old saying goes, good boundaries make good neighbors, and in this case a straightforward Operating Agreement will actually lead to a better and more transparent relationship with your Co-packer.
Operating agreements are different depending on the specific relationship with the manufacturer and food brand (are you purchasing equipment for their plant, are they co-developing your formula, are they also acting as your warehouse, etc.). However, there are some key components that are crucial to a good Operating Agreement:
I have spoken about this before as this is one of the most common issues I see when a relationship goes wrong between a manufacturer and a food brand. There must be a clarification right at the beginning of the relationship that the food brand 100% owns their food formula. I have seen it many times that a co-packer will help a new food brand in adjusting their kitchen recipe and then will feel that they now own or co-own that recipe.
As a food brand, your formula is a key piece of your IP portfolio and you need to clarify that even with processing changes developed by the manufacturer that you will still 100% own your brand formula.
There should be a defined marker between the two parties of how the finished product should look, feel, and taste. Both parties should be on the same page of the product specifications to protect the manufacturing group from unrealistic expectations and the food brand from poor quality.
The question of liability insurance can be very different on a case-by-case basis, but generally as a food brand you should look to be added as an additionally insured addendum on the manufacturer's liability insurance.
In order for a brand to have a quality food program, they need to understand how often they are able to get products in order to manage cash flow and supply/demand. Many co-packers are extremely busy and have booked production, which is not a bad thing. A busy restaurant is a sign of a great restaurant, but you need to be able to make a reservation at that restaurant, which is your purchase order.
I hope this article is helpful as you engage your co-packer search with your new FREE co-packer database. Go forth and create!
*A version of this article is also on Rodeo CPG and can be found here.
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