“There’s a certain dollar-per-case value we need in order to cover the plant overhead,” says Terry Morgan, director of contract packaging. He notes the company makes a “concerted effort to sell some of our excess line time” as a hedge against the global volatility in apple supplies and prices.
It works both ways. In addition to packing drinks for others, Tree Top for more than five years has outsourced filling of its 10-oz. single-serve PET bottles rather than expand any of its half-dozen plants. “So far, it’s been more cost-effective than investing in a new high-speed line, which could cost anywhere from $4-6 million,” says Morgan.
Also playing on both sides is Sargento Foods, Plymouth, Wis. To supplement its branded cheese portfolio, Sargento contracts-out for some of its products. It also has an ingredients division (www.sargentofoodingredients.com) that does co-packing for products such as 3-oz. pouches of mozzarella for salad kits, cheese blends and toppings for bakers, and IQF sauce pellets for pizza processors.
“Whether it’s a finished, standalone product or a component, it’s still a contract, it’s still co-packing,” says Dick Williamson, vice president of food ingredient sales at Sargento. “We still have to meet our customers’ specifications, as these products are ultimately sold under our customers’ own brand name.”
Store brands and private labels are another source of income for many branded processors.
Even as it farms out some of its own processing to others during those summer spikes, AIPC is busy making products carrying customers’ store-brand labels. While some of the company’s 10 brands are regional leaders, AIPC’s own brands comprise only 28 percent of its business.
George sees private labeling “viable and growing.” That’s an understatement in light of what Brian Sharoff, president of the Private Label Manufacturers Association (www.plma.com), notes are “new levels of quality and consumer acceptance.”
In the past five years, store brands grew 13.3 percent versus national brands' 7.1 percent growth. All told, store brands rose $5.4 billion in 2007 to reach a new high of $74.2 billion in sales, according to PLMA’s 2008 Private Label Yearbook, based on research by Nielsen Co., which details private-label sales in more than 700 categories.
In the pasta aisle, where store brands average 30 percent market share, chains with tight contract manufacturing partnerships command up to 60 percent of category sales, outpacing national brands, according to AIPC’s George.
With many processes and machines unique in chicken processing, Pilgrim’s Pride makes products for several major retailers’ brands, in addition to its own branded products.
(www.pilgrimspride.com) is another huge and branded processor that also has a growing private label business. The Pittsburg, Texas-based company is the largest U.S. poultry processor, possessing “a lot of very unique cooking processes, whether it’s a gyro cook or a spiral oven or air impingement – that’s the advantage we have,” says Dan Emery, vice president of marketing. Pilgrim’s Pride
In addition to retail branded, foodservice and industrial sales, the company serves several major retailers with two tiers of store brands: a standard and a premium line. “Everyone has their own, individual needs and we try to help be a good partner with them,” says Emery.
Like any relationship…
Depending on the complexity of the product and the companies approaching one another, the relationship involves varying degrees of contractual details and specifications. For Pilgrim’s Pride, the contract can “range anywhere from eight pages to a 20-page document,” Emery says, including product formulation, labeling, regulatory and process parameters.
At the outset of a contract, AIPC’s George says initial meetings focus on the characteristics of the product, initial volume projections and a timeline for launching. “We’ll take that through our commercialization process, lay it into a project timeline and work hand-in-hand with the customer to bring their product to market.” It can take months or more than a year, depending on the complexity of the product and packaging.
While Emery says it’s generally easy to accommodate customers because of Pilgrim’s Pride’s size, there have been occasional challenges -- like the retail chain that wanted something relatively unheard of: a complete line of 69 exact-weight fresh-chicken items. To accommodate the request, the co-packing team got serious, visiting equipment suppliers in Greece, the U.K. and Iceland and processing facilities “all over the world,” says Emery.
Despite what initially was projected to be a huge investment, Pilgrim’s Pride managed to do it for a fraction of the estimated cost. “We figured it out,” says Emery, “and today it’s a major piece of business.”
To enter into a contract of such magnitude takes two very determined partners -- and sometimes more. When AIPC opened a state-of-the-art facility outside Phoenix, George says the decision hinged on “a commitment from the business community that they would support that factory -- and they have.” From factory controls to robotic palletizing, it’s a model of efficiency, with just over 50 people working four shifts, 24/7. “At any given time, you’re not likely to run into 10 people in the whole factory,” he says.