INSIDER spoke with a panel of executives from the contract manufacturing and private label arena about misconceptions surrounding private label manufacturing, choosing a delivery form, how using branded ingredients can affect cost, and the present state of the private label marketplace.

What are the primary misconceptions you encounter regarding the capabilities of private labelers?

Robin Koon, vice president, sales and marketing with City of Industry, Calif.-based Best Formulations Inc.: The major issues we experience from clients revolve generally around preconceived concerns regarding either quality or expertise. Sometimes assumptions are made that a private label “me-too” product is inferior in quality to a brand name. But this should not be an issue if a quality manufacturer is used and a good formula is chosen.

Lucy MacLoughlin, chief operating officer (COO) of Bellingham, Wash.-based Rhema Industries Inc.:

A common misconception is that you can translate a concept into a finished product in an unrealistic period of time. Many companies don’t allow enough time for the product development process, which unfortunately can limit the manufacturer’s ability to provide them with a product that optimally meets all their objectives.

Bob Olson, director of national accounts at Century Foods International in Sparta, Wis.:

Some people fail to understand the depth of services available. Private label operations can offer a wide range of services, including research and development (R&D) and packaging engineering.

Michael Gerike, president and COO of Boca Raton, Fla.-based Health Plus International Inc.:

Most companies that engage our services are initially cautious due to several factors such as time to market, cost, quality, overall satisfaction, market saturation and finally, large minimum quantity requirements. At Health Plus, we are very flexible in our minimum quantity requirements and can accommodate orders as low as 1,000 units to start.

What are some currently popular ingredients or categories?

Koon:

We use many ingredients, but some of the major ones include oils such as fish oils and fish concentrates, flax, borage, evening primrose, saw palmetto, phytosterols and lycopene; powders such as glucosamine, calcium, green tea, soy and whey proteins, coenzyme Q10 (CoQ10), multi-vitamins and minerals; and various soluble and insoluble fibers.

MacLoughlin:

Weight loss continues to be very hot. We’re also seeing an increased interest in fiber products as well as conditionspecific formulas such as those designed for syndrome X and other conditions that are garnering publicity. Male and female enhancement products are very strong, still. Anti-inflammatory products for joint health and other inflammatory conditions are also popular.

Olson:

Diet, energy and wellness ingredients have seen an increase in popularity recently.

Gerike: Right now the majority of our requests are for energy, weight loss, sexual stimulation, glucose control and for products enhancing the immune system. Hoodia is very hot as well as many antioxidants such as pomegranate, bilberry, cranberry and, an up and coming, muscadine grape.

Lee Covert, director of sales with Grand Rapids, Mich.-based Elan Nutrition:

We are experiencing heightened interest in nutritionally balanced natural fruit- and nutbased bars with high levels of dietary fiber and a low glycemic index. The nutrition bar is a very flexible vehicle for our customers to deliver a balanced level of protein fat and carbs.

What is the benefit to manufacturers of outsourcing private label production on a specialized delivery form, such as a softgel, effervescent, bar or topical product?

Koon:

The primary benefit is expertise. These other areas of manufacturing (e.g., softgel, effervescent, bars, gummies) are niche products. The manufacturing of these items generally requires some kind of additional compounding/formulation knowledge, specialized equipment, expertise and experience.

MacLoughlin:

It’s critical to use a specialist. There are so many other areas of a branded manufacturer’s business that demand attention for continued success; they need to be able to focus on marketing, customer service, increasing distribution, and fiscal health. As a contract manufacturer we focus on our core strengths—development, production and packaging of quality health supplements, and our clients can rely on us to take care of these areas for them.

Gerike:

Health Plus specializes in liquid supplements using a patented nanoencapsulation process for particle size reduction, increased stability and extended shelf life.We incorporate a unique and one of kind spray delivery system administered via the sublingual route for better absorption and uptake into the body. This gives our customers a unique competitive edge in a niche market which is very young and growing more popular as is evident in the trend liquids are experiencing. Most importantly, we license our technology with the ability to protect their formulations utilizing our patented process.

Does the use of branded ingredients increase the value of a private label product?

Koon:

Sometimes. It really depends upon how our client decides to market their product. A well-known branded ingredient can be an added bonus by enhancing value and product differentiation.

MacLoughlin:

In using a branded ingredient, you’re getting the benefit of the marketing campaign and often the research behind that trademarked or patented ingredient. You’re getting something in your formula that the consumer may perceive as being of higher quality. I think it really comes down to how you want to position your product. Often, branded ingredients come at a premium price. They are frequently worth it, but you have to make sure the market you are going after will pay for the added value.

Olson:

The science must be behind the product for it to be of any real value. Marketing support plays a role as well, but if the quality isn’t there, branding can only take you so far.

Gerike:

Certainly branded ingredients increase the value proposition, although we find most consumers are unaware of, or confused by, the massive amount of branded ingredients available to them and as a result are more tuned into condition-specific formulations and what they can do for them.

How do you keep current and ensure compliance with changing federal regulations governing the manufacture and/or distribution of dietary supplements?

Koon:

We already manufacture prescription drugs at our facility, so the knowledge of the new (or changing) good manufacturing practice (GMP) regulations is not a problem for us. The GMPs (and proposed GMPs) of nutritional products are currently not as stringent as those for drug products. Our vice president of quality/regulatory affairs keeps our organization well abreast of the proposed (or any) changes. Our in-house quality control (QC) laboratories ensure our quality while our quality assurance (QA) team ensures our compliance. We are well prepared for any of the coming changes.

MacLoughlin:

We read quality industry publications to keep current. We attend the major trade shows and go to the regulatory sessions offered there and at other venues throughout the year, and in addition to our inhouse regulatory team we consult with outside experts as needed. As a manufacturer headquartered in Canada, we comply with GMPs governed and enforced by Health Canada. Canada’s quality requirements for the manufacture of vitamins and minerals, and many products that are classified as dietary supplements here in the States, have been equivalent for many years to the GMPs required for OTC pharmaceuticals. Therefore, we are confident in our ability to meet the quality requirements of the American market.

Olson:

Regular government and third-party audits are standard procedure.

Gerike:

We employ third-party partners that specialize in consulting for GMP compliance requirements including current events related to the Dietary Supplement Health and Education Act (DSHEA).

Our QC department uses software including SOPs that strictly follows the guidance provided by our consulting partners as to ensure compliance.

What certifications do you hold (i.e., kosher, organic, NSF/USP GMP) and how have they helped you position your company with current and potential clients?

Koon:

Certifications and licenses are very important; they certainly show current and potential customers one’s commitment to quality and meeting or exceeding regulatory requirements. We hold several certifications and licenses: FDA Drug License, FDA Cosmetic License, California Drug Manufacturing License, DEA License, California Food Manufacturing License, NNFA cGMP certificate, TGA License and various Kosher certifications.

Covert:

Elan Nutrition is a kosher-certified supplier and as such this allows us to service a wider range of customers.

MacLoughlin:

We are cGMP and Australian TGA certified and we also hold a Certificate of Organic Operation for meeting the Organic Standards established by the USDA National Organic Program. These accreditations have allowed us to position ourselves as a quality company; this is what we’re known for.

What are your current QA/QC initiatives, and how important is it to have established quality parameters?

Covert:

Elan’s quality department is in the process of implementing production QC. This means production personnel are trained in the principles of QC and take responsibility for the necessary activities to control production quality. The quality department will audit and support the production department in this endeavor. It is extremely important to establish quality measures; without them, performance cannot be evaluated.

MacLoughlin:

It is critical to have established quality parameters. As a GMP-compliant facility, we have comprehensive standard operating procedures which cover all aspects of our operation from equipment cleaning to maintenance scheduling to paperwork flow and staff training, etc. Our quality team continually evaluates processes for potential refinements.

What are some recent trends and changes in private label manufacturing and how are you satisfying those requests?

Koon:

We are receiving more inquiries for unique and specialized products, and less for the standard commodity type of products. We are always willing to offer a variety of suggestions and assistance when formulating and quoting. There is a trend toward higher quality standards, especially in light of the pending new GMPs. Many companies will need to either obtain or upgrade their GMPs, SOPs, QA and QC areas.

MacLoughlin:

Customers are requiring more technical information about their formulations and a broader, deeper level of service in all areas. Our technical and sales departments work together seamlessly to address their questions concerning raw material quality, manufacturing properties, regulatory issues, etc. Education is key. There is also a trend to utilize the shipping and warehousing facilities of one’s contract manufacturer as a fulfillment house. Where this works economically we are pleased to provide this service.

Olson:

We are using new equipment to handle packaging requirements as they evolve. R&D plays an integral role in formulating complex new flavors. New testing methods are being used by our chemists for verifying inclusion levels of new ingredients.

What are some promising new markets for private labelers?

Koon:

We are seeing a lot of interest in two key areas: diet products and organ-/disease-specific products. Diet items are always popular. Disease-specific products refer to wellness products specifically designed for a range of needs including: men’s, women’s, cholesterol, eye care, cardiac, immune, joint and antioxidants. As the baby boomers age, they are very interested in products that help in keeping healthy and maintaining an active lifestyle.

MacLoughlin:

More companies are looking to diversify their markets through exports. Manufacturers must be equipped to handle not only their customers’ North American requirements, but also their existing and potential international requirements. Such manufacturers are in a good position to realize additional opportunities.

What are some challenges inherent in private label manufacturing?

MacLoughlin:

One significant challenge is striking the optimal balance in fulfilling the client’s divergent requirements. For example, a client might request a cutting edge sports nutrition supplement that utilizes several trademarked materials in a formula with many ingredients. They may want to deliver the daily dosage in two capsules while the number of ingredients and their input quantities will require double that. Additionally, they may set a price target that is unable to support the use of the trademarked materials. The challenge comes in explaining to the client how some of their parameters are incompatible and then working with them to create a product they can feel good about from all perspectives.

Olson:

Lead time and forecasting.

Covert:

It is critical to have clear objective for the project, as well as thorough and frequent communication with the designated teams to ensure success for each project. Both parties learn more as the project progresses. Learning can create need for adjusting the direction of the project. It is also critical to include the right team members from the appropriate disciplines (product development, quality, marketing, finance, sales and manufacturing).

With the increased demand from major brands/large clients for private label products, how do you attract these customers and meet their needs?

Koon:

By remaining flexible to our clients’ needs, being on-time with their deliveries and providing excellent customer service. Some examples of being flexible can include offering extra services such as producing pilot and small production runs for their slower-moving products or keeping extra floor or reserve stock to ensure they never run out. Fortunately—or unfortunately—for us, price point generally always remains a major consideration as well.

MacLoughlin:

You need to maintain a consistent presence in the market. We do this through a combination of advertising and participation in trade shows, mailing campaigns and a well-rounded marketing approach.Your promotion needs to differentiate your company from your competitors and present the special strengths and expertise you offer. For example, we try to develop proprietary processes, which due to their uniqueness may open doors to business with large clients. One of them is our GRAS (generally recognized as safe) water-based enteric coating for soft gels and tablets. We also consider ourselves well-versed in flavoring for chewable and powder products. We try to be strong generalists with some niche areas of specialization. I think that’s a good formula for most manufacturers: to key in where they are particularly strong as long as they also maintain a broad foundation. In addition to putting out a targeted message to the major brands, it’s particularly important to make sure these larger clients know you are equipped to grow with them, that you have the capacity to meet their existing needs and that your company is fiscally strong and poised for continuing growth.

Olson:

Your reputation precedes you in whatever you do. If you provide top quality services, people will hear about it.

What are some pros and cons of manufacturing for major clients?

Koon:

The pros include a steady mediumlarge volume of orders which will keep the production department machines running, helping to fill any unused capacity. The cons can include needing to manage the account and orders carefully. Often, clients may require—or demand—that we to produce a rather large volume of product or products quickly, which can affect other clients.

MacLoughlin:

Naturally, the potential for sizeable revenue from a large client is a pro as is the likelihood that they are well-established and have the resources to effectively launch and market the products we make for them. Cons are the significant amount of time and resources it takes to maintain the account which can slow prospecting efforts and limit the diversity and number of clients.

Olson:

Long runs of single products help efficiencies and cost. Getting through all the layers of corporate red tape means sales cycles are long.

How is launching a private label for a major client different than launching a private label for a smaller client?

Koon:

The smaller client volume requirements are generally lower than that of a large one. Many times the smaller clients do not have the formulation expertise, and we end up formulating for them.

MacLoughlin:

With larger clients, a private labeler must deal with a greater number of stakeholders, and the process will likely take longer and be more structured than with smaller clients. Furthermore there will likely be a larger number of SKU’s and greater complexity due to the scale and/or nature of the products.

Olson:

When working with larger clients, more people are involved in the decision making process, and this extends the time to market for new products.

How do you work with clients to develop new products or determine the best delivery form for a particular product?

MacLoughlin:

We work very closely with our clients. At times they will come to us strictly with a concept; they won’t be certain of the delivery form they want. From a rudimentary idea of the ingredients they want in the product we can take it from there to the development of bench top samples for their evaluation. For other clients who may have an in-house product development department, we can liaise with their internal resources to troubleshoot or suggest refinements, taking a very good prototype to the next level. Or at times if our clients come with a very developed product, we may have very little involvement. In terms of working with clients on product development, we span the spectrum. Determining the best delivery form is based on a myriad of factors including: recognizing key requirements of the target demographic (e.g., avoiding large tablets that are hard to swallow for kid’s products), evaluating the physical properties of the raw materials to determine their manufacturing potential, and working within acceptable price parameters.

Covert:

By working together with our customer (the marketer), we establish the criteria for the targeted consumer. Then, we develop the highest quality nutrition bar in taste, texture and nutrition to meet the particular consumer segment.