Should Your Brand Self-Manufacture?

Most food entrepreneurs will inevitably face the question of whether to self-manufacture or use a co-packer. For many, this comes after their business takes off and they need to ramp up production, and they realize their home or commercial kitchen will no longer suffice. To meet demand and continue scaling, they must either acquire more manufacturing space and larger-scale equipment or else partner with an established contract manufacturer.

This question can also come for brands later on in their journey, after they’ve been using co-packer for some time. Experiencing continued growth, they wonder if it would be wise to build, buy or lease a manufacturing facility and reclaim ownership of the process. This is what oil ingredients manufacturer and supplier Connoils did—to great success, as founder and CEO Stacy Peterson details in the latest Edible-Alpha® podcast.

No matter when this decision arises, it can be a tough call. So much depends on the team’s strengths, the company’s business model and goals, and the intricacies and uniqueness of the product. Not every scaling food business can—or should—self-manufacture. In some cases, even more established brands are smart to stick with a co-packer, for any number of financial or efficiency reasons.

But for food companies that could feasibly do it, self-manufacturing can have a whole lot of benefits. For starters, they retain the margin they’d lose to a contract manufacturer, and they can save the costs of shipping ingredients and finished products from place to place. They don’t need to meet co-packers’ high minimum order volumes either. Self-manufacturing brands also remain in charge of quality control, so they can ensure that every production run is up to spec—and if it isn’t, they can make adjustments quickly.

Another perk is greater control over ingredient sourcing, as many co-packers want to stick with their own suppliers. Entrepreneurs can also ensure their own facilities have the necessary certifications, such as organic, gluten-free or vegan. This may even open up new revenue streams, such as by manufacturing other brands’ products during down times.

Additionally, self-manufacturing gives entrepreneurs more opportunities to practice their values. For instance, if environmental and social sustainability are baked into the brand’s mission, they can build or lease a green facility, ensure production staff is well compensated well and create the workplace culture they want.

But there are downsides to self-manufacturing too. For instance, most food entrepreneurs will have a lot to learn about manufacturing products at scale. Also, because co-packers have longstanding relationships with suppliers of ingredients, packaging, labels, etc., they can often score inputs at a lower cost.

And then, financially speaking, it can be difficult to raise capital for manufacturing. Banks issue loans for this purpose, but investors may be tepid about sinking money into facilities and equipment. Furthermore, for entrepreneurs hoping to sell their company eventually, private-equity firms don’t always view manufacturing assets favorably.

There is no one-size-fits-all solution to this dilemma. Consider all the pros and cons carefully, consult with trusted advisors and look at what other food businesses have done as examples. FFI has plenty of resources to help, so please reach out!

A female founder who has been at it for 13 years, Stacy Peterson joins Tera to talk about turning a discontinued product line and job loss into a thriving oil ingredients business. The Connoils CEO started solo and steadily scaled her company to become a one-stop shop for formulators of food, beverages, supplements, and other consumer products. Now with a sparkling new manufacturing facility, Stacy discusses Connoils’ next phases of growth.

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