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Victoria’s Secret Beauty brings sophisticated products to market—without actually owning any manufacturing facilities.
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What is contract manufacturing/contract packaging and why are so many people and companies in the cosmetics, fragrances and personal care industries talking so much about it?
All sources, from brand marketers to consultants to manufacturers agreed that while contract manufacturing has been around a long time, it is becoming an increasingly important factor in the beauty biz.
Contract Manufacturing for the Majors
The use of contract manufacturing and contract packaging has already succeeded mightily in other industries, according to Britton Russell, a Kurt Salmon Associates manager based in KSA’s Atlanta office. Russell said that the athletic footwear industry is a prime example in which successful brands such as Nike and Addidas bring sophisticated products to market without owning manufacturing. Freed of the worries of building, equipping and running plants, the brand marketer can concentrate on its core competencies of developing and selling branded products.
“What we are seeing is that companies are realizing that there are skills and assets that are tied up with manufacturing that aren’t a part of brand marketing. So if you can control the manufacturing of your product without having to own the factory, it can be a better way of doing business,” Russell said.
In terms of the beauty business, he noted,” If you’re a cosmetics company, the question is can you generate enough earnings by building brands and marketing alone or do you need to stay in manufacturing?
“We at KSA are interested in the exception and why they wouldn’t outsource manufacturing. A company such as Shiseido that has built its brand on delivering high quality and excellence in manufacturing, especially in its home market of Japan, might want to keep its own manufacturing. But, they will only keep manufacturing if it adds something unique such as a level of sophistication and/or frequency of new introductions that can not be attained through outsourcing.”
The logistics of packaging makes it one of the easiest parts of the manufacturing process to outsource, according to Russell. “There is a set of skills involved in knowing what kind of packaging is going to best serve the brand,” but a company does not need to own the plant that makes the bottle or jar or tube to get that package.
But, moving out of manufacturing is not necessarily simple and easy. Russell pointed out that issues of quality and compliance — making sure that the finished product is as good as the brand needs it to be — are currently being complicated by concerns of homeland security. “With advances in global communication, companies are more able to coordinate across markets and manufacturing. And, by outsourcing, a company can have access to a much broader group of manufacturers than if it owned its own plant.” It is possible that a company could have the product formulated and made in a plant in one country, the package made in another and the package filled and assembled in yet another plant. The graphics could be designed by an internal art department or not and the secondary packaging made in yet another plant. All could come together to produce a finished product with the brand not actually owning any manufacturing at all.
Colin Hession, principal of Colin Hession Consulting based in the U.K., has studied the cosmetic, fragrance and personal care industry’s use of outsourcing in the U.S. and European markets. Hession noted that in addition to standard reasons for outsourcing, “The U.S. has the additional dimension of being such a huge geographic area that a marketer may well have its own plant in one region but use a contract manufacturer and packager in another for convenience and speed.”
Hession pointed out other limiting factors by saying, “Big branders are very cautious about the secrecy of their formulations, so they might hesitate to send the product outside or they might send bulk rather than have a contract manufacturer mix the product.”
And, because margins are so key, it might also be a difficult choice as to whether manufacturing internally or outsourcing would be better for the bottom line. Perhaps the greatest threat involved in outsourcing is “the horrendous product liability legislation that would be in effect if a product were wrong, making the risk too great to outsource all product lines,” Hession said.
Still the advantages of contracting out all or part of manufacturing and packaging are such that Hession estimates that at present between 15% to 20% of all cosmetics, fragrance and personal care products have passed through some sort of outsourcing service before reaching retail shelves.
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| The Color Factory manufactures a complete line of fine fragrances, color cosmetics, creams and lotions at its West coast facility. |
A Brand Marketer’s Point of View
That many major brand marketers use outsourcing is understood but often not admitted openly. One major cosmetics executive, who said, “We use contract manufacturing on an ‘as needed’ basis,” asked not to be identified. Some of the companies that are well known as contract manufacturers are so protective of their customers’ privacy that they declined to be interviewed for this story.
Procter & Gamble sees outsourcing of manufacturing and packaging processes as a tool for improving its business. As to how P&G approaches outsourcing, Vicky Mayer, company spokesperson, said, “P&G is constantly looking at how best to deliver better consumer value by increasing efficiencies, innovating faster and improving operational excellence. This was true in the past, is true today and will be true tomorrow.”
The company has used outsourcing for some time and has developed a procedure that works. “We have done contract packaging at P&G for many years,” said Mayer. “For example, we’ve used contractors for test market products and special packs/promotions. We choose our suppliers based on performance; that is, the ability to meet our current and future packaging needs.”
For Small Marketers, Outsourcing is Essential
For an entrepreneur with an idea for a great new cosmetics line, personal care collection or fine fragrance, contract manufacturing and contract packaging is the quickest and simplest way to turn the idea into reality. Whether the entrepreneur is new to the beauty business or an old hand, it is unlikely that he or she will own a factory or have need of huge volumes to start.
Working with an experienced contract manufacturer will give even the smallest client access to research and development for products as well as help in identifying target markets, creating a brand image, sourcing packaging, decorating and/or labeling as well as assembly, pack-out and distribution.
Defining Contract Manufacturing/Contract Packaging
When Cosmetic Packaging & Design asked, “What does your company do that is contract packaging?” the executive responded, “What do you need?”
That seems to be the overriding theme among outsourcing providers. Most have a menu of services that have been established either within the facility or available through alliances with other suppliers. But, virtually all the providers Cosmetic Packaging & Design interviewed were quick to stress that they would be willing to handle just about any part of the process a customer desired.
Overall, the terms contract manufacturing and contract packaging are used to describe companies that provide those operations that make up the entire chain of production—from research and development to final pack-out—as well as those that provide a single link or two. Many also offer private label services—that is they develop formulas, source packaging and create a product, which they then offer to companies as finished goods.
A Few Do It All Under One Roof
Some operations really do do it all. Cosmetica Labs, based in Toronto, Canada, began to offer “turnkey private brand development and manufacturing about eight years ago,” said Sandra Scott, company president. The first such project Cosmetica worked on was Anthony Braden, a prestige brand of color, skin and body care products. Scott explained, “They came across the classic problems of getting started. No one wanted to work with them because they were too small and only wanted 500 to 1000 containers of a product. As we helped them, we started to bring aspects in-house such as silk screening, a label machine and the ability to make display units. We now have an art department and 16 different work centers in a new 280,000-square foot building so we go outside for nothing but raw materials and unit cartons, having even established our own injection molding capability. We do source some components and will soon add tube manufacturing.”
Because Cosmetica offers stock components and formulations to meet quick turnarounds or a complete custom program when a totally unique identity is needed, its clients range from small start up lines to some of the largest brand marketers.
Scott stated, “We have been chosen to be one of two global color trend manufacturers for P&G for short turnarounds. We do everything from the new product development through the finished goods and ship them to P&G distribution centers.”
Cosmetica will also supply logistics and warehousing services and ship to retail. It has 250 employees and more than 10% of them are engaged in research and development, according to Scott.
The company recently received Canadian accreditation as a drug manufacturer, giving it the capability to make skin care products with active ingredients such as sunscreen and anti-aging products. It has been named one of the top 50 best-managed private companies in Canada in a ranking done by the Queen’s University and Deloit & Touche. It has also been given the Canadian Global Traders Award and received P&G’s Pinnacle Award for Quality Excellence.
“Cosmetica doesn’t just fill,” stressed Scott. “We want to do at least some of the other value-added services as well. Our philosophy is that we can’t compete with strictly contract manufacturing. We don’t take projects that only use part of our services because we dedicate our production to regular clients (a base of about 40 companies) that use the full services.”
Another company that does as much is Lady Burd Exclusive Cosmetics, a Farmingdale, NY-based private label manufacturer of color cosmetics and skincare lines. It was established in 1959 and began full manufacturing about 23 years ago, according to Roberta Burd, chief executive officer.
The company serves a wide range of companies in need of cosmetic and/or skin care products. “We have customers who need three of an item and those that need a million,” said Burd.
The company does it all, from developing formulas to filling, to decorating and labeling, to pack-out and shipping. Burd noted, “We source our packaging from overseas and have our own molds, because packaging makes the product. Everything starts out blank and we do hot stamping, silk screening and some labels for plastic, metal and glass packaging. We also do full assembly and shrink-wrap. The products are then packed out and go to distribution centers or back to the customer.”
Novapac Laboratories, East Orange, NJ, is a contract manufacturer and contract packager of skin care formulas (lotions and creams), according to the company’s general manager, Jean-Marc Perez. “We offer a turnkey operation,” Perez said, “from product and package development and formulation to package decoration, filling and pack-out.”
Established in 1995, the company has blow-molding capabilities to manufacture desired plastic packaging or can source containers. After decoration and filling with either a customer’s own formula or one developed and produced by Novapac, the company will do the pack-out and ship the product. “If there is special assembly involved, we can do that too and will handle whatever fulfillment is needed,” Perez stressed.
He explained that smaller brands have a need for contract packaging that doesn’t require large minimums and, “Larger companies want to reduce the number of sourcing operations they deal with and can realize even larger savings because they can then concentrate on marketing and not on the manufacturing processes,” he stated.
New York City-based Inca America is the U.S. division of Inca Cosmetici S.r.l., an Italian manufacturer of color cosmetics and packaging. Whereas many contract manufacturers started as suppliers of raw materials or packaging and added manufacturing services, in the 1940s Inca began as a color cosmetics producer and soon added packaging. As a packaging supplier, Inca is now known for upscale aluminum components as well as plastic containers and caps. From its manufacturing facilities in northern Italy and France, it now supplies concept-to-finished product services for fragrance, lipsticks, eyeliners and mascaras and foundations.
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An Outsources Coordinator
Telmark Packaging Corp., Hazlet, NJ, represents a roster of contract manufacturing and packaging companies, according to Eric Ludwig, president. They are an entrepreneurial group that Telmark has chosen carefully, which perform a range of services. Ludwig explained, “We’ve tried to find and represent the companies that do a particular part of the process extremely well and cost effectively. Our companies can formulate, mix, source packaging and fill, etc. Because while many contract companies will say they do everything, they really don’t do everything equally well. So we find the company that can do each part in the best way and then coordinate the project.”
Telmark handles all sorts of cosmetic, fragrance and personal care product projects, ranging from mass to class. Ludwig theorized that there is more attention being focused on the contract packaging side of the business now because the industry is becoming more familiar with the term “core competencies” and packaging isn’t a core competency of a cosmetic marketing firm. “It’s a part of the operation that has become acceptable to outsource,” Ludwig explained. “Combine that with the fact that during a down economy, companies are looking for a way to cut costs. If a packaging line isn’t running continuously, it would probably be less expensive to outsource that process.”
Contract Manufacturers That Do Some Packaging
Julie Strasser, vice president of Kolmar Laboratories, Port Jervis, NY, said that Kolmar is a custom formulator and manufacturer of color cosmetics and personal care products. “R&D is finite at any company,” Strasser said, “ and there has been a shift to acceptance of formulas from outside. There is a change in terms of packaging too. More and more, if you’re presenting a turnkey proposal, it includes packaging. We will give our customers a choice of two or three (packaging) possibilities that will work.”
While Kolmar provides no decorating services, it does “all sorts of secondary assembly,” said Strasser. “We will package the product in a set-up box and then pack it out. We’re a ‘make to ship’ operation. We will ship to a distribution center or direct to our customer. It’s a growth opportunity because if you can provide added services, they will attract more business. But the packaging services are not a big profit center for us.”
Kolmar’s clients range from start up entrepreneurs to the major players. “Private label programs often end up as house brands,” she said.
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| DMI offers secondary packaging including blisterwrap, thermoform stretch cards, unit carton and cello wrap. |
DMI, Wharton, NJ, is a contract manufacturer, which is fully registered to produce OTC pharmaceuticals as well as cosmetic products, according to Anthony Nugent, vice president of sales. The company will manufacture a brand marketer’s formulation or create a DMI formula to the client’s specifications.
DMI is able to fill a variety of packaging components including tubes, bottles, jars, pots and hot-pour compacts as well as lipstick, lip balm, and face stick containers. The company will work with whatever packages the customer has sent or can help advise and then source the appropriate packaging components.
Once the primary container is filled, DMI offers a wide range of packaging and assembly options from design to final assembly and pack-out. The company is set up to provide blister card, thermoform, stretch card, unit carton or cello wrap as secondary packaging.
The company, which began as a point-of-purchase display broker, will assemble finished items in a POP display or ship in cartons to distribution centers or back to the customer.
“Some customers want DMI to do everything,” Nugent said, “Others just need a piece. We started a product development unit two years ago and now offer original formulas too.”
Body Blue Inc., based in Mississauga, Ontario, Canada, is a contract manufacturer and a private label manufacturer that provides services ranging from research and development of product formulas through product manufacture and filling through to pack-out in a “seamless to customer stream,” said Duncan Coopland, vice president of sales and marketing.
Body Blue works in three major product categories: sticks, including anti-perspirants, soft formulas, solids and clear gels, coco butter sticks, hair sticks, analgesic sticks and sunscreens; liquids, such as shampoos, conditioners, anti-bacterials and baby wash products; creams and gels, consisting of products such as skin care products and hair gels. While Body Blue does not itself manufacture packaging, it will source the right package for its client’s project, as well as manage materials, engineering, quality assurance, customer service and information technology. Coopland explained that the company is set up to do inline labeling but will send packages out for silk screening and/or hot stamping. Likewise, it will do some assembly but will outsource other cartoning tasks. “The whole process is seamless to the customer,” he stressed. “Our price will include all the services necessary. We don’t mark up packaging costs. It’s a service we provide to our customers.”
The Color Factory came into existence in June of 2001 when Allied Capital acquired the assets of the West Coast operation of Cosmetic Manufacturers Resource. A new executive team was put in place and The Color Factory now offers contract manufacturing and packaging of fine fragrances, color cosmetics and personal care creams and lotions from its 58,000-square foot facility in Sun Valley, CA, near Los Angeles. In addition to turnkey manufacturing, The Color Factory offers a full range of contract packaging services, including multiple component assembly, POP display pack-out and/or assembly, shrink wrapping, bundle packing and gift-set pack-out, according to Jim Zaun, director of quality for the company.
“Color Factory staff are experts in helping the customer define exactly what they want in the way of product presentation. Our in-house packaging experts and a strong relationship with our suppliers guarantee a successful combination of engineering and design aesthetics,” stated Zaun. “We are a new company with an established workforce that has the skill sets needed to provide a full turnkey service.”
Columbia Cosmetics, based in the San Francisco Bay area, is a contract manufacturer/private label provider that offers services from formula development and compounding through filling. The company can source packaging for its clients either domestically or from overseas and is set up to do some hot stamp decoration, according to Rachel Rendel, company president. Columbia’s expertise extends to personal care products, all color cosmetics (excluding nail polish) and powder products.
“Companies need to be aware of all the regulations that pertain to products going into specific markets,” said Rendel, “such as The European Compliance and The Japan Friendly Regulation. We can advise them on those requirements.”
Contract Manufacturers Specialize Too
Ever wonder where all those little bottles of shampoo and conditioner come from before they appear in your hotel bathroom? Marietta Corp., a contract manufacturer and packager based in Parsippany, NJ, specializes in manufacturing and packaging personal care amenities for the hospitality market and supplying sample and unit dose packaging systems, complete with filling, according to Ron DeMeo, senior vice president of marketing and sales.
“As a contract manufacturer, Marietta is vertically integrated,” DeMeo said. “We recently opened a plant in Cortland, NY, for liquid personal care and household products as well as color cosmetics. And the company’s continuous saponification soap manufacturing method provides quality soap chips to produce a finished soap bar manufactured to customer specifications and standards,” he said.
Between the new facility and an already established plant in Cortland, Marietta fills bottles, tubes and jars in addition to various sample containers, offers decorating services and can also do inline labeling.
CCL Custom Manufacturing is said to be the largest contract manufacturer of consumer products globally. Through its facilities in the U.S., Canada, the U.K., and Germany, it provides manufacturing, packaging and support services to the world’s leading marketers of brand name personal care, OTC pharmaceutical, specialty food, household, automotive, and industrial products, according to Paul Germaine, vice president of sales. “We blend and fill the product,” Germaine said, “into a CCL container or otherwise. We fill into bottles, tubes and aerosol cans.”
While CCL can put labels on the packages, most aerosols are decorated before they come to the company for filling. Germaine added, “Once filled, the products are put in a shipper and shrink wrapped in whatever quantities specified and shipped to the customer or a distribution center.
“We are not very involved in design services for most of the work is done with larger, more sophisticated companies that supply all of the packaging design.”
Milbar Labs, a division of Dermatologic Cosmetic Laboratories, is a contract manufacturer and private label partner that offers services from start to finish, according to Gus Bezas, company senior vice president of sales and marketing.
Milbar offers as much or as little as a client needs to bring its products to market. The company concentrates on gels, creams, lotions and solutions in lots from 3,000 to 100,000 or more.
“We are a high-tech formulator of skin care products,” Bezas said. “We can develop the formula, help a client source its packaging, mix and fill the package, as well as help the customer with marketing, distribution and fulfillment. Milbar has been very successful in the past five months because it has formed strategic partnerships with other companies to provide what each project needs.”
The other firms, including Marc Rosen’s ACCESSmr, the marketing company The Young Group and MGL Associates, which facilitates the back end, all coordinate their efforts with Milbar as the central point.
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| The Filling Station specializes in small-to-medium size tube runs. |
Formulating/ Filling
Corwood Laboratories Inc., Hauppauge, NY, identifies itself as “an outsourcing partner in contract filling.” The company will custom develop a formulation for a client or manufacture an existing formula. It will then fill bottles, jars and/or tubes with the formula and send the filled packages back to the customer. Corwood is strictly a custom manufacturer and filler and does not get involved in sourcing packaging, decorating it or doing further assembly.
The Filling Station, Walpole, MA, is a five-year-old operation that focuses exclusively on filling tubes. As a strategic partner with Norden, which manufactures tube machinery and tubes, The Filling Station receives the tubes and bulk, fills and seals the tubes, and then tests each tube for its package integrity, according to Chris White, president and owner of the company. “Once we’ve inspected the tubes, they are put in boxes and shipped,” he said. The Filling Station handles small-to-medium-size runs, from 25,000 to 250,000 items. “The companies with larger runs have more automated packing lines,” White said, adding, “We are booked solid for a steady clientele.”
A service provider such as The Filling Station offers small and mid-sized companies a cost-effective way to handle filling tubes. “We have the size parts to fill about nine different diameter tubes,” explained White. “Each set of parts costs about $15,000 and for some tooling, like the Design a Seal tooling which is patented by Norden, the cost is $48,000 to $60,000. A big company such as P&G will do a cost factor analysis and figure out how many tubes of a certain diameter must be filled compared to the cost of outsourcing or setting up the equipment to fill in house, but a small company will not have the volume to make it worthwhile.”
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| Mega Pumps coordinates services for its specialty container and dispenser, including decoration and filling. |
Packaging Suppliers Do More
Mega Pumps, a specialty package manufacturer based Eatonville, NJ, produces a container and pump assembly. The company offers a range of added services to its clients, according to Frank Porfido, company executive vice president. “We can provide a plain, undecorated dispenser or a turnkey option including decorating services that we coordinate with outside companies.”
Likewise, Mega Pumps does not do the filling but can work with contract fillers and will also help with compounding formulas. “We can provide the customer with an integrated product that’s all designed to work together,” Porfido stated.
Some packaging suppliers get into filling their own containers because the packaging is so unique, they’re the best choice or simply as a convenience/added-value for its customers.
Orlandi Inc., based in Farmingdale, NY, provides several types of packaging services for its customers. According to Ken Gerhardt, account executive for contract packaging, the company, which focuses on sampling systems, can provide flow wrapping, a flexible envelope used to contain one or more items (usually promotional products). For instance, it flow wraps several Clinique samples in one flexible envelope that then keeps the items clean and deters theft.
The company also offers high-speed shrink wrapping, which is used to bind items together, as well as the hand labor needed to put the components together prior to wrapping. It can also provide high speed tipping, which is the automated tipping (gluing) of one item to another package and then, high speed over-wrapping of both. “We try to bring as much in-house as possible because it gives us control of cost, quality and timing on projects,” Gerhardt stated.
Francesca Fazzolari, president of James Alexander Corp., explained that the company has offered contract packaging services since the 1970s, filling and sealing the glass and plastic ampoules the company manufactures with filling equipment it designed. “James Alexander will blend a (customer’s) solution, fill the ampoules and then do the pack-out,” Fazzolari noted.
Your Items Assembled
J.L. Clark, a manufacturer of tinplate packaging based in Rockford, IL, provides assembly services, according to Todd Waxgiser, national accounts manager. “We will put various products into a tin, put a shrink sleeve on the tin and then pack the finished tin in cases to go wherever the customer wants them to go,” he said. J.L. Clark will source the secondary packaging (the sleeve and packing cartons) or they can come from the client’s source.
Arkay Packaging, a New York City-based full service supplier of paperboard cartons, has begun offering to fold and form the cartons, assemble products and then fill the cartons. The filled cartons will then be packed per the customers’ instructions and shipped, according to Mitchell Kaneff, president and chief executive officer of Arkay.
Packaging Specialists
Verst Pack picks up where some contract manufacturers and packagers leave off. According to Jason King, director of business development for Verst Pack, a division of Verst Group Logistics, based in the Cincinnati, OH area, Verst Pack can supply the space, manpower, equipment, expertise and/or management, and capital investment that goes into packaging cosmetics and personal care products. In January 2001, the company received Contract Packaging Certification from Procter & Gamble and has since grown that business nearly five-fold.
The company has approximately 400 employees, several hundred trucks and operates in 3.5 million square feet of space. Verst can provide automated and manual assembly, automated and manual shrink label application, POP display assembly and fulfillment, inspection, bundle wrapping, L-bar sealing, full pallet displays and more, King explained. It can also provide warehousing, inventory management, transportation, distribution and logistics to ship either to retail or to the customer’s distribution center.
