Should You Use A Co-Packer?

co-packerThe big question is, should you use a co-packer for your food business. Remember, you are giving up a lot of revenue when you use one.

If you decide to use a co-packer, how do you navigate the maze of the food industry?

First of all, what is a co-packer?

A co-packer is a company that will manufacture a product for you so you don’t have to. They will also package, label and distribute your product line, so it appears that your company is the one producing this product.

 

Here are some other names for co-packers:

  1. Private label companies
  2. Contract packers
  3. Contract manufactures
  4. Manufacturing Facilities
  5. Co-manufacturers
  6. Suppliers
  7. Vendors

Some companies decide they want to do everything which consists of branding, marketing and manufacturing. Some experts suggest you stick with only one side of the business so you aren’t overworking yourself and taking revenue away from your company.

If you plan to sell your company down the road, having the manufacturing plant in place won’t help you obtain a larger asking price because that mega corporation will already have manufacturing facilities in place.

Some very important questions you need to get answered before you decide on a co-packer are:

  1. How do you protect your intellectual property (IP) when divulging your secret food recipe or formula to a co-packer?
  2. How do you deal with food recalls when the co-packer doesn’t fulfill your order properly?
  3. How do you deal with growth issues when your company starts to grow and your co-packer can’t provide you with more product to fulfill orders?
  4. What are their contractual obligations?

Tips for finding the right co-packer for your business:

  1. Don’t rush the process of finding a good co-packer. If you are a small business and green in the world of contract manufacturers, some of these manufacturing facilities can take advantage of you. Ask other companies who they use and why, and spend minimum 4-6 months doing your research including talking to many people.
  2. The contract is everything. Make sure you hire a good attorney who already has experience in this area of law so he knows what should and shouldn’t be included.
  3. The size of the co-packing company actually matters.

    This is according to co-packing industry expert William Madden who wrote the book, “Separating the Con Man From the Co Man: How to Source a Contract Food Manufacturer.”

    Madden’s company also provides a myriad of consulting services for your food manufacturing company which include sourcing contract manufacturers, managing your supply chains and developing food quality and safety protocols.

    If the co-packer is too small and they rely largely upon your business, one day you may decide to move on from them thus causing them to go out of business. The problem there is that your brand may end up in the newspaper article along side their company name. Plus if they are so small that they can’t grow to match your production, you will be turning business away and losing money.If you decide to go with a larger co-packer, they will see you as a small company they can take advantage of when they need your time slot for another much larger fish.

    This will negatively impact your business and either your product may be pulled from the shelf if you can’t make due on your orders, or you will lose a lot of revenue and customers.

    The best c0-packer is a family run company that is around the same size as you, maybe slightly larger. They will be able to grow with you and they will most probably want to keep their company in the family, unlike large private companies.

  4. Ask them how they handle your peak periods when everyone else has the same peak period.
  5. Make sure they are GFSI certified (Global Food Safety Initiative).
  6. Always check on their reputation.
  7. See if they already have an in-house R&D (research and development) team for your development down the road. If they do, Madden tells you to see if they will take a credit on their R&D after 4 orders. The reason they usually charge for R&D is their loss of income due to companies producing a new product they only develop once, or not at all.
  8. Try to find out who they are doing business with.
  9. How do they handle recalls. While all manufacturing plants eventually have recalls, it’s how often they have them, and how they handle them that matters.

Madden’s book also teaches you:

  1. How to talk to co-packers even when you don’t know what you are doing.
  2. How to figure out which co-packers know what they are doing.
  3. How to spot who is trying to take unfair advantage of you.

I wish you much success in finding the right co-packer for your business.

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