The CPG industry is ever-changing, there’s always a new adventure around the corner, and agile companies who know how to adjust when challenges arise are the most likely to come out ahead. And when it comes to running a successful food business, finding the right production option can make all the difference.
Making the right choice between hiring a contract manufacturer (co-packer or co-man) or finding your own commercial kitchen space for self-manufacturing can mean time saved and business growth achieved, but it is important to understand the costs and benefits to your business that come with each production option.
Here’s what you need to know about making the best choice for your business.
Food Co-Packers
Co-packers come in many sizes and forms and they offer various types of contracts and different modes of engagement. A co-packer is typically an established manufacturer of food products that can produce your products in exchange for payment based on an often complicated fee structure. Choosing the right contract manufacturer for your food business and then carrying out effective oversight of their production can help you rapidly increase your capacity to fulfill orders at scale.
Pros & Cons of Co-Packing
Expanding with a co-packer enables food companies to offload the primary responsibility for their production but you will always need to stay closely involved for the co-packer relationship to be successful. Under the right circumstances, a co-packer can provide access to space, permits, technology, equipment, and expertise that would be difficult if not impossible for early-stage brands to replicate on their own. But they will never be as committed to your product and process as you are so make sure you remain committed to working with the co-man at every stage to get the results you expect.
Each co-packer has a different fee structure depending on what elements of the production process they execute on your behalf, the size of your order, and the risks and complexity associated with your products and process. Typical services include sourcing the raw materials, handling the labor, overseeing the manufacturing process, and getting the product packaged and shipped to you or your customers.
Co-Packer Fee Structures
Co-packers fee structures come in many forms. You should count on the co-man charging fees that cover their costs plus a margin that will vary based on the complexity and uniqueness of your raw materials, production process, packaging, labor, and their familiarity with your product type. Most co-packers also have minimum order quantities (or “MOQs”) — that can be difficult to manage for companies with emerging products. Sitting down to review the co-packer quote and breaking down their charges can help you determine if hiring a contract manufacturer is the right option for your small business.
A food co-packer will usually structure their base pricing on 3 standard options:
- Flat day rates – this is a set fee for a full workday that allows hired labor to produce as many units as possible in the hours they operate.
- Per hour rates – this rate is the hardest to find, but can accommodate smaller production requirements for smaller companies. Usually, a food co-packer will utilize this kind of contract when you may need a little extra product made or when they can meet your unit needs within a few hours.
- Per unit rates – As simple as it sounds, per unit rates are exactly what they state. You pay based on the number of units.
It is important to know, however, that the basic co-packer pricing above will just be the start and will almost always involve a panoply of additional charges that you should monitor carefully.
There are many other considerations in choosing a co-man and you will want to do your diligence to make sure you find one who understands your product well, that is the right size to fit your production runs and that is accessible and a good culture fit with your organization. It is equally important to recognize that even though you have contracted out your production, you will need to continue to be deeply involved to make sure the co-packer is managing your production the way you need them to. Finally, you have to be comfortable with handing over control of your production and your intellectual property to a third party and so it is vital to be fully vigilant throughout.
Self Manufacturing in a Commercial Kitchen Space Rental
If you’re looking to keep your production in house, renting a commercial space can be your best option. Self-manufacturing can be even more cost-effective than working with a co-packer and also allows you to retain more control of your overall production. Some commercial kitchens offer stations in shared spaces (otherwise known as group kitchens) that are typically rented on an hourly or daily basis.
Most hourly kitchens will provide you with standard equipment like an oven, grill, freezer, and cooler. But some, like Amped Kitchens, allow you to rent your own private kitchen for a longer-term (usually one year or more). Shared space kitchens have recently become more popular due to the lower cost to rent. Most private spaces like Amped Kitchens allow you to customize the space yourself and bring in exactly the equipment you need for your production.
Renting a private commercial kitchen space like those available at Amped Kitchens is often the best choice for growing businesses that:
- Are scaling up their production and generally speaking work more than 20 hours per week on their food business
- Have received orders from major buyers such as Whole Foods, Amazon, or Costco
- Want to have a dedicated R&D or test kitchen to create new products or recipes
- Are looking to expand their sales channels for example moving from farmer’s markets and beginning to work with retailers
- Want more control over their products, but are not ready to make a five- or ten-year commitment to a stand-alone facility
Does it Make Sense to Build Your Own Kitchen Space?
An alternative to working with a co-packer or renting space in a shared facility is building your own stand-alone commercial kitchen.
But building out a stand-alone space requires resources and expertise in planning and permitting, knowledge of local building and health codes, construction management, and access to considerable amounts of capital. Companies generally expect to stay in purpose-built spaces for periods of five or ten years or more, depending on the nature of the financing and level of investment required.
As a result, building out a space makes the most sense when a company’s products are established, the business and its growth trajectory are well-defined and it has access to capital beyond what it needs for operations.
When a company — even an established, well-capitalized one — develops new products or ventures into new regions, they often find they need more flexibility than a purpose-built, stand-alone food facility can offer and that the time and money spent in such build out could be better spent on the products themselves.
Introducing Amped Kitchens
If you are in California or Chicago and are torn between signing a deal with a small batch co-packer, renting a shared kitchen, or building your own commercial kitchen space, Amped Kitchens may be the solution to all of your needs. We offer private production space that offers the quickest and most cost-effective path to top-quality production for all of your goods.
When you rent a space at Amped Kitchens, you retain complete control of your production process. You source your own ingredients, choose the right equipment, and manage your own team. There are no minimum order requirements, meaning that you can produce to your specific demand requirements without worrying about paying extra for smaller batches. All Amped Kitchens tenants have access to core on-site amenities like dry, cold, and frozen storage, packing rooms, office space to accommodate your growth, and an on-site logistics team to help ensure deliveries run smoothly.
Finding a commercial kitchen space that meets all of your needs can feel daunting. Compared to co-packers, working with Amped kitchens can save you time, money, and allow you to focus on your business needs and analytics rather than facility headaches. As you grow and scale your production, Amped Kitchens provides you flexibility, essential services, and not least a community of like-minded food makers with whom you can share contacts, ideas, and camaraderie.
Learn more about Amped Kitchens today! If you have any questions, don’t hesitate to reach out to us and get the information you need. Figuring out what you need in a production space is challenging. We’re here to help you and your business succeed.
