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 as 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 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:
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 products you already offer. Grocery chains often use private label manufacturing to create their own label.
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.
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.
The benefits of private label candy making include the following:
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:
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:
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:
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.
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.