Partnering with Co-packers

RECIPE TO RETAIL: Part 10…

Brand owners often partner with co-packers to produce their product. It enables them to focus time and financial resources on building the brand, rather than tying up money to build and operate a manufacturing facility.

Strong partnerships between brand owners and co-packers depend on transparency and negotiating for win-win outcomes. Respect the co-packers’ need to make a profit. They are not in business to provide free services.

Co-packing Agreements

Always have a written agreement when using a co-packer. Co-packing agreements are legal contracts that define financial arrangements, policies, processes and each party’s responsibilities. Retain a lawyer with experience in the packaged foods industry to draw up an agreement or review the co-packer’s contract. Take time to read the fine print to understand what you are getting into.

Before disclosing product specifics, ask prospective co-packers to sign a confidentiality or non-disclosure agreement (NDA).

Conducting due diligence is necessary to protect your business and mitigate risks. A myriad of details need to be worked out.

After initial discussions about products, volumes and pricing, the following are some important points to address:

Product and Packaging

Some co-packers have multiple facilities. In which location will products be produced, packaged and stored prior to shipping?
Who owns the product formulas?
Who is responsible for managing ingredient sourcing and procurement?
Changes to ingredients, formulations and processes should be approved by the brand owner.
Brand owners should have access to all information that pertains to their product.
How is packaging inventory and replenishment managed?
If packaging is damaged in the co-packer’s facility, who bears the cost of write-offs?

Food Safety and Quality

Detailed ingredient and product specifications should be agreed on and adhered to.
The co-packer should demonstrate compliance with government food safety requirements and have preventive control plans, a traceability system and recall plan. Consult a food safety specialist to ensure the required food safety systems are in place.
Does the co-packer have third party certifications to back up label claims such as gluten-free, nut-free, organic, halal, etc.?
During food safety investigations, co-packers should cooperate fully with government agencies and provide information expeditiously.
Who is responsible for costs associated with non-conforming products?
Overstock or expired product should not be sold to a third party, closeout house or at retail without the brand owner’s permission.

Pricing

How are commodity cost fluctuations managed?
How are price increases managed and what is the minimum notice period? Be aware that major retailers may not accept price increases or may demand retroactive price decreases.

Service Level

Submitting accurate forecasts to co-packers helps them manage raw material inventory and production plans.
What is the co-packer’s minimum lead-time to produce your product?
How does the co-packer manage order conflicts?

Customer Requirements

If you plan to sell to major retailers like Loblaw, read their vendor agreements and understand the cost of doing business with them.
Make the co-packer aware of customer requirements and consider incorporating them into the agreement.

When partnering with co-packers, take steps to protect your business and brand. Doing your homework and putting plans and safeguards in place will mitigate risks, and allow you to focus on growing your business. When the brand is successful everyone benefits.

As a packaged foods specialist, Birgit Blain transforms food into retail-ready products. Her experience includes 17 years with Loblaw and President’s Choice®. Contact her at Birgit@BBandAssoc.com or learn more at www.BBandAssoc.com

This article appeared in Food in Canada magazine.