IP protection critical when working with co-manufacturers

LAS VEGAS — Guarding intellectual property (IP), especially product formulas, and committing to as low a minimum order as possible are two major considerations for startup companies seeking to work with co-manufacturers, said Carlos Barroso, president and founder of consulting firm CJB and Associates, Nov. 3 at SupplySide West in Las Vegas.

It could take a year to find the right co-manufacturer, he said. The pandemic and the center-store boom have brought co-manufacturers a lot of business, enough that they rarely need to advertise, he said.

Many companies are using co-manufacturers right now because manufacturing capacity is lacking in the United States, said Sam Kressler, owner of Stir Innovation, Boulder, Colo. Startups need to consider if they are big enough for co-manufacturers to care about them.

By taking on manufacturing by themselves, startups may help control costs in terms of smaller runs, improved shelf life and startups better understanding their product, he said. When scaling reaches the stage where a co-manufacturer makes sense, the owner of the startup already is an expert on the manufacturing of the product.

Mr. Barroso said startups need to be specific on what is needed and show co-manufacturers the company’s potential (projections). The startup’s product may be a beverage that needs a retort process or one that needs an aseptic process. It could have certifications that need to be met.

“Are you going to be gluten-free?” Mr. Barroso said. “Well, that’s going to be an immediate filter for any co-manufacturer you’re going to find.”

Mr. Barroso stressed protecting intellectual property.

“For goodness sake, guard you IP, starting with owning your formula,” he said.

Lower minimum orders would be better if problems come up, such as quality issues or the co-manufacturer getting bought out. In giving an example, Mr. Barroso said a minimum order of 25,000 bars would make more sense than 100,000 bars.

Startups may look to a third party for premixing and then send the mixes to the co-manufacturer, he said.

“The manufacturer needs to know what’s inside, but they don’t have to know the formula,” Mr. Barroso said. “They don’t have to know the source of those ingredients. That’s your IP.”

Turnkey means the co-manufacturer manages ingredient orders and inventory forms. The strategy results in less overhead for the startup.

“You’re a startup,” Mr. Barroso said. “You’ve got a lot of things going on. It’s less headache for you.”

It’s also more expensive.

“It’s going to cost you, in my experience, somewhere between 3% and 5% of upcharges,” he said.

Mr. Barroso provided a list of places to search for co-manufacturers:

•The Good Food Institute at gfi.org/resource/contract-manufacturing-database/

•Pick your own at www.pickyourown.org/list_of_copackers.htm

•Contract Packaging at www.conractpackaging.org/RFQ

•Specialty Food Copackers at www.specialtyfoodcopackers.com

•PLMA at plma.com