“Co-packer” is an industry term for a manufacturer that specializes in making food products and packaging them based on your specifications.
Within that, co-packers can be broken down into different subcategories. Some of them are:
Depending on the co-packer, they may also have the capability to warehouse your products and fulfill them.
We'd say, far less menacingly, yes. While there are some exceptions, it makes sense for the majority of food brands.
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. Working with a competent partner allows you to avoid the intricacies of food manufacturing and, instead, focus your time on sales and marketing.
When talking about co-packers, many food and beverage entrepreneurs immediately think of horror stories they have heard or experienced. Anytime there is a problem, it stems from either a lack of communication or pushing ahead without following the necessary onboarding steps.
Here are commonly used terms when you reach out.
Minimum Order Quantity. This will give you an indication for how big the co-packer is and if they are the right fit for 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'll pay for the finished product in one invoice. This is a common option for brands that have a large number of products and don't want to manage all of the complexity.
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.
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 agree on 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 brand and the co-packer.
Commercialization is the process of making a formula viable, at scale. This includes sourcing ingredients to match your formula, making sure the costs make sense, and confirming things run smoothly with the equipment/production line.
To find and work with a co-packer successfully, you need to get the normal customer/client relationship out of your head. Think of your co-packer like an investor, especially in the search phase.
Co-packers make money when a product has scaled. In most cases, the co-packer will either break-even or lose money while working through the onboarding and initial orders with a brand. This means they need to make a decision to invest their line time and resources to your product line.
Therefore, you must collect all of the credibility indicators about your brand and sell the story. Explain your long-term vision, the team, and sales strategy. If the co-packer doesn’t answer your first calls or emails, call them again like you would a retail buyer.
Once you have found a co-packer, you'll need an operating agreement. Many food and beverage entrepreneurs skip this step and go straight into manufacturing...bad idea.
As the old saying goes,
Good boundaries make good neighbors.
A simple agreement will lead to a better and more transparent relationship.
While agreements will differ depending on the relationship, there are some key components to consider:
At the beginning of the relationship, it's important to clarify that you, the brand, own your recipe/formula. Sometimes, co-packers will adjust things to scale and then feel that they now own or co-own that recipe.
As a food brand, your formula is a key piece of your IP portfolio. Even with processing changes developed by the manufacturer, the recipe is still yours and that should be clear.
There should be a mutual understanding of how the finished product should look, feel, and taste. This protects the co-packer from unrealistic expectations and your brand from poor quality.
Insurance varies depending on the situation. Generally, brands should look to be added as an additionally insured on the manufacturer's liability insurance.
Managing inventory is key to managing cash flow. There needs to be an understanding around how long it will take to receive you products after you've handed over a purchase order.
If you're in the early stages of building a brand and need help with product development, Sherpa CPG is here to help. They partner exclusively with food and beverage brands to translate creative visions into commercially viable, crave-worthy things. From fine-tuning flavors to managing your pilot runs with a new co-packer, they streamline scalability on the savage path to market. And most importantly, they give you the freedom to refocus your awesome self on that juicy Big Picture vision, sales, and (woo!) more sales