If you are in the food marketing business you don’t need me to remind you of how difficult and stressful survival at the retail store level can be. Here is a Case Study that pertains to a client of ours that is a major player in the food marketing business that was forced to find alternative ways to maximize profit for a new product that was being sold to Walmart, Target, and Costco.
Fortunately their New Product Development Director was creative and in the search for increased margin found it in an area they had never looked before; their flexible retail packaging.
Situation:
My client in this case is more a food marketer than they are a food manufacturer, so they are great at creating new flavors and coming up with new and innovative products but they rarely have the resources to mix, blend, bake and ship to retailers. (Image Source: http://www.cloeren.com)
They had a new side dish that they spent months sourcing and then testing that was ready for trial orders at a few select Walmart stores. They knew they wanted to package it in flexible retail packaging, in this case they needed custom stand up bags, but they weren’t prepared for what happened next.
Their co-manufacturer had built a solid reputation with our client and had been relied on to “handle everything”, from buying the ingredients to blending them and then producing and packaging the new product. Unfortunately, our client had a “trial” order for this product, not a full-scale production order.
When their co-manufacturer began the bidding process for the flexible packaging, they were stunned to learn that the minimum run quantity was 50,000 pieces per SKU/flavor and they had 4 flavors! On top of that, the flexible packaging quote came back at $.21 cents each for custom stand up bags.
This high minimum run and expensive price drained any margin my client was hoping to get on this order. He knew he needed to get involved to ensure a successful trial and guarantee this became a national roll-out product for Walmart.
The New Product Development Manager, determined to make this trial a success, intervened and called us at StandUpPouches.net (a division of ABC Packaging Direct).
Options:
First, our client was surprised that we didn’t have a minimum run of 50,000 pieces, only 10% of that, our minimum run was 5000 pieces. This was no joke; our business has been built on the small orders so our clients can test new flavors and trial new products and then (and only then) scale up to produce the massive volume. After working with their graphic designers we created electronic proofs and got down to quoting their flexible packaging.
Our pricing was approximately $.08 each, per finished pouch. If you remember, our customer was quoted $.21 cents for custom stand up bags. We ran a small 7500 piece trial order for 4 different flavors and our client saved $.13 cents per pouch.
Trial product – 4 flavors/SKUs
Initial packaging quote: 200,000 pieces at $0.21 each = $42,000
At our minimums: 20,000 pieces at $0.08 = $1,600
Trial packaging order: 30,000 pieces at $0.08 = $2,400
Although compelling, before you assume this is just another “we saved our customer $.13 cents” on a 7500 piece order, think again.
What our client discovered was his co-manufacturer was buying his flexible retail packaging and putting a 30% markup on his cost then passing that along. Keep in mind this isn’t bashing his co-manufacturer, this gave my customer a clear picture that many in his position don’t understand in the food marketing business.
If you let your co-packer or co-manufacturer provide your flexible packaging (or anything really) they are NOT passing this cost along, they are marking it up and YOU are paying a premium. That’s when the lightbulb went off and our customer took control of his packaging and put the cost savings in his company’s bank account, not his co-packers.
Info:
As I mentioned before, our business has been built on running small orders that lead to bigger ones instead of looking for that “homerun” with each swing of the bat. We’d rather hit singles that lead to runs than the occasional homerun.
We have US factories and overseas factories, but our main one is based in Foshan, China. What put our client at ease were a few key things:
Take Away:
Our client tested the pouches with a 7,500 piece order, and because we delivered not only incredible quality but on time delivery for the trial orders, the next order was for 75,000 and then 750,000 per SKU. To date, we’ve run over 5,000,000 bags for this side dish alone. With the right supplier, you can start small and scale up rapidly without any change in quality.
We provided the exact same material and structure our customer was going to pay $.21 cents per piece for…only we were at $.08 each, over 60% less. We provided samples and film for the co-manufacturer to test on their equipment so there were no surprises.
You might think the co-manufacturer would be unhappy with losing their markup. In fact, they had no desire to be in the flexible retail packaging business and were happy to have our expertise.
Food marketing can be brutal and your margins are always being squeezed. Consider looking at your flexible retail packaging to recover lost margins. If you are buying your packaging from your co-manufacturer, you are giving money away. If you are buying your packaging from your co-packer, you are giving money away.
This isn’t rocket science. Let your co-packer and co-manufacturer do what they do best, which isn’t flexible packaging. Work with a packaging provider that understands the packaging side of the industry. Remember, it’s your product, package it properly.