A co-packer, or co-manufacturer, is an established food company that
processes and packages your product according to your specifications.
You are out of the kitchen and can take advantage of their expertise.
You also have more time to promote and distribute your product. However,
costs are higher and there are a limited number of co-packers.
A
contract packer, or
co-packer, is a company that manufactures and packages
foods
or other products for their clients. To market and distribute, a
copacker works under contract with the hiring company to manufacture
food as though the products were manufactured directly by the hiring
company.
A co-packer is similar to a
contract manufacturer in other industries, such as
automotive or aerospace. Co-packing is commonly used when the producing company doesn't have the packing capacity,
machinery, knowledge etc.
So, what exactly is a co-packer? In short, a co-packer is an established food
manufacturing company that produces your product to your specifications for a fee. You may ask yourself
why you would pay someone to produce your product. When you begin looking into the costs of setting up a
food manufacturing facility, you will quickly come to the realization that the capital required to run
your own operation is out of reach for most start-ups.
Here are 7 reasons I co-pack my food product:
1. It’s not my strength
When I started my company, the last thing I wanted to do was make a
TON of mustard and sell it. I just wanted to do more sales, more
management, and build a cool brand. Manufacturing is my weakness. But,
it’s someone else’s strength. I try to focus on what I do best and hire
for what I’m simply not good at.
2. It allows me to do more sales
As I hinted in #1, I can sell mustard to pretty much anyone. I’ve
convinced people who don’t even like mustard to buy it. I’ll up-sell
people to 2 or 3 jars in a matter of seconds. Sales is the growth engine
of my company – and your company, too. That’s why I’m choosing to focus
on it – and not manufacturing. When you manufacture every day, when are
you going to do sales? No sales = no money to cover expenses. No money
to cover expenses means you’re going out of business. No, thank you.
3. It lets me scale up
When you make product on your own, you can only produce so much
product. In the first few “hobby years”, I was making 12 jars of mustard
on my parent’s stovetop. Pain. in. the. butt. And if I kept going that
way our mustard would have to be sold for $12. And we all know that’s
pretty much impossible. To get our product cost down, I scaled up to a
co-packer. I could buy ingredients, glass, and packaging in bulk — and
my per unit
cost of my food product plummeted – to a point where Green Mountain Mustard became a viable business.
4. My kitchen manager is my partner in crime
Doing everything as a solo founder is madness. I’ve written on the
solo founder food business
before. There’s a lot to do — in fact, your to-do list is never-ending.
Mine often spans 2 pages of my notebook. But, now that I have a
co-packer/kitchen manager, I’m able to eliminate a large chunk of my
to-do list that would have gone towards producing my product. That
ultimately makes me more productive. Don’t you want to be productive,
too?
5. My co-packer (honestly) makes my product better
On multiple occasions, I’ve talked with my co-packer about how she
makes my product. And every time she tells me a story about making it, I
keep thinking, “I would never consider that!” Everything prep of
ingredients, filling jars faster, and working with me to increase daily
efficiency, it’s a welcome “expense” to pay when you know she can do it
better than you.
6. It helps me meet other food entrepreneurs
My co-packer is pretty unique. She pretty much runs a shared kitchen
with the option to co-pack (and most manufacturers do). People are in
and out of the kitchen all of the time. And I’ve met almost all of them.
The best people I’ve met? Other food producers. Why? Because we can
chat about what we’re doing, how we’re growing, share suppliers, new
retailers, etc. Our co-packing facility is a small family — we all help
each other out. And it’s a main reason why I’ve stayed with my co-packer
for several years.
7. It’s less expensive
Say what? It’s true! Co-packing is significantly less expensive than
opening your own kitchen. If you’d like to open your own kitchen, you’re
looking at at least $100,000. And you probably don’t have that hanging
around on your kitchen table. You can use a co-packer for a couple
thousand dollars a day (all said and done — ingredients, packaging, and
labor). Because of our smaller production capacity, my co-packer costs
me a couple thousand dollars a month — soon to be more with holiday
demand – but it’s still less expensive than finding my own commercial
space. It’s just
another thing to do.
Those are my personal and business reasons of why I co-pack my food
product. It’s ultimately a business decision. You may never want to
co-pack your product – ever. But, for many food companies, it’s the next
logical step for your company to take production out of their house or a
shared kitchen.
The last reason on the list — the fact that co-packing is
significantly less expensive – is the main reason I co-pack. I’m young, I
have no collateral, and can’t get a bank loan to save my life. So, I
co-pack because I can afford to. It helps me grow my little mustard
company and create life-long relationships.
Some of the objections to co-packers are:
1. They’re expensive (if you compare to producing food products in your house)
2. They will never make the product better than me
3. I won’t get personal attention
***** Food Manufacturing spoke with Paul Young of DHL Supply Chain
about how food manufacturers can best utilize co-packing, as well as
other trends regarding packaging efficiency.
Paul Young, Product Development Director, DHL Supply Chain (UK I, France, Eastern Europe, Middle East & Africa)
Q: What is co-packing and how does it work?
A: Co-packing
(also known as Contract Packing) involves outsourcing the
manufacturer’s secondary packaging requirements (such as outer boxes or
packets) to make products shelf-ready. Secondary packaging has become an
important competitive advantage for manufacturers, particularly in the
food and beverage, health and pharmaceutical markets, as it is a rich
area for operational efficiencies. In the current economic climate,
co-packing has become increasingly popular as a means of fulfilling
large projects without taking on extra staff and equipment.
Q: What are the benefits of co-packing for food manufacturers?
A: Greater
product visibility, increased management of costs, flexibility and
environmental benefits are just some of the benefits food manufacturers
can derive from the process. The primary driver is managing costs,
because third-party operators already have the expertise, resource and
staff in place. In a recent Contract Packaging survey, highlighted in
DHL Supply Chain Matters,
65 percent of respondents who had invested in co-packing said it had
increased their business’ flexibility, while 62 percent felt it had
helped cut costs. Furthermore, co-packing can reduce carbon footprints;
for example DHL conducts a “centre of gravity” study for each customer,
recommending ways to cut down on transport and minimise the
environmental impact of distribution.
Q: What recent trends have you noticed regarding packaging efficiency?
A: Multi-national
manufacturers are increasingly looking at ways to reduce the number of
co-packers across country and regional borders. This consolidation
allows economies of scale to drive down overheads and administrative
costs, providing even greater benefits for manufacturers. Secondly, the
legislative drive to reduce waste through elimination at source has
prompted greater collaboration with co-packers and packaging suppliers.
Previously “over-engineered” packaging has been redesigned and, in the
majority of cases, reduced.
Q: What should manufacturers consider when choosing a co-packer?
A: In
today’s economic climate, consideration should be given to the
financial and operational stability of the co-packer. A multi-country
presence with similar operating standards, procedures, capability and
transparency are also important. From a cost perspective, the total
supply chain costs should be accounted for. For example, it would be a
false economy to appoint a co-packer that is 10 percent cheaper if it
costs more to send the donor stock and collect the finished goods from
the co-packing site.
When choosing a co-packer,
manufacturers need to consider three options: co-pack at manufacturing
source; co-pack at the stock holding facility or send out to an external
co-packer.
Another aspect to consider is the ability of the
co-packer to provide an “end to end” solution. The design, sourcing,
procurement and management of packaging can be improved through
collaboration with the co-packer, especially if it has experience of
transportation requirements and has the scale to drive down costs.
The increasing emphasis on sustainability and rising transport costs should also be factored in when making the decision.
Q: How do you see co-packing evolving in the future?
A: Because
of its ability to optimise the efficiency of operations, co-packing is
increasingly seen as a “core” product offering, rather than a
“value-added” extra. The larger co-packers have such a diverse customer
base that best practice transfers quickly across sectors and product
groups. The tendency for third party providers to expand their services
means that co-packing will inevitably shift further back up the supply
chain, possibly resulting in the outsourcing of packaging lines at
manufacturing facilities.
It’s also likely that
we’ll see the emergence of Lead Co-Pack Providers (in the same way that
we’ve seen Lead Logistics Providers), who effectively become the main
contractor and provide the end-to-end solution.
Increasing
environmental awareness from consumers continues to drive many
companies’ agendas. DHL is working with its customers and suppliers to
produce environmentally friendly, innovative packaging solutions,
helping customers eliminate waste at source and reduce packaging costs
at the same time.
As consumers benefit from greater choice and
manufacturers strive to differentiate themselves from the competition,
co-packing will become increasing important in emerging markets too. In
this instance, co-packers will need to scale operations to support this
requirement, and transfer the skills they have developed in more mature
markets.
(e.g. = for example)
(e.g. = for example)
