Co-Packing vs. Private Label : The Differences

supervisor showing results of food quality on tablet to his older colleague
6 Rules to Follow to Grow Your Co-Packing Business
November 25, 2021
advantages of contract manufacturing
7 Advantages of Contract Manufacturing to Your Food Business
January 23, 2022
processing apples for co-packing

Did you know that 7 in 10 consumers make their buying decisions based on a product’s type of packaging? This is about 72% of consumers who will likely walk away from your brand if the packaging doesn’t impress them.  What’s more, 68% of consumers are likely to purchase products packaged in paper or cardboard, if given the option to choose among other materials, such as plastic. 

These are eye-opening statistics, especially if you need to choose co-packers vs. private label for your small business in the food and beverage industry. Typically, many business owners go for conventional co-packing or private labeling to bypass the challenges that come with sustainable packaging solutions, including cost barriers for research and development and the risks of passing increased material costs to the end consumer. 

Nevertheless, it’s imperative to understand the variations of these two options. For instance, will a co-packing agreement be different from a private label food manufacturing agreement? How about the process? This guide gives you a detailed explanation. Keep reading to find out more. 

What is Co-Packing?

processing apples for co-packing

Co-packing simply means contract packaging, which entails using a co-packer as a business extension of a retail, commercial, or trade industrial business to assemble a product into its finished packaging. A co-packer creates and designs your packaging products based on intricate specifications that you give for selling within your respective market territory. Co-packing is a go-to option for any consumables or food products, such as IQF. 

Co-packing companies offer a wide range of services, including simple and complex packaging that may include highly-detailed customization. The end packaging product depends on the type of product. It can be a transport tray, thermoformed clamshell, plastic bag, or corrugated retail point-of-sale display.

Co-packing can entail various degrees of services that businesses can utilize either independently or bundle together as a whole, depending on the overall product development schedule. Holistically, the process of co-packing may include:

  • Design: An in-house team from the co-packing company designs the packaging using prototypes to maximize the production time. 
  • Inventory Control: The company receives and audits inventory of the product in question and pre-created packaging materials, such as promo stickers. 
  • Component Production: Some packaging materials may require additional artwork before getting assembled onto the final product.
  • Thermoform Packaging Production: This stage may include the production of thermoformed clamshells, trays, or blisters. 
  • Assembly and Fulfillment: Assembling of the final product, while also including other crucial components, such as coupons, manuals, and sealing. 
  • Warehousing and Distribution: Storage and organization of the packaged materials. 

Who Uses Co-Packing?

The main customers for co-packers are food processing companies that want to bypass the costs of building a facility to package their products. These companies can be big or small, because co-packers can scale their production swiftly, depending on what you need. Co-packaging is also ideal for large-scale manufacturers because the co-packers have the certificates and warehouses to facilitate any level of manufacturing. 

Other customers for co-packing include:

  • Chain restaurants
  • Chefs with special recipes
  • Food retailers launching a new product
  • Breweries and wineries

How Does Private Labeling Work?

Private labeling entails approaching a third party to produce or manufacture your products for resale under your brand name. The third-party company’s job is to manufacture the product while the retailer controls everything, including specs and packaging design. You can also think of private labeling as embedding your brand logo, name, and colors on generic products. Private labels are a go-to option for many retailers because they give customers greater value. In fact, nearly 98% of consumers buy private label products.  

stacks of fruit basket for co-packing

Here is a round-up process of private labeling:

  • Choose Your Product: Consider your product selections alongside customer needs. The recipe and ingredients of the product are from the manufacturer.
  • Product Packaging: The retailer selects the right product packaging, depending on the options provided by the manufacturer. 
  • Brand Identity: Introduce the stickers and colors that match your brand to the packaging material. Remember, customers primarily identify with the brand, not the product.
  • Sales and Marketing: Get your branded products to the end-user through intense sales and marketing campaigns. 

Private Labeling Customers

Packing private labels are ideal for many businesses, including giant retailers, such as Amazon or Walmart, and small food businesses that want to build a brand around third-party recipes and ingredients. Also, private labeling companies can serve clients who want to send custom, branded gifts, such as corporate and fundraising items. 

Cost

Typically, co-packing companies will charge you in small batches, probably per unit rates. Alternatively, co-packers can charge a flat-day, or hourly rate, depending on the terms of the agreement. You’ll likely part with an hourly rate if your production and packaging take about half a day or less. At per unit rate, you pay for the number of products produced. On the other hand, you’ll pay a fixed amount for an entire day’s work. 

However, there might also be other hidden costs for a co-packer, including:

  • Receiving fees
  • Ingredient prep fees
  • Third-party fees
  • Pallet storage fees

Launching a private label product in retail stores can cost you between $285 and $1,500 as a first-timer. This is relatively cheaper than developing an own product and guarantees higher margins for better profits. 

Pricing

The pricing rates for co-packing and private labeling vary a lot. While it may not be correct to suggest that one option is better than the other (it all boils down to the prevailing client needs), let’s estimate what you’ll be dealing with in both scenarios. Take a private labeling company for instance. It will handle everything for you, from start to finish, making their prices a little bit more “inclusive”, which can be high sometimes. Also, a private labeling company may introduce other professionals to complement the whole packaging process. This may include developers, designers, and logistics service providers. Again, there is a greater potential for higher costs because the hands of these professionals are all over the project.  

On the other hand, co-packing pricing comes with an overlap, which automatically adds to your invoice. You’ll also need to pay for the packaging itself, distribution, and storage. Although co-packers may charge you for several services, the costs will likely be lower than private labeling because you have the recipe and product ready. In that case, a co-packaged product may bear a lower price than a private labeled product. 

Nevertheless, these are just generalizations of what you’ll be dealing with. Ensure you do in-depth research on hidden and overhead costs before signing any private label or co-packing agreement.   

Services

The kind of services offered by co-packing or private labeling companies have a mutual goal—present the end product to the consumer in the best way possible. However, the services offered in-between vary, starting from the responsibilities. For instance, a co-packer works in tandem with your brand to come up with a final product formula before packaging it for you. That entails ethical and technical assistance in the whole product development process, including branding.

On the other hand, a private labeling company gives you a ready-made product because it owns the recipe and design. That said, the third-party company owns exclusive rights to the production and controls the supply as they wish. On top of that, a co-packer only packages and distributes the product, while a private labeling company can assist in sales and marketing too. Remember, they have the product and you have ready consumers. 

Key Takeaways

Getting the right packaging for your product is the first step to building a loyal customer base for your brand. Co-packing services give you access to a third-party company that helps you assemble the final product and get it to the end-user. A private labeling company gives you a final, ready-made product to include your brand name and logo. Visit our co-packer service page for a more in-depth insight into the process and to see whether it matches your packaging needs.