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From Co-Pack to No-Pack

Little upfront cost.  Contracted production.  Branded label applied.

Launch. Market. Repeat.

For many Brands, this formula is what has made them who they are today.  But with the consolidation of Co-Packers, Brands are forced to consider changing what they once called business as usual.  Co-Packers now have leverage with their own seat at the table.  The question is: what will they do with this new upper hand and how will Brands continue their operations without risking profit?

Co-Packers are entities Brands hire to manufacture or source their food-based products.  Their production value often resides in their equipment, facilities, packaging, and manpower that make them incredibly desirable to Brands who look to focus on what they do best – marketing and customer relationships.  However, even the largest Co-Packers have a limit to their performance and capacity.  What does a Brand do when they want to grow but their Co-Packer cannot?

Co-Packers may decide to expand operations and the Brand may look at these expansion efforts as a great opportunity that lessens their own production concerns.  Yet, with the shrinking supply of Co-Packers and the ever-present risk of competitors buying them out, Brands are beginning to truly consider if taking on the operational responsibility of their business is needed to turn the tide in their favor once again.

This debate is industry-wide, with the beef jerky business as one of the participants in the conversation.  Jerky brands sold at grocery store check-out lines are often not the ones packaging the meat.  For example, PepsiCo, Frito-Lay, and Jack Links have partnered on the MATADOR brand.  Summit’s Associate Vice President, Mike Uehlein, states, “We are hearing in our recent conversations with both Co-Packers and Brands, growth constraints because of higher construction costs, limited Co-Packing capacity, and lack of manpower.”  But with exotic meat and plant-based jerky allowing companies to stand out from the rest of the industry, the capacity of Co-Packers is in high demand.

Now may be the best time for Co-Packers wanting to expand or transition out to talk with an investment banking firm who can be a resource to help determine what their best options are.

This article was written by Summit Advisory, a Lower Middle Market Investment Bank, based in Pennsylvania.  Summit advises businesses through growth challenges and guides those looking to buy or sell.

Stay tuned for more updates as this story continues to evolve.