Behind the own brand label items – which increasingly occupy more shelf space in supermarkets – there is a worldwide trend that not only involves the retail chains, but also the food processing and distribution companies. This practice is called co-manufacturing and consists of hiring a third party to be in charge of manufacturing the products.
Under this concept, stores can offer their own items at a lower price than the competition since they eliminate the costs of positioning a brand. On the other hand, it also benefits the food companies since it frees them from the work of production to concentrate on the development of new lines and marketing campaigns.
Likewise, companies suppress manufacturing costs of complementary items of their flagship products.
Originally, the manufacturers received the input from their customers to only transform them into the finished product. Today, the model has changed, and they have to finance the raw material, which implies a high working capital but backed by contracts with solid companies. Such as the food giants Unilever and Nestle, and chains such as Walmart, etc.
The cost of manufacturing represents only between 5 and 10% of the total value of an item. However, it implies sophisticated logistics and work: facilities, machine maintenance, personnel training, quality processes, etc.
The manufacture of food – particularly the packaging in individual presentations and novel packaging which requires specialised labelling machinery – is a high-value industry.
The business of outsourcing
The future of this trend does not consist solely in entrusting the production of articles to another. In fact, today it is already possible to outsource the integral development of a product. There are already companies which specialise in the entire process: from creating the formula and packaging (with its corresponding nutritional labelling) to manufacturing and marketing.
Outsourcing represents an opportunity for entrepreneurs since it allows the mass production of processed foods. And in the same way that a transnational or a supermarket chain can contract the manufacturer of its production, a small business owner has the option to materialise a good idea and produce it in relatively low volumes when associating with a co-manufacturing company.
For example, product development companies can work with entrepreneurs to get their concepts going. In this way, the work of the manufacturer consists of landing these projects and providing solutions to optimise both the inputs and equipment available, as well as ensuring the quality of the product.
Many entrepreneurs fail because they do not do things with the technological and scientific support that is required. For that reason, outsourced expertise is ideal for them. There are already thousands of companies that do not have their own manufacturing operations; they only sell the finished product.