The surging $100 billion-plus ‘sharing economy’ is making headlines, organized around the principle that “access is the new ownership” and fueled by trendy upstarts such as Airbnb, Zipcar and SwapTrees.com. But food and beverage contract manufacturers long ago began advocating the myriad benefits of facilities and equipment that serve multiple companies, which fuel innovation.
Airbnb brings strangers together to ensure desirably located empty rooms, or even entire homes, are occupied year-round. Zipcar allows multiple drivers to share one vehicle. Likewise, contract packaging permits companies big and small to get their products to market without the high volume often needed to justify investment in their own manufacturing assets. And there are many other attendant benefits, not the least of which is specialized operational expertise.
Contract packaging is common to many industries, ranging from aerospace and computer chips to pharmaceuticals, personal care and medical products in addition to the food and beverage sectors. In the U.S., there are approximately 1,600 contract packaging companies, with an estimated market value of $21.5 billion and current and projected growth of 13.5 percent through 2015, according to data from the Contract Packaging Association.
Contract packaging is more prevalent in the U.S. than in other countries, in part because there is a high level of entrepreneurship in the country. Less experienced entrepreneurs benefit greatly from lowered barriers to entry and access to valuable operational expertise. But contract packaging is also popular with large companies, which sometimes outsource production to accommodate seasonal fluctuations in demand or to supply customers located far from their own packing plants.
For carton packaging users, contract packaging has proven to be extremely helpful; currently a majority of Tetra Pak’s installed filling equipment lines are located across 20 contract packaging facilities throughout the U.S. with products throughout food, beverage and dairy categories. Many of these companies serve as great examples of how co-packers support brands with expertise that goes beyond just packaging their products. Many of them now offer research and development services with state-of-the-art test kitchens, fueling innovation in formulation, and some offer multiple processing and packaging formats to choose from.
Brands and co-packers appreciate a range of benefits from this business model. Those they cite most often include:
• Lowered Barriers To Entry
State-of-the-art processing and packaging lines require significant investment, which puts them well beyond the reach of most entrepreneurs who may be starting with little more than a great idea for a new food or beverage. Contract packaging enables this type of company to get a product into the marketplace, test it with consumers, begin to build a customer base and seek distribution.
• Industry Experience
Because of the nature of their business, contract packagers become powerhouses of expertise not only on the packaging and processing side, which can be dauntingly complex, but also on matters that include formulation, operational and regulatory knowledge.
• Innovation And Incremental Design
In the past, companies would spend at least a year, sometimes two, developing a new product, creating a marketing and distribution strategy. Then they would finally bring it to market before discovering if their efforts were on target. Today, incremental design is a preferable strategy for many companies, facilitated by contract packaging. With access to product manufacturing lines and smaller production runs, a company can afford to develop a product, bring it to market for real-world testing and adjust it based on retailer and consumer feedback before finalizing the formulation and investing in a marketing splash. Both the smallest and largest customers by sales are now innovating this way.
• Speed To Market
Competition has never been fiercer, particularly in the food and beverage space, where climbing and shifting demand has continued to attract new players. Existing companies’ leaders know they must innovate or lose market share. As new opportunities and new categories emerge, contract packaging allows companies of all sizes to make their new products among the first to hit the shelves, without waiting for capital equipment to be installed and personnel to be trained.
• Maximized Capacity And Flexibility
Some brands, which may even have installed in-house packaging lines, take advantage of the contract packaging network to handle seasonal fluctuations in demand and to expand their geographic reach for supply chain benefits. An East Coast customer might engage a co-packer on the West Coast, for example, rather than ship product across the country. Rather than install a dedicated filling line for a seasonal product, contracting that product sometimes makes more economic sense.
Contract packaging has proven to be a boon for the food and beverage industry and for innovation in processing and packaging. The lowered entry barriers such companies offer pave the way for first adopters to select state-of-the-art processing and innovative packages without taking the plunge and investing in a new line. Food, beverage and dairy manufacturers benefit from differentiating their products on retail shelves with the innovative packaging shapes, sizes and formats offered by Tetra Pak and its peers, which ultimately attracts consumers to buy.
Nelson Alor, manager, Contract Manufacturing, Tetra Pak Inc., U.S. & Canada, helps sustain and widen the company’s network of contract manufacturers, expanding access to world-class packaging and processing lines for food and beverage manufacturers, including retail brands. Tetra Pak (tetrapakusa.com) is the world's leading food processing and packaging solutions company. For more industry insights, visit DoingWhatsGood.us.