Contracting Out Beauty

Outsourcing is an increasingly popular resource that allows brand owners
to focus on successfully marketing their products.

Leah Genuario, Contributing Editor

For those companies thinking of launching a new beauty product, be ye warned: competition is fierce. In 2005, more than 1,881 cosmetic and toiletry products were launched in the U.S., according to Kline and Company’s Cosmetic and Toiletries U.S.A. annual study. Every new launch translates into a host of responsibilities for the brand owner. By outsourcing the manufacturing, however, brand owners can lighten the load and do what they do best: marketing.
   
“Some companies believe their money is better spent by marketing their products and they let a contract manufacturer deal with the headaches of manufacturing,” says Steve Pearlman, president of contract packager Crown Risdon, Watertown, CT.
   

Surefil

“The value creation for brand companies is not in the shine and polish of their equipment or the size of their manufacturing plant. It is in their ability to create a desire for their products in the consumer’s mind and therefore command shelf space at retail level,” says Bill Hunt, chief executive officer of Surefil in Grand Rapids, MI.
   
Using contract manufacturers and private label companies is an ever-popular option for brand owners, whether the companies are large or small.
   
For smaller companies, outsourcing is an economical way to turn dream into reality. “A contract manufacturer can create a product typically for $500-$10,000, plus the cost of packaging. For someone to start a line, it’s a lot easier to go to a contract manufacturer than to do it on his or her own,” says Jean Marc Perez, president of Novapac Laboratories, a contract manufacturer in East Orange, NJ.
   
Contract manufacturers and private label companies do not only deal with small brands, however. Clients have the opportunity to set up protocol for contract manufacturers to follow, allowing brand owners to keep complete control over the process. This is especially useful for large companies that shift to outsourcing.
    

Contract manufacturers such as PHCP can help ensure quality control.

“A lot of the larger companies realize it’s more economically sound to outsource instead of maintaining manufacturing facilities. There are obviously very strict procedures and controls put in place so that they maintain the integrity of the product,” says Cherry Robinson, managing director at contract manufacturer Professional Hair Care Products (PHCP), Mississauga, Ontario, Canada.
   
In addition to cost advantages, outsourcing is beneficial for several other reasons, no matter what size the client company is.
   
For one, contract manufacturers have established networks and proven partnerships. “Outsourcing is a useful range complement that helps us respond to customers’ increasing efforts to streamline the process of bringing products to market. By working very closely with their own partners, outsourcing companies can bring a new product to market quickly, safely, and with quality assured,” says Jean-Paul Imbert, president fragrance and cosmetics Americas, Alcan Packaging Beauty, New York, NY. “Outsourcing companies are usually in the best position to identify and scrupulously select new partners.”
   
Outsourcing can also increase speed-to-market. “Contract manufacturers are equipped to jump through hoops for brand companies. They have the ability to respond quickly and deliver products to the market faster than large, corporate manufacturing organizations,” says Hunt.

Whatever the reasoning, many brand owners have nixed maintaining manufacturing facilities in favor of outsourcing.

Contract Manufacturer vs. Private Labeler

Some confusion is present concerning the terminology associated with outsourcing. Oftentimes, contract manufacturers and private labelers are terms used interchangeably. There are important distinctions, however.

Contract Manufacturing

"A contract manufacturer produces a product for a customer and only with his specifications,” says Imbert. In other words, the product is created and/or manufactured exclusively for the ordering client.
   
There are several different types of agreements that a contract manufacturer can forge with a beauty company. To better understand how contract manufacturers generally work with brand owners, Hunt categorizes contract manufacturing agreements as “full-buy,” “directed-buy” and “toll manufacturing.”
   
Toll manufacturing—the most common scenario according to Hunt—is where “the contract manufacturer is sent all of the materials, packaging and components and they charge a fill-fee or tolling fee to compound and package the products and make them ready for the retail shelf,” says Hunt. Additional services, such as microbiological analytical testing or formula adjustments would cost extra.
   
Full buy contract manufacturing is where the contract manufacturer sources all necessary materials, puts in all the leg-work, and provides the company with a retail-ready product. The contractor charges one price for the fully-completed product.
   

Using Crown Risdon-supplied packaging, Revlon chose Weckerle to fill two lipsticks.

Finally, directed buy is when the brand owner provides detailed specifications and pricing information. Following these instructions, the contract manufacturer will purchase all materials and produce the products. The contractor is paid a fee for doing the purchasing on behalf of the brand owner, “usually between four and five percent of the purchase cost of the materials,” says Hunt.
   
Not all clients use contract manufacturers so extensively. Contract manufacturers deal with clients who have different needs.
   
Sometimes, a contract manufacturer will be asked to coordinate a host of services for a beauty company, such as research and development, trend identification, bulk manufacturing, packaging services, filling, testing and shipping. Other times, a client may only need assistance in one area, such as filling. As Robinson explains, “You have to decide how deep and wide you’d like to buy into our level of services.”
   
The same is true in reverse. Not all contract manufacturers offer a full range of services. Some contract manufacturers specialize in one particular segment and limit the services they offer to brand owners. If they don’t offer the service, however, they will likely be able to recommend reputable suppliers.

Private Label

Private labeling companies work differently from contract manufacturers. “A private label is offering customers a product with existing specifications and producing it under the customer name,” says Imbert.
   
For example, a small salon may want to market a line of hair care products under its own business name. “Oftentimes, a private label company sells it as a finished product. Literally, they would say to a salon, ‘just give me the copy for your label,” remarks Robinson (editor’s note: PHCP does not provide private labeling services). The key differentiation point is that with private label, there may be five salons selling the same product under different names.
   
Sometimes contract manufacturers also offer private label lines. “We offer both contract manufacturing, where you can send in your product and we will fill it into one of our packages, or some of our customers use one of our five stock products and sell it under their label,” says Carol Gamsby, sales manager for James Alexander Corp., Frelinghuysen, NJ.

Asian Impact

The outsourcing industry has seen a shift in business practices recently. As with many other industries, contract manufacturers and private labelers in the West are learning to adapt to competition from the East.
  
 “New start-up private label and contract manufacturing companies have emerged all over the world over the past few years. The most significant new companies are based in Asia,” says Imbert. “Some major customers are using these companies to be more aggressive on the market, to be faster, and to make more promotional projects and keep their own factories for regular business.”
   
Other manufacturers have also seen a pull from the East. “The big quantities, the feel-good products (such as shampoo), are mostly in Asia now,” states Perez.
   
“A lot of manufacturing has been moving overseas. Naturally, it is hurting domestic companies. We are fighting it by trying to be more competitive with pricing by doing some vertical integration in our manufacturing. It has not effected our private labeled products as of yet,” says Gamsby.
   
In addition to competitive pricing, United States and European-based contract manufacturers and private labelers are differentiating themselves from foreign competition in other ways. Imbert says Western contract manufacturers set themselves apart through marketing, innovation and service. Robinson agrees, adding that domestic manufacturers offer shorter lead times and flexibility because of closer proximities.
   
And although Perez notices certain products moving toward Asia, he says it hasn’t hurt his business at all. “There is still a very big need for niche manufacturing. Most of the skin care has remained in the United States. The U.S. is dealing more and more with start-up companies and niche businesses. It’s not necessarily hurting contract manufacturers. They are just shifting their priorities and how they are doing business.”

Trends

One of the advantages of using a contract manufacturer or private labeler is the ability to tap into their knowledge of current trends and hot beauty segments. The industry experts interviewed for this article have pointed to a number of patterns they’ve noticed in the beauty industry.
   
Natural products and environmentally conscious packaging are still widely requested. This includes formulations without preservatives, the use of fruit-based and other natural ingredients and packaging that is recyclable.
   
With the aging boomer population, skin care has become another huge area of growth. “The trends in the beauty industry include a rapid development of products for wrinkle reduction in the skin care area,” says Hunt. Along the same lines, at-home spa products are growing as well.
  
 Suppliers have also noticed the proliferation of flankers.        
  
 “At the moment, there seems to be a slow-down in new product introductions, probably due to the high cost of introducing a wholly new product. Flankers and re-introductions are now more popular,” says Pearlman.    
   
A change in consumer attitude has opened up other opportunities in the industry. “Product performance is increasingly more important. That allows for more targeted niche performance products,” explains Robinson. “We want instant, immediate gratification and change. That’s being translated into product.” 

Sidebar

The Mixer Creates a Buzz in Hair Care

When Colour Revolution founders Pauline Ashworth and Ruth Stern set out to meet a need in the hair care industry, they relied upon outsourcing to get the job done right.
   
The Mixer is a root touch-up system with salon-quality hair color for use in between salon visits. The package is sold with a streamlined applicator that contains two chambers: one for the color and one for the developer. The two formulas mix only at the point of application creating a no-mess solution.
   
Ashworth and Stern created the design for the patent-pending applicator in collaboration with industrial engineers. For development of the applicator and for the filling, the reigns were turned over to other experts.
   
“In the case of Colour Revolution Inc. and The Mixer, we had to look at products and ideas that were completely outside of the traditional hair color and beauty products industry. The companies that developed our applicator and perfected the filling processes are more known in the adhesive dispensing and aeronautics world than the beauty industry,” says Stern.
   
Colour Revolution looked to contract manufacturer Professional Hair Care Products to develop and test the hair color and developer formulations.    
   
“Our exclusive hair colors and developer were created to be used in these unique applicators and tested by a company that we identified to also be the best in the business—PHCP,” Stern adds. “We have the best in their fields working together.”
   
The product is available in six shades for women and three for men. Packaging for both sexes utilizes a color palette of aqua and brown.
   
Retailing at $26, The Mixer is available on the Internet, at Clyde’s Pharmacy in New York City and soon through selected North American retailers and spas.