The Differences Between Private Label and Contract Manufacturing

According to Nielsen.com, private brands accounted for $112 billion out of $643 billion in total retail sales amid a struggling national economy in 2013, which represented a one percent uptick in private brand sales from 2009. A study conducted by the Food Marketing Institute revealed that retailers enjoy a 35 percent gross margin on their private label products, but earn a gross profit margin of just 25.9 percent on similar products produced by national brands.

With private labeling providing retailers the chance to earn a greater profit margin over selling national brands, you may be wondering if private label branding has the potential to increase your own bottom line. Two popular choices for third-party candy manufacturing are contract manufacturing, often referred to co-manufacturing, and private label candy manufacturing. While the end goal of both processes is the same, to produce candy and snack foods consumers will love and buy often, private label branding differs from contract candy manufacturing in various ways.

To determine which direction is right for you, you should become familiar with each term. This includes learning the similarities and differences that exist between private label and contract manufacturing (or co-manufacturing).

contract candy manufacturing

Contract Candy Manufacturing vs. Private Label Candy Manufacturing

Contract candy manufacturing and private label manufacturing are similar in some ways, but different in other significant ones. They’re alike in that the purpose of both processes is to make an end product that will be sold to consumers, regardless of whether the end buyer is an individual person or another business. They both involve a third-party manufacturer to make your candy and snack foods on your behalf.

However, the two processes are different in several meaningful ways, beginning with why a company would want to use either contract manufacturing or private label manufacturing. In general, contract candy manufacturing is appropriate for a business that already produces food products on its own and has a recognizable brand that they sell.
Frequently a company that works with contact manufacturer (or co-manufacturer) wants to add another candy or food snack to its product list, it may decide to enter into a contract manufacturing arrangement for a variety of reasons, including the following:

    • Capacity: Depending on the physical size of the company, the business may simply not have the space to manufacture another product
    • Equipment: The business may not have the capital equipment needed to produce the new snack food, and the entity may lack the funds to purchase the necessary equipment. Even if a business does have the money, the company might be unwilling to make a large investment in equipment until the new snack food proves to be a success in the marketplace — especially if the new item varies greatly from the company’s existing candy and snack food product line.
    • Ingredients: If the new food item requires ingredients a company doesn’t normally have on hand, or contains an allergen, it may be more affordable to use a contract manufacturer that already orders the necessary ingredients to make food products for other clients. In general, the more of an ingredient a manufacturer gets in a single order, the less expensive the per unit cost will be.

You would want to consider private label manufacturing if you want to create a house brand and add related products that are different from your current the products you already offer. Grocery chains often use private label manufacturing to create their own label. private label manufacturing

Most grocery chains is already its established brand, and the chain is known for selling food items that are made by manufacturers such as Kraft, General Mills, and Nabisco. These food producers are completely unrelated to the grocery store chain. Since the profit margin on private label or house brand food items produced by the grocery store chain is usually much higher than what a grocery store makes on the other brands it sells, the business may decide to produce its own packaged food items.

To avoid confusion, the grocery store chain may also decide to create a brand unrelated to the name of its stores and offer its food items under the new brand name. Because a grocery store is in the business of selling food rather than making it, the business may not be prepared to manufacture the foodstuff it’s going to sell under the brand it created. That’s an instance in which entering into a private label manufacturing arrangement is probably the best choice you can make.

Even if you don’t already have an established brand you’re trying to keep separate from a new one, private label manufacturing may still be the right choice for your business. By entering into a private label manufacturing agreement, you will avoid having to pay the often steep upfront fees associated with buying or leasing a production facility and equipment and hiring staff members. By dodging these costs, you will have money to promote your new candies and snack foods, making it more likely they’ll succeed.

While some of the differences between contract manufacturing and private label branding may seem subtle, the two most obvious ones are also the biggest differences. When you hire a contract manufacturing company, you already have a recipe for the food item you want the company to produce, and you’re going to sell the item under your own established brand. A business that is interested in forming a relationship with a private label manufacturer is typically a new business trying to establish a brand to create a product line that will be sold under a brand name that’s different than the one the national brand is currently marketing.

Unlike a company that enters into a contract manufacturing arrangement with another company, a business that hires a private label manufacturer may not already have a recipe for the candy and snack foods it intends to sell. If you don’t have recipes for your candy and snack foods yet, be sure you choose to work with a private label manufacturer that has the capabilities to develop your food products for you or already makes the products that you want to sell.

Benefits of Private Label Candy Making

The biggest similarity between private label and contract candy manufacturing is that they both involve outsourcing the work necessary to make your candy and snack food items to another company. While outsourcing has many potential benefits, it carries certain risks that shouldn’t be overlooked, which will be discussed later.similarity between private label and contract candy manufacturing

The benefits of private label candy making include the following:

      • Cost Savings: Outsourcing gives you the opportunity to save money in several ways. By outsourcing the production of your candy and snack foods, you won’t have to buy or rent a production facility or the equipment needed to manufacture your food items, saving you tens or possibly hundreds of thousands of dollars.Your ongoing operating costs will also be lower than they would be if you manufactured your own products as well. This is because you won’t have to hire additional staff, train new employees or provide more benefits to have your food items produced.As mentioned earlier, using private label candy manufacturing also gives you the chance to save on your cost of goods sold if you work with a company that also produces food products for other businesses. If your manufacturer makes food products for others that require some of the same ingredients used in your recipes, your cost of goods sold will be lower due to the economies of scale.In general, the more units of the same product that are included in one shipment, the cheaper the price per unit will be. This means if your manufacturer orders the ingredients necessary to make your candy and snacks at the same time or the same ingredients for another one of its clients, your food acquisition costs will be lower.benefits of private label candy making
      • Quality Control: When it comes to food production, a manufacturer must abide by strict current federal and local regulations. By outsourcing your candy manufacturing, your manufacturer assumes responsibility for adhering to these mandated standards, taking that burden off you. In addition to following these guidelines, food manufacturers have their own internal quality controls that will enable them to maintain the integrity of your packaging and the quality of your candy and snack foods.

Benefits of Contract Candy Manufacturing

benefits of contract candy manufacturing

Contract manufacturing shares many of the same benefits as private label branding when a company decides to outsource the production of candy and snack foods. These benefits include the following:

      • Larger Available Skillset: When you work with a contract manufacturing company, the skillset that’s available to you is larger. For instance, if you’re interested in expanding your line of candy and snack foods and Warrell Corporation produces your food items, you can work with our in-house, experienced food scientists to create tasty new treats.
      • Greater Focus: Even if you have years of hands-on experience with candy manufacturing, actually making the final product can distract you from the other tasks that are necessary for your business to be successful. By hiring another company to produce your candy and snack foods, you can stay focused on the things that are just as important as candy manufacturing, such as marketing and establishing relationships with new retailers willing to sell your products.

While there are obvious benefits to outsourcing, the company you choose to work with will also benefit from having an ongoing working relationship with you. Your manufacturer will know it will have a steady flow of business from you for at least the length of the contract you signed, which can help that company with its budget forecasts, for example.

Even though contract candy manufacturing provides mutual benefits to both your business and the company you hire, it has some potential risks, including the following:

      • Loss of Control: When you hire another company to handle your candy manufacturing, you’re giving up control over how your candy and snack foods are produced. Although you can still make suggestions about how you’d like your food products to be made, the company you entered into a contract with will ultimately decide how your food items will be manufactured.By hiring another company to manufacture your products, you run the risk that the quality of the food items that bear your brand’s name may not be the same as it was when you made your own candy and snack goods. To mitigate this risk, you should carefully review a manufacturer’s production methods and examine the quality of the ingredients the company’s suppliers provide, to make sure they match your standards before you enter into a contract with that manufacturer.Warrell Corporation uses several advanced production methods to manufacture our clients’ food items. We will work with you to determine which production method is best suited for your candy and snack foods because your input is important to us. Our constant goal is to produce high-quality goods every time we manufacture something. We invite you to review our production methods and the supplies we’ll use to make your candy and snack foods so you’ll know what we already do — our production equipment and techniques are top-notch just like the ingredients we use. Warrell is FSSC 22000 and ISO certified! We are frequently audited by national CPG companies for quality standards.risks of contract candy manufacturing
        • Manufacturing Limitations: Chances are very good that the company you’ve chosen to work with manufactures food products for other businesses in addition to yours. This means there’s a chance the company you’ve hired may prioritize the needs of higher volume clients over yours, diverting its resources into producing their food products before manufacturing your candy and snack items during peak production periods. This may result in you not having your products when you need them.You can reduce the likelihood this will happen by maintaining a close working relationship with your manufacturer, while acknowledging that the company has other customers besides you. Rewarding your manufacturer with additional business as your sales volume increases and as you add new items to your product mix, will also mitigate this risk.With two spacious production facilities and the latest equipment, Warrell Corporation is prepared to meet your manufacturing needs. We have been in the business of contract candy manufacturing since the 1980s, and all of our clients are equally important to us. It doesn’t matter how much of a product you want. What does matter to us is making sure you’re pleased with the candy and snack foods we make for you and you remain one of our valued partners.

Challenges of Contract Candy Manufacturing & Private Label Candy Making

Just as private label candy manufacturing shares some benefits with contract candy making because they both involve outsourcing, the two candy manufacturing decisions also have some potential disadvantages in common, including the following:

        • Reduced Responsiveness: When you hand the production of your candy and snack foods off to another company, you lose some your ability to respond to the changing needs of your customers. For instance, if you experience a surge in sales around Halloween or Christmas, your ability to increase your candy manufacturing rests entirely on the shoulders of the company producing your candy and snack foods. If there’s a problem with the supply chain necessary to manufacture your food goods, your ability to respond to and resolve it may be limited as well.risk of handing your candy off to another companyWarrell Corporation has been making candy and snack foods under private labels for more than 30 years. Our list of private label clients continues to grow because the needs of our customers are always our top priority, which means when your production needs changes, ours do, too. We will work with you to ensure you’re always prepared to respond to your clients’ needs and resolve supply chain problems quickly. When you work with us, addressing your needs and the needs of your clients is our biggest concern.
        • Loss of Trade Secrets: By hiring another company to manufacture your candy and snack foods, you’re trusting them with your business’ proprietary recipes. This makes it possible for someone with nefarious intent to steal your trade secrets for their own gain. Given the sensitive nature of the information you have to share with your manufacturer, it’s critical to work with a company that has thoroughly vetted its employees to mitigate this risk.proprietary recipesAs a family-owned and operated business, Warrell Corporation has been helping other entrepreneurs achieve their business dreams for decades. We know that sometimes the biggest asset a business has is the knowledge its operators have that enable the company to stand apart from its competitors. That’s why we ensure your secrets and recipes remain just that — your private secrets and recipes. All of our customers sign non-disclosure agreements.

Private Label and Contract Candy Manufacturing With Warrell Corporation

When it comes to producing private label candy and contract candy manufacturing, Warrell Corporation is your true partner. We produce and package candy and snack foods for major private labels, including grocery, drug and convenience stores as well as larger mass and club retail outlets. We also manufacture food goods for businesses that want items produced in accordance with their exact specifications under their own brand names.warrell corporation is your true partner

As your partner, manufacturing your candy and snack foods is more than “just” a business to us — it’s a personal undertaking to help you achieve your business dreams. Our own dream started in 1965, when we founded Pennsylvania Dutch Candies, which is still our most popular brand. In 1974, we had the opportunity to expand by acquiring Katharine Beecher Candies. We had a similar opportunity almost ten years later, when we acquired Melster Candies.

As the number of our brands has increased, so has the number of our services. Over the years, we’ve expanded our menu of services to accommodate ingredient, mainstream retail, contract and private label clients. Since we are capable of using various manufacturing and packaging methods, our contract manufacturing is currently responsible for more than 70 percent of our company’s annual sales volume.

Of course, our manufacturing space has grown along with our brands and services menu. Our family-owned and operated business has a 200,000-square-foot, state-of-the-art facility in Camp Hill, PA. We gained a second production facility when we purchased Classic Caramel in 2009. Our facility in York, PA gives us an additional 30,000 square feet of manufacturing space. Our production capabilities include chocolate enrobing, chocolate panning, hot panning, brittle and nut crunches, caramel and taffy, dry roasting and packaging.

We continually update our current advanced manufacturing processes, such as nitrogen flushing packaging and processes. We are constantly working to develop new, cutting-edge production techniques that will help our private label and contract candy manufacturing partners thrive. We invest in highly advanced machinery to produce our partners’ candy and snack foods the way they want them made.

Our high-capacity confectionery treatment gets the job done right every time.

We labor tirelessly to develop new products with our partners as well. We have two innovation labs where we conduct on-site product research. Our food scientists and lab technicians work to perfect formulas, develop new ones and push us and our partners forward by creating innovative, saleable treats every day.

Warrell Corporation has evolved into one of the leading contract candy manufacturing companies in North America since our humble beginnings in Mount Holly Springs, PA, and we continue to evolve to this day. As our business continues to grow, our commitment to our partners grows even deeper.

To learn how to become one of our valued partners, contact us today.

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