Halo Top Creamery, a low-calorie ice cream brand, faced a critical decision early in its development: whether to invest in building their own production facility or to outsource with a co-manufacturer. Their choice played a crucial role in their meteoric rise to become one of the **best-selling ice cream brands in the United States.**
Founded in 2011, Halo Top started as a small operation with a unique value proposition: delicious ice cream with fewer calories and less sugar. As the demand for their product grew rapidly, the founders realized their small-scale production setup was insufficient to meet the market’s need.
The decision to produce or outsource through co-manufacturing is an important one for companies in the Consumer Packaged Goods (CPG) industry. Each approach has its unique benefits and challenges, and making the right choice can significantly impact your business’s efficiency, product quality, and market competitiveness. Here’s an in-depth look at the considerations involved in this decision-making process, highlighting why co-manufacturing might be a strategic choice for your company.
Produce or outsource: a Pros and Cons analysis
Cost-efficiency
In-House Production: Establishing your own manufacturing facilities requires substantial capital investment in equipment, facility setup, and labor. While this can result in lower per-unit costs over time, the initial financial outlay can be daunting for many companies.
Outsource: Co-manufacturing can help mitigate these upfront costs. By partnering with an established manufacturer, you pay per unit produced, which can be particularly beneficial if your production volumes vary. This approach also allows you to leverage the economies of scale that the co-manufacturer already enjoys.
For businesses looking to optimize cash flow and avoid large capital expenditures, co-manufacturing presents a financially flexible alternative. According to a report by Deloitte, outsourcing manufacturing can lead to significant cost savings, especially for small to medium-sized enterprises (SMEs).
Quality Control
In-House Production: Direct oversight of your production processes allows you to maintain stringent quality standards. This control is vital for premium products where consistency is paramount.
Outsourcing: While you might have less direct control over production quality, reputable co-manufacturers adhere to high-quality standards and are open to regular audits. Establishing clear quality agreements can ensure that your specifications are met consistently.
The need for strict quality control can be managed through careful selection of a co-manufacturer with a proven track record. Research by McKinsey highlights that many companies find improved quality control through partnerships with specialized co-manufacturers.
Flexibility and Scalability
In-House Production: Scaling production capacity up or down can be time-consuming and costly, particularly if it involves significant changes to your infrastructure.
Outsourcing: Co-manufacturing offers greater flexibility, allowing you to ramp up production in response to market demand without the need for significant infrastructure investment. This agility can be crucial in rapidly changing markets.
For companies anticipating rapid growth or fluctuating demand, co-manufacturing provides the scalability needed to adapt quickly. According to Boston Consulting Group, outsourcing manufacturing can enhance a company’s ability to respond to market changes more efficiently.
Speed to Market
In-House Production: Developing and refining in-house production capabilities can delay your product’s time to market, which might be a disadvantage in competitive sectors.
Outsourcing: Leveraging an existing co-manufacturer’s facilities can significantly reduce your time to market. This advantage can be crucial for capturing early market share and responding to consumer trends.
For new product launches or time-sensitive campaigns, co-manufacturing can help you achieve faster market entry. A study by Bain & Company found that speed to market is a critical competitive advantage that can be enhanced through outsourcing. Utilizing the existing infrastructure of a co-manufacturer allowed Halo Top to increase production capacity rapidly, which was crucial for capturing market share in the competitive ice cream industry.
Intellectual Property (IP) Protection
In-House Production: Retaining production in-house offers maximum control over proprietary processes and reduces the risk of IP theft.
Outsourcing: While there is some risk in sharing IP with a co-manufacturer, this can be mitigated through robust legal agreements and selecting a trustworthy partner.
For products reliant on unique formulations or processes, it’s essential to weigh the risks and benefits. Many companies successfully protect their IP while outsourcing through strong contractual safeguards and regular audits, as noted by Harvard Business Review.
Supply Chain Integration
In-House Production: Direct control over manufacturing allows for better integration with your supply chain, potentially reducing lead times and increasing efficiency.
Outsourcing: Effective communication and logistics management are key to ensuring that an outsourced manufacturing process integrates seamlessly with your supply chain.
Assess the complexity of your supply chain and your capacity to manage it effectively when outsourcing. Co-manufacturing can enhance supply chain efficiency if managed properly, as indicated by a report from the World Economic Forum.
What are the possible results of a well managed co-manufacturing deal?
Halo Top worked closely with their co-manufacturer, sharing their recipes, quality standards, and packaging requirements. This collaboration ensured that the co-manufacturer could produce ice cream that met Halo Top’s exact standards.
To protect their proprietary recipes, Halo Top established robust legal agreements and conducted regular quality audits. This partnership allowed Halo Top to focus on innovation and brand building while relying on their co-manufacturer for efficient production.
The decision to partner with a co-manufacturer yielded impressive results for Halo Top:
Explosive Growth: Halo Top’s ability to scale production quickly helped them capture a significant share of the ice cream market, becoming the best-selling ice cream in the United States in 2017.
Cost Savings: By avoiding the large capital investment in new facilities, Halo Top redirected funds towards marketing and product innovation, driving brand awareness and consumer loyalty.
Enhanced Quality: The expertise of their co-manufacturer ensured that Halo Top products consistently met high-quality standards, reinforcing the brand’s reputation for quality and innovation.
Agility: Halo Top was able to respond swiftly to market trends and consumer preferences, launching new flavors and products with shorter lead times.
Choosing between producing or outsourcing is a strategic decision that requires careful consideration of various factors. For many CPG companies, co-manufacturing offers a compelling combination of cost savings, flexibility, and speed to market, making it a viable option for achieving sustainable growth and operational efficiency.
By evaluating these considerations, businesses can make an informed choice that aligns with their strategic goals and market positioning. Co-manufacturing, when chosen thoughtfully, can provide the agility and resources needed to thrive in the competitive CPG industry.
After learning about Halo Top’s case, are you ready to make the decison: produce or outsource?
GrowinCo. is the best choice for your brand if you’re thinking towards co-manufacturing for your products. Through our platform, CPG brands can find the right partner for the product projects they need. By connecting with experienced co-manufacturers, you can leverage their expertise and establish processes to bring your products to market more efficiently. GrowinCo. simplifies the outsource process, providing a platform for finding and managing your co-manufacturing partners.
References: Deloitte, McKinsey & Company, Boston Consulting Group, Bain & Company, Harvard Business Review, World Economic Forum, Forbes, Inc., Food Dive
