Four factors driving the need for co-manufacturing

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Four factors driving the need for co-manufacturing

15 Sep 2023

Joanie Spencer

Since 2008, Joanie Spencer has covered the retail and wholesale sides of the baking industry.
Serving associations such as the American Society of Baking (ASB) and BEMA, Joanie is also in demand as an industry presenter on bakery operations and trends. She holds a bachelor’s degree in communication from Rockhurst University and a master’s degree in journalism from the University of Missouri.

When she’s not running or playing soccer, Joanie spends her time with her husband and 11-year-old son.

LAS VEGAS — When brands consider tapping a co-manufacturer as a production resource, it’s likely for one of four primary reasons. That was a point of discussion during Carl Melville’s assessment on the state of co-manufacturing during Pack Expo, which took place Sept. 11-13 at the Las Vegas Convention Center.

Melville, who is president of The Melville Group, spoke on behalf of CPA, The Association for Contract Packagers and Manufacturers, which released its 14th Annual 2023 State of the Industry Report.

Of the four, capacity was the least likely reason that a brand would use a co-manufacturer, according to CPA research. It’s a factor that, at first blush, seems like it would be driving the need.

“You’d think capacity would be the first reason,” Melville said. “But the fact is, if a co-man has it, then a brand will say, ‘Let’s go to the next step,’ but if they don’t have it, then there’s nothing more to talk about. It’s constitutive.”

The next major factor after capacity is efficiency, which has a big impact on cost and can often complicate things.

“When you increase efficiency, you lower cost,” Melville said. “But when a brand looks at efficiency, they’re looking at more than a single number. ‘Can we shut a line down? Can we move a line? Can we combine lines or shutter a facility?’ All of that factors into the efficiency formula.”

“Today, food companies are grabbing innovation with both hands. And they’re expecting a lot more from all their partners, including co-manufacturers.” — Carl Melville | president | The Melville Group

The second biggest factor driving the need for co-manufacturing is innovation. This is a clear sign of the times, according to Melville.

“Today, food companies are grabbing innovation with both hands,” he said. “And they’re expecting a lot more from all their partners, including co-manufacturers.”

New product development is more prevalent than ever, with large companies keeping an eye on new players or entries into the market.

While some big brands are scooping up smaller companies whose size allows them more agility with innovation, others are investing in startups and emerging brands through funding, mentorship or incubator programs.

“There are a lot of ways they’re trying to bring innovation,” Melville said, “and one way is getting it from their contract manufacturing.”

That said, innovation doesn’t always mean product development. According to CPA research, brands that were surveyed ranked product innovation at 7.4, but they scored process innovation at 8.2.

“Brands are saying, ‘Do what we do — better — and show us how we can do it better,’” Melville said. “‘How can your equipment bring more innovation to what we do than what we have on our lines?’”

And that process innovation leads to the top reason why brands seek co-manufacturing: speed to market.

For modern CPG companies, competitive advantage and intellectual property is mostly fleeting as several categories remain saturated with similar products.

“If I can get to market with my product — which is basically the same as the competitor’s because they bought the same market research,” Melville said. “If I can get there six months faster, that’s everything.”

And that, he noted, is a key benefit of a co-manufacturer.

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