Contract manufacturing FAQ and tips
What's the difference between private label, contract manufacturing and contract packaging?
BakingBusiness.com, June 7, 2011
by Baking & Snack editors
So, you have a hot idea for a potential blockbuster baked food and need help to move beyond your kitchen oven. You are not alone. The editors of Bakingbusiness.com field dozens of such inquiries every year.

Private Label vs. Contract Manufacturing

As commonly understood in the grain-based foods industry, PRIVATE LABEL is the practice of taking an existing formulation and packaging it with the customer’s brand. Little, if any, adjustment is made in ingredients or processing method compared with the bakery’s own branded value- or mid-grade products. Nearly every bakery, including many of those operated by the major players, will offer private label to its customers, typically retail grocers and supermarket chains.

CONTRACT MANUFACTURING, on the other hand, uses the customer’s own formula (recipe) and follows processing methods agreed upon by the customer and the manufacturer. The bakery and its customer usually sign confidentiality agreements protecting each other’s interests. Finished products are shipped to the customer or to warehouses. The marketing of foods made under contact manufacturing agreements is normally the responsibility of the customer alone. The value to the customer is that the contract manufacturer has the commercial-scale equipment to produce and package a food. Because most bakeries do not fill 100% of their line capacities, they sometimes seek outside (contract manufacturing) business to fill slack time on those lines.

There are also CONTRACT PACKAGING services. These companies take bulk foods, usually produced elsewhere, and package them for retail sale. This service is particularly useful to companies that must portion-pack their products yet do not want to buy the highly specialized, high-speed machinery required.

You might also consider LICENSING your brand, recipe or process. You can write the agreement to give you control over the formulation.

What’s right for you?

SMALL BATCH means something entirely different to home bakers than it does to retail and wholesale bakers. If you want to produce less than 1,000 lb of product per run, you will find that the local retail baker will be much more interested in working with you than the usual commercial wholesale baker. It is not unusual for the threshold at a wholesaler to be 2,000 cases per month. So, if you are just starting out, talk to the bakeries in your immediate geographical area. If you want to do the work yourself, consider leasing the kitchen of a local restaurant or an in-store supermarket bakery during off hours.

As demand grows, you may need to consider a LARGE BATCH processor — and it’s the baker who defines "large," not you. The decision to take on a customer is usually the right of the plant or regional manager. Your product will likely need some adjustment in its formula to get it to run on the large-scale machinery. If your process is very unusual, you may be asked to invest in the equipment required to run your item.

Where can I find names of contract bakers?

You can find such companies and more in Sosland’s Directory & Buyers Guide and Red Book publications, issued in February and July, respectively. These directories are available for purchase online.

For example, in the cookie and cracker industry, companies such as Consolidated Biscuit, Oak State Products, Ralcorp Holdings, Richmond Baking, Schulze & Burch Biscuit Co., D.F. Stauffer Biscuit and Vista Baking, among others, have well-established contract manufacturing operations.

Why is there no "contract manufacturing" category in your directories?

As noted above, nearly every commercial bakery is capable of contract manufacture.

Why don’t companies call me back?

Be persistent. Your needs, though important to you, may be too small to interest larger bakeries.

Time and labor associated with changeover and clean-out represent significant costs to these companies, so the larger your batch needs, the easier it will be for you to find the right contractor.

Good luck!

If your product makes it to market, be sure to let us know, too. We would be pleased to report this news in our magazines. You can reach us at bakesnack@sosland.com.

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