Why You Should Absolutely Manufacture Your Own Product
The food and beverage space is incredibly competitive. There are new brands launching every day. What is at the core of building a food business to last? Manufacturing. Manufacturing creates defensibility, allows you to dictate the quality of your products, innovate faster, and control your inventory. That is why we are obsessed with manufacturing at Union Kitchen. We see this play out time and time again. Snacklins is the only puffed chip company in the US making their own pellets (what gets puffed, fried, and seasoned). Origin Caribe was able to launch cold pressed juice for $1.99 in WalMart around the country because they manufacture their own products.
We will explore three primary reasons for manufacturing your products: (1) control over your production process, (2) dictating production schedules and inventory levels, and (3) agility in product development and production. Let’s take a deeper dive into these to really understand the benefits of manufacturing.
#1. Controlling the Composition and Quality of Your Product
It’s a classic food business story. You come up with an idea. You produce yourself for a few months, see good response from consumers, and then start the search for a co-packer. Why does this lead so often lead to poor results?
By outsourcing manufacturing to a co-packer, businesses lose the ability to control, maintain, and improve the quality of their product as they grow. Co-packers are themselves a business. They are looking for ways to lower their own costs when producing your product rather than focusing on what consumers want.
Snacklins founder Samy looked into working with various co-packers when he was at this decision point, but ultimately decided to open his own manufacturing facility. This allows the Snacklins team to decide exactly what ingredients to use, how to process it, and when to make formulation changes. They can innovate faster than anyone else on the market, both improving existing products and launching new flavors like Nacho!
Thanks to this effort, Snacklins is now carried nationally in WalMart and 7-11. Most notably, the company brought on Mark Cuban as an investor during an episode of Shark Tank. Cuban’s biggest selling point: Snacklins is not just a food business, but a manufacturer.
#2. Dictating Production Schedules and Inventory
Being able to control how frequently and how much you produce is another major advantage of manufacturing. As a growing company, changes in demand are routine and need to be managed carefully to avoid any cash flow crunches. This could come after signing a contract with a new distributor, introducing a new flavor, or seasonal dips. Keeping a close eye with careful demand planning avoids over or under producing.
Carrying too much inventory causes:
Storage Fees - you need a place to store all your inventory!
Tied up Capital - You need to pay to produce the large amount of product upfront
Longer Repayment Cycle - A lot of inventory means a long time until you work through the inventory to fulfill an order and get a return on your investment
Perishability - Ingredients might go bad if you don’t cycle through your inventory quickly enough
Inability to Make Changes - You have to wait too work through your inventory before you can make changes OR eat the cost -- neither of which scenario are particularly desirable
Carrying too little inventory can lead to:
Shorting Customers - If you do not have enough inventory, you may not be able to fulfill your orders on time.
When outsourcing manufacturing to a co-packer, you give up the ability to determine your own production schedule and manage your inventory. To make the economics work, co-packers require large initial orders, leaving you with a lot of inventory to work through.
Margarita, founder of M’Panadas, envisioned something different for her company. Recognizing her empanadas were quickly becoming popular, Margarita wanted to make sure she built her company to last. This required the ability to respond to unexpected surges in demand. M’Panadas opened their own facility, hired their own team, and developed processes to adjust their production schedules based on demand and their inventory levels. They are now a leading manufacturer of M’Panadas in the Mid-Atlantic both under private labels and their own brand.
#3. Agility as a Competitive Advantage
When you manufacture, you decide when, what, and how you want to make changes to your products. You can iterate quickly with what consumers tell you they want.
Compass Coffee was initially only offering light roast coffees (their favorites). In spite of these options being delicious to light roast fans, founders Michael and Harrison received lots of feedback that their customers wanted more options. Fortunately, Compass Coffee was roasting their beans in house and still does today. Because they own and operate their own roastery, they were able to run hundreds of product tests until they found the perfect blend of options to meet every customer preference.
Dave, founder of Lord of the Pies, is another great example. He had a life-long passion for making delicious pies of all varieties, and brought a handful of them to market. What he realized quickly was that most people saw pie as an occasional treat. He wanted to turn into an everyday treat! What happened next? He launched pie snacks - two bite size pies per bag. It’s a hit and now sold all over the Mid-Atlantic including in Whole Foods Market.
Why don’t more people manufacture given all of these advantages?
Manufacturing is challenging. That is what makes it defensible. Not everyone can make the same product. It takes a lot of work scaling production, understanding product formulation, and executing!
But that doesn’t mean you shouldn’t go for it. In fact, we believe that is exactly why you should go for it. Whenever something is hard, that means other people aren’t doing it, that means people can’t easily replicate what you build.
Take Origin Caribe owner Luis. Caribe produces a variety of delicious, cold pressed juices using recipes from Luis’ home country of the Dominican Republic. He recognized a lack of quality juice blends in the market that weren’t loaded with additives and sugar, so he got to work. Quickly recognizing scaling a juice company would take lots of technical knowledge of juicers and pasteurization, Luis went to a co-packer to take over his manufacturing. As the company continued to pick up momentum, Caribe’s retailers and distributors found themselves unable to place new product orders. The result: the orders stopped coming in.
It was at this point that Luis exited his arrangement with the co-packer and began studying up on what options he had for manufacturing. He concluded that opening up his own facility in the Dominican Republic close to high-quality ingredients and an eager workforce was the way to go. Caribe began reestablishing positive relationships with retailers and distributors because they could anticipate and control production level needs. This agility is what sets Caribe apart, and makes them able to meet their new national orders from places like WalMart.
Manufacturing is challenging, we understand that. We also understand that being knowledgeable around manufacturing and controlling your process provides incredible advantages to those willing to invest the time to learn. You are able to closely monitor the quality and composition of your product, manage your production schedules based on demand, and ultimately use the agility of tight processes to out compete your competition. With these advantages, you too can position your company to stand out in the food industry.