Seven steps to building a private label or contract manufacturing partnership

A supplement executive wakes up in the middle of the night with a brilliant idea. She’s convinced it can work, and she’s got the vision and the marketing know-how. But she doesn’t have everything she needs to turn an exciting concept into a profitable nutraceutical or functional food product.

The solution may be to form a partnership with a company who can do heavy lifting behind the scenes. While the variety of possible arrangements between partners is infinite, they broadly fall into one of two categories. Although not everyone agrees on the definitions, private label suppliers typically offer an off-the-peg formulation that is ready to be sold under a brand’s label. Contract manufacturers tend to work with clients to develop a unique product, often producing it in industrial volumes.

It takes two

Companies turn to contract manufacturing or private label for a variety of reasons. For established businesses, it’s usually an ambition to increase scale of production or to diversify into a new area. For smaller players, it can be a lack of sufficient production capacity or a need for technical expertise in a category. And for complete newcomers with little knowledge of the practicalities of getting a new product to market, it’s often the only way to get started.

James Caseley, commercial director of Park Acre, which offers custom formulations in categories such as sports nutrition and weight management, believes contract manufacturing has grown largely because of the advantages it offers start-ups.

“I think a big reason for the surge was the economic recession, because many people were thinking, actually, no, I don’t want to go and buy a brand—I want to set up my own," he explained. “Companies like ours have a low minimum order quantity, so if someone’s got a good idea and a good marketing platform, they can sell products rapidly."

Seven steps to contract manufacturing heaven

Contract manufacturing and private label are on the rise in the nutraceutical and functional foods industry, and will be an important focus at this year’s Vitafoods Europe (May 9-11, Palexpo, Geneva).

Exhibitors with extensive experience of contract manufacturing shared tips on finding the right partner and making the relationship work.

1) Cast your net wide to find the right partner

Ultimately, finding the right company to work with can be the difference between success and failure. “You’ve got to find a partner who believes in your idea, and who’s willing to invest in your business," said Daniela Ferraz of Labialfarma, which manufactures dietary supplements, medicines, herbal medicines, medical devices and cosmetics for a range of clients. “It’s about finding the company that is most able to meet your needs. Ensuring that they meet your level of expectation is crucial to avoid a waste of time—and of course money. It’s worthwhile looking very carefully at all your options."

However, knowing where to find the new partner can be difficult—don’t expect any recommendations from the competition. The demand to meet the right manufacturer has become so high that there are even professional “matchmakers" that specialize in bringing partners together. If that’s not for you, trade shows such as Vitafoods Europe offer a perfect arena to meet a range of companies interested in helping you.

“It’s probably the best way to find a partner," Ferraz noted. “Not only can you meet the companies, but you can talk to people you might be working with, which can be extremely useful to understand their culture."

Caseley added, “I think Vitafoods Europe is a very good meeting place. The energy of the show is what gets me—there are so many like-minded people. If you’re in your first or second year as a growing brand, it’s definitely not one to be missed." 

2) Do your research

“You need to do your homework. It’s a prerequisite really," Caseley advised. “We see, daily, people whose only research is going online. If I had my buying hat on I’d say buy several things and look at the product quality."

“You should verify which quality certifications the contractor holds," Ferraz said. “Not just GMP (good manufacturing practice) and HACCP (hazard analysis and critical control points), but also things that might be needed, like organic, halal and kosher."

François Macarez, business development manager, nutraceutical and cosmetic ingredients, at Pierre Fabre CDMO, which offers expertise in the development and production of plant-based active ingredients, also stressed the importance of checking out manufacturers’ credentials. “Certifications like GMP and ISO (International Organization for Standardization), and audits by government agencies, are synonyms of high-quality standards," he explained. “They mean that the company is guaranteeing full traceability and closely following standard operating procedures."

3) Seeing is believing

Going out to meet the manufacturer is strongly advised. “It’s always important to go and visit your potential partner and understand how everything works on site," Ferraz said. “When you go to the plant and see with your own eyes what’s going on, it helps you build trust and confidence."

“Look at your options, cast about, go and visit your contractors," Caseley suggested. “Where are they located? What are their capabilities? What do the premises look like? Do they demonstrate attention to detail?" Potential problems to look out for include risks of contamination, and anything else that could affect quality.

Of course, if something goes wrong, it’s your customers and your brand that are affected, so due diligence is strongly advised. “After all, by outsourcing the manufacturing of your product, you are entrusting a third party with an essential factor of your company’s business success," said Nicolas Carbonnelle of Bird & Bird, an international law firm that provides legal advice on contract manufacturing partnerships.

4) Make the most of your partner’s expertise

It’s likely you’ll pick a partner because of their expertise in a specific area. Dutch private label supplier VSI, for example, specializes in high-end bars for sports nutrition, weight control and healthy snacking. “It’s not easy to create a bar," said the company’s new business manager, Daniel Davids. “We focus on doing one thing very well."

Working with a single trustworthy company, rather than a range of less-well known contractors, can be attractive from a risk reduction point of view. And increasingly, contract manufacturers offer customers a one-stop shop, meeting a variety of their customers’ needs. 

“We’re a full-service provider," Ferraz said. “We can be asked for optimization of something that already exists; or we can be asked for a turnkey solution for a concept that needs to be turned into a product. That can include market research, research and development (R&D), feasibility and stability studies, quality control (QC), regulatory affairs, packaging design, the production itself and a marketing plan, if the client wishes."

Likewise, Pierre Fabre CDMO prides itself on supporting partners from the start of product development. “The collaboration takes place at each stage of the process: from development and scale-up to industrial manufacturing," Macarez said. “Our partners benefit not just from our specific technology, but also from our reputation, know-how and quality procedures."

It’s also increasingly common for contract manufacturers to be able to offer expertise on legal and regulatory issues. “If the client suddenly needs a little help with legal or regulatory affairs because he doesn’t have the right experience, we can do that," Ferraz said.

5) Communication is key

As in most relationships, communication is the foundation of a strong contract manufacturing partnership. Davids said dialogue has to be established from the start. “The first thing is to have an open discussion with the supplier; you must talk to them about your brand, your needs and your expectations," he recommended“If you do that early on, you’ll know straight away if there are going to be any challenges."

6) Establish Trust

“Unlike in a supplier-client relationship, contract manufacturing is usually based on a long-term partnership, so you have to build trust," Macarez explained.

Ferraz assured when both parties are open, any problems can be resolved. “Sometimes, things don’t go perfectly, and we have to explain that there were delays because of this or that," she explained.  “Transparency is important to keep the trust between partners."

Caseley agreed: “It can be difficult because people tend to keep their cards close to their chest, but you should try to be as open as you can about what you’re trying to achieve. Tell them what your plan and long-term vision is."

7) Sign on the dotted line

However much a partner seems trustworthy, a brand owner would be unwise not to underpin the relationship with a written contract. “There always has to be something in writing," Davids cautioned. “These days, a conversation is not enough."

“If you’re going to be in it for the long term, you need to get things firmed up," Caseley said. “If you’re a smaller business, you can be less rigid with contracts and so forth, but best practice is to have a standard arrangement with your supply chain because of the stability it gives you."

Dutch life sciences law firm AXON specializes in drafting and negotiating arrangements between manufacturers and private label partners. Its attorney at law, Karin Verzijden, said: “It’s one thing to have an acceptable agreement in place with your partner, but another to make sure it is backed by the right underlying agreements. As such, the deliverables agreed on between the contract manufacturer and the private label client, as well as other important issues such as liability for any unconformity, should be backed by appropriate arrangements with suppliers and potential sub-contractors. The goal is to achieve a fair share of risks between all parties involved in the value chain."

Getting the legal side of things right will prevent problems further down the line, according to Carbonnelle. “A good contract constitutes the spine of the relationship," he said. “It can anticipate issues and help solve them, ensuring continued cooperation, even when it gets more difficult."

Bringing partners together

A quarter (24%) of visitors to Vitafoods Europe 2016 said they were interested in contract manufacturing for bespoke products, and 48% expressed an interest in private label. Reflecting such high demand, this year’s Vitafoods Europe will see more contract manufacturing and private label companies than ever exhibiting, and visitors will also be able to access legal and contractual advice.

Chris Lee, managing director, Informa Exhibition’s global health and nutrition network, said, “Every year, we see more contract manufacturers and private label suppliers exhibiting, and more visitors who are interested in their services. Our job is to provide a forum where they can meet to their mutual benefit. When the right companies connect, the result can be a productive, long-term relationship for both parties."

Attending Vitafoods Europe isn’t just an opportunity to access the latest cutting-edge research in the nutraceutical sector. It could also be the start of a partnership that transforms the future of a brand’s business.

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