DIY Food Manufacturing

When Bob and Joe McClure decided to boost production of their McClure’s Pickles brand about seven years ago, they could have gone one of two ways: Contract out the processing, packaging, and distribution of their garlic-and-dill spears, sweet-and-spicy pickles, and other varieties—or keep doing it themselves.

The brothers emphatically decided to do the latter, refurbishing an old car-axle plant on a 2.5-acre site in central Detroit and constructing a 20,000 square-foot packing palace that now turns out 40,000 pounds of pickles each week and feeds McClure’s growing retail presence in Walmart, Costco, and independent grocery stores around the United States and, increasingly, abroad.

“By having and growing our own manufacturing, we have more control of production inputs and outputs,” says Bob McClure. “We can turn the dial up or down a bit with a lot more flexibility. We also have good visibility as far as our financial input costs. With a co-packer, you’ve got one line item—‘cost of goods’—but by making our own, we’re allowed to see where all those inputs are and negotiate with vendors and better control our supply chain from a quality and safety perspective.”

Take the McClures’ decision to keep manufacturing in-house and multiply it by hundreds of companies and many billions of dollars, and you start to get an understanding of what’s become a strong trend in the U.S. food business these days. Companies are deciding to build and run their own plants or partner for dedicated production by a co-manufacturer rather than contracting out the processing of their products for reasons of strategy, cost, process challenges, technology implementation, and other factors.

“If the product itself is your competitive differentiator, then the process to support it is a requirement,” says Adam Geissler, director of strategic accounts for Augury, a company that harnesses artificial intelligence (AI) for predictive maintenance for manufacturers. “Then it’s how do you produce this at scale, cost efficiently.”

There doesn’t seem to be definitive data about whether the share of proprietary manufacturing is increasing, versus co-packers’ share of the food business these days, but there’s no denying the many huge outlays being put down by major CPG manufacturers in dedicated plants as well as the many smaller investments being made in their own factories by startups and other smaller companies.

Consider, for instance, that Coca-Cola just broke ground on a $650 million, 745,000-square-foot facility in Webster, N.Y., to feed the expansion of its fairlife ultra-filtered milk products in the Northeast. Daisy Brand is investing $626.5 million toward construction of a 750,000-square-foot plant to make sour cream and cottage cheese in Boone, Iowa. Mars is planning to build a $237 million, 339,000-square-foot plant in Salt Lake City for its Nature’s Bakery brand. And so on.

“There’s been a lot of growth in the food and beverage industry, and the impact it’s had on manufacturing nationally has been significant,” says Larry Gigerich, executive managing director of Ginovus economic development consultants and past chair of the board of directors of the Site Selectors Guild. “It’s big companies, it’s organic companies, it’s European companies, and even smaller companies that are getting shelf space they’ve never had before and deciding to bring manufacturing in-house once they’ve reached a certain scale.”

Smucker Invests in Uncrustables

One of the biggest such splashes is being made by J.M. Smucker, the CPG giant based in Orrville, Ohio, that has nurtured its Uncrustables frozen sandwiches into an $800 million brand that rather rapidly has become the most important thing the company makes. A plant in Scottsville, Ky., initially made enough sandwiches to handle the brand’s growth after Smucker bought Uncrustables from the two product originators in North Dakota in 1998. In 2019, Smucker opened a second plant, in Longmont, Colo., which it since has expanded.

But even that wasn’t enough, as Uncrustables became one of the biggest snacking phenomena in America—thanks to its kid-friendly taste and texture and a nostalgic as well as practical attraction for adults, who are also fans. Smucker already was unable to keep up with demand, and the brand’s first television advertising campaign has fueled even more.

“Seemingly since the launch of Uncrustables, our challenge has been meeting the incredible demand,” says Frank Cirillo, director of corporate communications for Smucker. “Because of this, Uncrustables has been on allocation, which obviously limits our ability to deliver for consumers and grow the brand.” Only recently, in fact, has Smucker been able to take the brand off allocation enough that it could launch Uncrustables in Canada, which had been a corporate goal for 15 years.

So in 2022, Smucker began construction of a third Uncrustables factory, its largest and most ambitious yet: a $1.1 billion behemoth going up in McCalla, Ala., that will be devoted exclusively to the brand as the most important supporting piece in reaching the company’s goal of crossing the $1 billion sales threshold for Uncrustables by the end of fiscal 2026.

Yet it isn’t just the extra Uncrustables volume that Smucker needs; conceivably, co-packers could give the company all of the output it requires. Smucker wants to make the sandwiches itself mainly for strategic reasons of ensuring that they’re made right—and that it can protect its methods, formulas, and other intellectual property from the many competitors and would-be copycats that have tried to cut in on its share of the American stomach in the past several years.

Uncrustables production “includes proprietary processes that require us to maintain internal oversight,” Cirillo says, and the company “scaled production in a measured manner to ensure we would be able to continue to deliver the quality consumers expect.”

While declining to explain—for obvious reasons—exactly what those processes are, Cirillo describes the importance of ending up with a concoction of “soft, pillowy bread, creamy peanut butter, and sweet jelly that offers a consistent experience with every sandwich.” Importantly, the bread must not leak, or the consumption experience would be ruined. And while an Uncrustable is frozen like competing sandwich-style products such as Nestlé’s Hot Pockets, unlike those others, it defrosts on its own and is eaten at room temperature without any heating necessary. All of this perfection and consistency requires precise processes, machinery, and quality control that are much easier to achieve in Smucker’s own factory.

What’s more, the company has just doubled down on its proprietary manufacturing strategy in a big way: Smucker acquired another iconic snack company, Hostess Brands, last year for $5.6 billion. At that point, the maker of Twinkies, Ding Dongs, Donettes, and other classic sweet snacks already was well into construction of its own mega plant: a 330,000-square-foot facility in Arkadelphia, Ark., in which Hostess planned to invest as much as $140 million. Hostess executives said the plant would add about 20% manufacturing capacity for some of its crucial lines, such as Donettes.

Of course, existing proprietary plants are being closed all the time, though often it’s so the company can do a better job of making the same products in a new plant or other existing ones, not just so manufacturing can be contracted out. After 55 years, for instance, PepsiCo decided to close a Quaker Oats plant in Danville, Ill., that had been shuttered temporarily after products it made were recalled due to a Salmonella contamination. And Conagra Brands said around the same time that it would close a facility in Beaver Dam, Wis., that produces frozen vegetables.

Some new plants, too, don’t work out despite initial enthusiasm about the project. For example, in late summer of last year, Illinois Governor JB Pritzker announced with some excitement that the state was going to give UPSIDE Foods a break on payroll withholding taxes to build a $141 million, 187,000-square-foot plant in Glenview in suburban Chicago, that would be the company’s first commercial-scale production facility for cultivated meat. Pritzker called the plant a “significant investment in our communities” and “a perfect fit for the region.”

Unfortunately, only five months later, the governor’s vision for the UPSIDE Foods plant began to collapse. Under the increasingly crushing verdict of an American marketplace that wasn’t as ready to embrace faux meat as inventors had hoped, UPSIDE abruptly stopped what it called “non-critical” work on its Glenview plant and began conserving capital by instead expanding its smaller initial plant in Emeryville, Calif.

The reality of such adjustments is just one of the reasons contract manufacturing has been so popular in the food business: Contract food and beverage production was already a $141.6 billion global business in 2022, according to market researcher ReportLinker, which expected the industry to grow at a strong compound annual rate of about 10% through 2026, to a total of $207.8 billion.

When Co-Manufacturing Makes Sense

Another appeal of “co-mans,” of course, is that they can make just about anything a food or beverage company can make itself; sometimes it’s just a matter of finding the right match between product and co-manufacturer. To that end, Keychain, a CPG manufacturing platform, recently unveiled a core product consisting of an AI-powered system that categorizes thousands of specific processes and capabilities for more than 10,000 contract manufacturers.

“This industry is very complicated,” says Oisin Hanrahan, cofounder and CEO of Keychain. “There are tons of players in the ecosystem and a number of different processes used to manufacture products that might even seem the same.” The new platform helps CPG companies and retailers “see how they can capitalize off of their existing resources to generate new revenue streams” and “streamlines the CPG supply chain.”

Some CPG companies decline to do their own production, citing the reasons that contract manufacturers use in their marketing: the high cost in money and time and the potentially commensurate hassles of doing it yourself.

I only see all the disadvantages of doing it yourself: twice as many headaches and mistakes.

“We don’t own a facility; it would just be a headache,” says Seth Goldman, cofounder of Eat the Change, which two years ago launched its Just Ice Tea organic brand to slurp up some of the market left behind when Coca-Cola tanked Honest Tea, the brand it bought from Goldman in 2011. “I owned a bottling plant for the six longest years of my life bottling Honest Tea. I only see all the disadvantages of doing it yourself: twice as many headaches and mistakes.”

Indeed, says Jeff Grogg, a company’s decision to do its own or to farm out manufacturing is typically complicated. “There’s opportunity and rationale for companies to build their own,” says the founder and managing director of JPG Resources, a product development consultancy. “For some categories, it can be a must—or at least a good idea.

“But it really depends on the company, product, and category,” Grogg continues. “People built standard [nutrition] bar lines, and that didn’t make sense. There’s always an available co-man, and at reasonable prices for most formats. Doing it yourself requires a lot more dollars that have to be funneled into stainless steel and quality programs instead of into sales and marketing. And there are big cash flow implications that some companies don’t plan for.”

While initial investments in setting up in-house manufacturing can be high, the long-term benefits often outweigh these costs.

More Reasons for Doing It Yourself

Several reasons come into play for CPG companies that prefer manufacturing their own products. One of the most important is cost efficiency, of course. “While initial investments in setting up in-house manufacturing can be high, the long-term benefits often outweigh these costs,” says Ryan McMartin, product marketing manager for Parsec Automation, a provider of manufacturing execution systems that help companies run their factories. “Companies save on the margins what would otherwise go to contract manufacturers, and they can achieve economies of scale by producing larger volumes in-house.”

Another important impetus for self-manufacturing is quality control and compliance, which is “crucial, particularly in the food industry,” McMartin says. “Companies can ensure stricter adherence to quality standards and regulatory requirements, thus reducing the risk of product recalls and enhancing their brand reputation.”

A third main reason is for companies to maintain flexibility that’s often called for in meeting shifts in market demand, introducing another product, or for other reasons. Nuts.com, for instance, runs a processing plant of more than 200,000 square feet where the company roasts, salts, seasons, and enrobes nuts, creating chocolate-covered espresso beans, malted milk balls, and trail mixes. The Cranford, N.J., facility has a vibe akin to the fictional Wonka Chocolate Factory—so much so that the TODAY Show visited it last year and showed almonds being hand-coated with ladles of chocolate in whirring tumblers and gummies being packaged for shipment.

“We have a lot of flexibility and customization capabilities,” says PJ Oleksak, CEO of Nuts.com. “We can do short runs if we want to, and decide what we want. That’s especially important for products for people with different allergies.”

Julie Smolyansky has leaned on all three of those primary reasons for her abiding decision to do all manufacturing in-house for Lifeway Foods, maker of kefir cultured beverages and farmer cheeses.

It’s just important for us to do most of our own manufacturing and be in control of our own destiny. When we’ve worked with contract manufacturers, we’ve tended to not be their priority.

“Our margins are better by doing it ourselves, and it puts us at a strategic advantage,” says Smolyansky, Lifeway Foods president and CEO. “We are more nimble. We’re able to do manufacturing as needed for each order, versus making all this product and then not selling it. We make to order, so it’s quickest and freshest, and we don’t have to dispose of any of it.”

Lifeway Foods also can “de-risk situations and have options” if there’s a disruption in production, she says, or “if we want to pivot quickly and respond to sudden growth that you might not be expecting.” On the other hand, it’s easier for a CPG company to unwind a failed product or initiative if it’s not being made under contract by someone else, and Lifeway has discontinued a few such products over the last several years.

“It’s just important for us to do most of our own manufacturing and be in control of our own destiny,” Smolyansky continues. “When we’ve worked with contract manufacturers, we’ve tended to not be their priority. They will take into account their other customers who are bigger and they may have relationships with. And we can’t afford that.”

Increasingly, as with Smucker and Uncrustables, technology considerations come into play in manufacturing decisions. Rivalz, for instance, is a new brand of vegan savory snacks with a healthful positioning. Rivalz Snacks CEO Peter Barrick got a co-manufacturer to invest in his company and co-construct Rivalz’s proprietary extrusion systems in order to turn plant proteins into crispy snacks in a manufacturing process that he’s controlling.

“It takes our expertise and our technology and our team to be able to do that,” Barrick says. The company’s innovation has helped Rivalz penetrate the savory snack market with a run rate expected to be about $4 million this year, he says.

In the case of Stuffed Puffs, new and proprietary manufacturing processes are the entire raison d’être for a startup brand that makes chocolate-stuffed marshmallows. Michael Tierney spent eight years trying to find a contract manufacturer capable of making them before he finally gave up, built his own plant, and began manufacturing Stuffed Puffs on his own six years ago, by constructing a $100 million facility in Bethlehem, Pa.

“We needed closed ends on the sides of the marshmallow and a certain volume of chocolate on the inside to make it work,” says Tierney, whose brand has grown to more than $60 million in annual revenues. “We have 150 people making and thinking about nothing but Stuffed Puffs. That helps us massively when we have conversations with a Walmart: We can be in control, versus having to walk away from opportunities.”

Digital technology imperatives increasingly are coming into play as well. For instance, while there apparently are no special tricks to making Hostess products that a co-packer couldn’t handle, company executives speaking before the Smucker acquisition said they wanted to use the new plant in Arkansas as a proving ground for an “automation-focused mindset” and a “digitization mindset,” as Travis Leonard, former executive vice president and chief financial officer for Hostess, told Food Business News in mid-2023.

“This is important,” Leonard said. “What we’re doing here is really looking and looking at how we can utilize digital tools to be more efficient in the quality baking that we do at scale today. But the benefit is that we take those learnings and then we apply that back to our other bakeries within our network, and we drive efficiencies across our network.”

The increasing production of fermented foods, despite their marketplace challenges, enters into new technology considerations and companies’ make-or-buy decisions, such as the one that has UPSIDE Foods in a dilemma right now. Reactor vessels that, like microbrewery systems, produce alt-meats and other products are expensive to build; thus, many startups rent them from co-manufacturers, at least initially.

Artificial intelligence—especially the generative AI that has had the whole world atwitter for the last year—presents another huge new factor into the manufacturing equation. AI can make companies’ own manufacturing more efficient by doing predictive maintenance.

“If you have a product that is custom or unique or a differentiator, and you’ve built equity around it, you want to make sure the machines in that process are as healthy as possible to optimize yield and reduce waste,” says Geissler of Augury.ft