Organic Processing Vo1.7 #3

and then check out those products in the marketplace. See if the owner of that product can be contacted for a recommendation. Certainly ask the packer for references, but develop other references not provided by the packer. One way to do that is to contact the references provided by the packer and then ask the references if they know other companies that use the same packer. You can also ask other entrepreneurs.

Case Study: Is Your Co-Packer Willing to Adapt?

A BBQ sauce company had entered the market after electing to go with the first co-packer that claimed it could do the job. Following a successful launch, the company began evaluating customer feedback and had several ideas on how to improve the product. The co-packer resisted the changes because it could not source the new ingredients or improve pricing by buying in bulk shipments. After several price increases, the company hired a consultant to look for a new packer. The end result was an improved formula at greatly reduced cost, increased flexibility, better packaging, and a true partnership. The product went on to become the best selling brand in many stores.

• What do you want in the label design?

• What is its shipping classification?

• Are there special handling and storage needs?

• How will your customers receive the product in their warehouses?

• What type of pallets are needed?

• What are your product testing needs?

Also ask yourself beforehand:

• Is technical and legal assistance needed?

• What are your insurance needs?

• What are your internal staffing needs?

• Do you have financing in place?

Almost every state has a business unit that keeps lists of companies and what they do, as well as any funding that is available—a double score. There are several state sponsored directories and online services that can lead the marketer to a producer.

Examples include:

• The Contract Packing Association and others

Before Contacting Prospective Co-Packing Partners

Before getting on the phone and contacting prospective partners, make sure you have the following homework done.

Have a business plan. Have someone you trust look it over with a critical eye; someone with real-world experience in business. Some options are your CPA, your business mentor, your banker or an investment advisor. Your business plan should include a very good executive summary, product positioning and need in the marketplace, a well thought-out proforma income statement, uses of cash and balance sheet and more. SCORE is a good place to start ( www.score.org) or the Small Business Administration ( www.sba.gov).

Also, have a co-packer vendor agreement ready to go. Or at least have a checklist to review against the packer’s standard agreement. Some things you’ll need to know are:

What are your product needs?

• What are the product specifications and formulas?

• Are there special ingredient needs? What materials will you supply?

• What is your price strategy? Is it competitive with similar products?

• What type of packaging do you want? What size and how many servings per unit?

Protecting Your Formulations

Before talking with anyone, make sure to have non-disclosure agreements (NDAs) prepared and ready to be signed by potential packers. The packer may have its own, but insist on your version wherever possible.

Also, the most contentious part of any packer negotiation can be who owns the formula. In real-life terms, the “kitchen formula” you bring in is just that and it is only a starting point for the packer. The packer will certainly concede that this type of formula belongs to you. It is the commercialized formula that both you and the packer want to own. The reason for this is that this represents the packer’s stock-in-trade, how the owners make their living. The packer will expend considerable resources to commercialize the formula.

The best way to own the formula, and to have the packer concede ownership, is to pay the packer for that work. The packer may insist on it anyway, but the marketer then has the right to demand ownership. That should be non-negotiable. Another way to protect your formula is to contract special blends with a vendor that ships blended flours, blended spices, special oils, unique flavor profiles and the like to the co-packer under an