Should I Manufacture Food In-House Or Use A Co-Packer?

By
Edible-Alpha®
-
Food Manufacturing

It can be a big leap to think about producing larger quantities of food when entrepreneurs are used to home production or commercial kitchens, where the batch size and financial outlay are relatively small, and operational processes are simple. However, if food businesses are considering going into wide-scale distribution in grocery stores and they want to be profitable (hopefully, they do!), they will need the capacity to produce their food at scale.

The inevitable question these entrepreneurs face then is “should I manufacture food in-house or use a co-packer?” This question can be difficult to navigate for new food producers, especially because there is not a hard and fast answer. The food entrepreneur’s business model, stage of business, financing capacity (i.e. how well they can raise money) and the availability of co-packing capacity for their specific needs all make a difference in deciding how to answer that question.

For some context, it is important to understand that co-packers, like all manufacturing businesses, make money when their facilities are full, and that aspect of their business model affects the clients they take on. Here is some more context from Food+Tech Connect’s blog:

“There are relatively few food contract manufacturers in the U.S., and each has its own unique setup. Co-packers trade flexibility for output capacity, earning the vast majority of their profits from large clients for whom they produce hundreds of thousands or even millions of units per year. An offer to make 500 gluten free granola bars is the least productive use of their time.”

There are many advantages to using co-packers as opposed to in-house manufacturing if you know of one with the capacity and willingness to handle your product. Manufacturing in-house is a big step in business complexity, especially in hiring people with the right set of skills to build and manage the operation. Co-packers can help bridge that operational gap. It is also more expensive to build a food manufacturing plant than to pay another business to manufacture food. Perhaps the biggest advantage is that working with co-packers allows the business to outsource manufacturing operations and achieve production scale while focusing more on scaling up the customer side of its equation by building its brand, acquiring customers and growing its sales.

However, there are also downsides to using co-packers and advantages to building out your own manufacturing capacity. For example, there is Quality Assurance (QA) dependence and risk when relying on another group to manufacture your product, meaning your product quality is only as good as the co-packer makes it. In our podcast this week, Angela Mavridis of TRIBALÍ Foods talks about the importance of having the right partners to scale up TRIBALÍ’s brand. The co-packer they use understands their unique needs and is physically close enough to Angela to allow her to oversee all production of TRIBALÍ’s products. This allows her to trust their production.

All aspiring regional and national food brands will have to face this decision at some point if they want to be profitable. While there are no hard and fast answers to the question of in-house manufacturing vs. using a co-packer, food entrepreneurs can use their context and their current business goals to help make an informed decision.

Some Resources On Co-Packing:

And now, our roundup of the best food and beverage finance news, events and resources from around the web…

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