Co-Manufacturing vs. Private Label: Key Trends Shaping CPG in the Americas

The landscape of consumer-packaged goods (CPG) has dramatically evolved, with private label brands and co-manufacturing partnerships playing pivotal roles in shaping the industry. As companies across the Americas navigate this dynamic environment, understanding the distinctions between private label offerings and co-manufacturing and co-packing opportunities is essential for strategic decision-making.

The Global Rise of Private Label

Private label products - those branded by retailers but manufactured by third parties-have grown significantly over the past decade. Private label now represents a substantial share of the global consumer goods market, with regional variances highlighting its adoption and popularity.

• North America: Private label represents approximately 19% of the consumer goods market.
• Western Europe: This region leads with a private label market share of about 35%.
• Eastern Europe: Private label accounts for 12% of the market.
• Asia: Here, private label penetration is lower, at around 6%.
• Latin America: Private label accounts for 10% of consumer goods.
• Middle East and Africa: The market share is modest, at 5%.

Source: Statista

?

Private Label vs. Co-Manufacturing and Co-Packing: Understanding the Differences

Private Label products are often synonymous with cost-effectiveness and brand loyalty for retailers. Retailers control the branding and marketing while outsourcing production, allowing them to offer competitively priced alternatives to well-known brands. In this model, manufacturers focus primarily on meeting the specifications set by the retailer, often with little room for innovation beyond cost reduction and efficiency.

Co-Manufacturing and Co-Packing differ fundamentally from private label operations. In these arrangements, brand owners (rather than retailers) partner with specialized manufacturers to produce and package their branded products. Co-manufacturing involves more collaborative efforts, where the manufacturer may contribute to product development, ingredient sourcing, and technological innovation. Co-packing focuses more on the packaging aspect but can also include aspects of manufacturing. These partnerships allow CPG companies to scale operations without investing in additional infrastructure, leveraging the expertise and capabilities of specialized manufacturers.

?

Market Dynamics in the Americas

Recent data reveal intriguing trends in the co-manufacturing and private label sectors across key markets in the Americas:

• USA: Of the finished food and beverage products outsourced, 14.9% are co-manufacturing or co-packing, while 85.1% are private label.?
• Mexico: Co-manufacturing and co-packing account for 11.4%, while private label holds 88.6%.?
• Brazil: The split is 10.9% for co-manufacturing and co-packing versus 89.1% for private label.?
• Canada: 12.3% of outsourced finished products are co-manufacturing or co-packing, compared to 87.7% private label.

Co-Manufacturing: A Growing Market Opportunity

Despite the dominance of private label, the co-manufacturing market in the US is set for impressive growth, projected to expand over 10% year-on-year for the next five years, according to data from the CPA, The Association for Contract Packagers and Manufacturers. This growth is driven by several factors, including the increasing demand for specialized products, innovation in product development, and the agility required to respond to market trends.

?

The Strategic Choice for Manufacturers: Retailers or CPG Brands?

The interplay between co-manufacturing, co-packing, and private label presents a strategic decision for companies in the CPG space. Retailers have long capitalized on private label to build brand loyalty and increase profit margins. However, the rise in co-manufacturing offers CPG brands a chance to access cutting-edge production capabilities, innovate rapidly, and scale efficiently.

The question remains: as the co-manufacturing market continues to grow, who will be best positioned to leverage these capabilities—retailers with their private label strategies or CPG brands that can harness the power of co-manufacturing partnerships to deliver unique and innovative products? The answer will shape the future of consumer goods in the Americas and beyond.