What's a Co-Packer?
Starting a vegan food manufacturing company
by Ed Coffin, RD
by Ed Coffin, RD
Many vegans have the dream of starting their own food manufacturing company and offering their products in retail outlets. While there is a myriad of challenges that need to be overcome, from idea to sales, the major starting point is always figuring out exactly how you'll produce your product. After completing some initial due diligence, most start-up food manufacturers finally decide that using a co-packer is the best solution for them to get things going.
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.
From leasing or purchasing a facility, to purchasing food-grade equipment, to paying employees – these costs quickly add up to a daunting amount for a company with no sales. This is not to mention the costs that you, as a manufacturer, will need to shell out for ingredients and packaging. There will also be many other costs involved such as advertising, licensing, etc. However, with the temporary help of a co-packer, many small producers are eventually able to open their own facilities once their sales can support such an endeavor.
There are many factors that must be taken into consideration when it comes to finding and selecting a co-packer. Before the search begins, you should at a very minimum have a standardized recipe and a non-disclosure agreement from an attorney. A standardized recipe is essentially the formula that your co-packer will use to produce your product. It should be scaled up to mass quantity and include all measurements in weight, for accuracy. A non-disclosure agreement is a short legal form that you will have any potential co-packer, or anyone with whom you discuss your business, sign to ensure that they will keep any information you share completely confidential. If you are short on funding, a basic non-disclosure agreement can be obtained online through an internet search.
Once you have those two documents in hand, you can begin your official co-packing search. The first aspect you want to consider is the location. While it's best to find a co-packer close enough to travel to on a regular basis to check on production, it's not always possible to locate the perfect match nearby. It is completely possible to partner with a co-packer not in your immediate area as long as you have excellent communication.
Not all co-packers are created equal and you want to be extremely diligent when conducting research on potential co-packers. Unfortunately, there are co-packers who might be known for stealing proprietary information, producing knock-off products, or generally producing poor-quality products. The best way to begin your search is by looking for co-packers that produce products similar to the ones you want to manufacture. This is because they are more likely to have the equipment and resources necessary to produce a high-quality product.
It should be noted that even though a company may not designate itself as a co-packer, it could still be willing to co-pack your product if you approach it. Many times small to medium-sized food manufacturers are willing to co-pack other products, even competing ones, to bring in extra cash and fill in production gaps. Perhaps you know of companies that produce high-quality products you enjoy and are similar to the ones you want to produce. It's definitely worth reaching out to them.
Once you have compiled a list of potential co-packers, you will want to begin conducting reference checks. Assuming they manufacture goods for other companies, you will want to reach out to those companies to ask them how their experience has been with that particular co-packer. If you are working with a company that has never co-packed before, you should ask for some business references, such as their distributors or sellers, and ask them what their relationship is like. By completing this process, you will quickly get a sense about whom you'll feel comfortable with and whom you will not.
Once you have decided on a few co-packers you're interested in, you should begin discussions to answer issues surrounding pricing and production capacity. You will also deliberate over which expenses you will cover, and which will be covered by your co-packer. It can be difficult and nerve-wracking to determine things such as how much product you can commit to producing and for how long, but going through this process will allow you to create a solid plan for moving forward. You'll also find that co-packers can be a useful resource for you and will answer questions regarding how to find distributors, how to develop packaging, and what forms of marketing work best. While you go through these discussions, it's important to ask as many questions as possible.
Once you have selected a co-packer you are interested in working with, next come the negotiations over putting a contract into place. Never begin co-packing without a contract! In this part of the process, there is no way around getting professional legal help and advice. A good contract will protect you and the co-packer in an amicable way. Your attorney will ensure you have protections and solutions to ensure your product is being produced to your specifications and that you have an opportunity for legal recourse if something happens to go wrong.
During the process of this contract negotiating, you and your co-packer should begin to discuss specifics such as quality indicators. It's essential to provide your co-packer with clear guidance and expectations for your finished product and how that will be measured. Your contract should protect you from paying for a product that is not produced to your standards. Nothing is more important than communicating with your co-packer to ensure you are on the same page and both understand every aspect of the product that you wish to produce.
Finally, you'll want to begin to ask yourself questions about what your sales will need to look like in order to move into your own production facility. Paying a co-packer is a good temporary solution to get off the ground, but you might be paying them up to half of your profits in co-packing fees. Once you can support yourself, you'll be in a great place to really begin some serious growth. A final word of advice is to learn as much as you can from your co-packer. You will gain invaluable information that will help you while you are using your co-packer, and insight that will be essential once you are in the position to begin producing your product completely on your own.