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ontract service providers are the proverbial pinch hitters of the cosmetic and personal care industry. When companies outsource their manufacturing or packaging needs, they tap into an industry that’s teeming with creativity. They also increase their speed to market, reduce the cost of bringing new products to market, provide an economy of scale, and facilitate an improved alignment of business strategies.
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Contract manufacturers/private label providers do everything from brand development to formulating—like this batch of lip gloss being made at Lady Burd—to filling, packaging, finishing and distribution. |
Generally, there are three distinct customer groups that turn to a contract manufacturers and/or packagers. The first group is comprised of startup or marketing companies that have little or no manufacturing capabilities. All of their needs are outsourced to contract service providers, that supply product development ideas, labs for formula development, quality control facilities for regulatory and testing issues, and finally, for manufacturing and packaging. This group typically includes marketers (such as national stores and drug chains) who turn to contract service providers for assistance in establishing a private label presence.
The second group consists of larger marketing companies that have internal product development departments, yet still need outside assistance when it comes to lab services for formula development, quality control and often manufacturing/packaging.
The third group includes major national and international brands. This group most commonly uses contract manufacturers and packagers to pick up the overflow of key line items and also for new product launches. In the case of new product production, the project will stay with the contract manufacturer through its initial launch and, if successful, is usually taken in house for manufacturing. If the product is marginally successful it will generally stay with the contract manufacturer for its run.
For each group, contract service providers offer core competencies that help their customers avoid wasting time in the legwork associated with product creation, testing and packaging. They also offer clients a detour around the learning curve involved in each step of product production.
“There is so much new technology that it requires an abundance of resources to stay ahead of the curve. Working with a contract service provider offers the opportunity to capitalize on research that different companies are investigating and utilizing,” explained New York-based consultant Sharon Garment, an industry veteran, who has held positions with Estée Lauder, Techpack, and Mana. “Companies select their contract suppliers based on the formulas and production capabilities they offer. The advantage of working with a company that has a large formula library affords quicker development time, which is critical in this competitive market. Also, new technologies require certain equipment that is not available at all manufacturers. That is why a brand often uses a number of suppliers to satisfy all their product needs.”
Outsourcing Driven by Creativity
With new products launching at a frenetic pace, the cosmetic and personal care industry is an industry driven by the “What have you done for me lately?” cliché. This breakneck pace for “the next new thing” keeps contract manufacturers and packagers on a perpetual lookout for new and novel product ideas-a charge they find both daunting and invigorating.
At Long Island, NY-based Olga G. Marcus Cosmetics Inc. (OGM), husband and wife team Olga Cohen, president, and Milton Cohen, executive vice president, encourage their chemists to be free with their creativity. “It’s important to keep from being stagnant,” Olga Cohen said. “I like new ingredients and anything that gives a twist. Packaging is important because it can inspire the creation of a new product.”
New product generation is so important to Verla International, Windsor, NY, that the company created a specialized division, Trendsetters International, to put more emphasis on the development of promotions and new lines. “This is a separate building totally dedicated to development and creation of formulas and shades, packaging concepts, component designs, and trend and color forecasting,” said April Vignone, president, TrendSetters International. “It’s a place where packaging development, marketing, and/or creative people can come in and create new and innovative items from start to finish anytime they want. The only problem is that we can never ‘get them to leave’ because they are having so much fun.”
The facility also enables new customers to walk in and shop for packaging components, formula and shade concepts, and method of shipping, resulting in complete line developed without incurring an expensive infrastructure.
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The Color Factory’s custom hot pour technology can add logos and/or copy to filled product. |
The Color Factory (TCF), Sun Valley, CA, employs a three-person creative team that handles nothing but new product development. Recently re-acquired by original owners and longtime partners, Judy Zegarelli, senior vice president, and Alfred Booth, president, TCF is actively adding to its current portfolio of 5,000 house formulas by designing new delivery systems as well as a line of healthy skin cosmetics. “People are asking for healthy products and that’s the direction we’re seeing not only in skin care, but in color cosmetics,” noted TCF’s Zegarelli. “Consumers have become very wise and want to use cosmetics that are healthy for the skin.”
Roberta Burd, chief executive, Lady Burd Exclusive Private Label Cosmetics, Long Island, NY, said that the company has also fielded an increased demand for “healthy” color cosmetics, and added that it is working two shifts to fulfill orders. Lady Burd makes its own tooling dies so small product runs ranging from 300 to 1000 pieces can be pressed, filled and packaged quickly. The company is also capable of pressing as few as one custom-designed piece for the customer’s perusal and confirmation. “We create small, custom batched products so our customers don’t have to tie up all their money,” stated Burd. “This way they look just like a big company with the finest products money can buy, without having to invest that much money.”
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Sizing Up the ‘China Phenomenon’
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Foreign job outsourcing has become a huge hot button issue in contract manufacturing circles. Once known as the knock-off capital of the world, China has quietly been improving its manufacturing prowess so much so that for the last two to three years, billion dollar contract manufacturing factories have been cropping up all over China. While some industry executives feel it makes good business sense to establish a presence overseas, others are vehemently against it.
“Years ago, the Chinese weren’t sophisticated enough to produce the kinds of products (desired by cutting-edge companies), but now with the partnerships and influence of major manufacturers, they have raised their standards and abilities to produce products that are on par with those produced in Europe and in the U.S.,” observed Garment. “Every company is trying to reduce overhead and manufacturing costs and it leads to China.”
There are different options. Some are all out manufacturing overseas, while others are sending bulk product made in the U.S. and Europe to Chinese factories for processing, essentially preserving the quality of domestic or European-made products with a labor cost savings.
“The China phenomenon is poised to revolutionize the contract manufacturing world, with many domestic and European manufacturers either opening their own facilities there, or creating partnerships with existing factories,” Garment said. “It’s forced those companies that always had the protection of simply being better to either form an alliance or go into the Chinese market in order to be competitive.”
TCF recently established a partnership in Shanghai. And while the company’s Zegarelli agrees that most product development innovation and creative ideas are still coming out of the United States, Italy and France, China offers valid manufacturing opportunities. TCF crafts its products domestically and relies on its Chinese partnership primarily for assembly tasks. “It is difficult to find qualified color cosmetic chemists and experienced manufacturing people in China who can manage the raw materials, compounding and batch approval in a quality manner,” she stated. “It’s also very time consuming to go back and forth for formula and shade approval as well as final batch approval.”
At its Los Angeles facility, TCF provides formulas, shade matching, compatibility and stability testing, and then produces a pilot batch. After receiving final approval, the products are manufactured in bulk and shipped to the China facility where they are pressed, hot poured, molded and/or filled and assembled into the customer’s components and shipped.
“By using this approach, we can assure a quality, ‘Made In The USA’ product, while keeping the filling and packaging labor costs low,” she said, adding “It’s really important to my customers that their product be controlled by the FDA and that the raw materials be exactly as specified. All of our customers feel more comfortable knowing we make the product here on site and don’t mind if we fill it through our partner in China.”
OGM’s Cohen, however, sits on the other side of the fence and thinks the current China trend is a disappointing case of déjá vu. “20 years ago a lot of customers decided to go overseas. We struggled with that and couldn’t compete,” she noted. “After about a year, everything was seized and stopped by the FDA, which brought the business back to us. But with China becoming more sophisticated, the same challenges are occurring again. We’re constantly in competition with the Asian market. The challenge is fighting the pricing that’s overseas and staying one step ahead creatively.”
Cohen acknowledged that OGM has explored the notion of a Chinese partnership, but when push came to shove, she preferred to retain total control of her business. “It’s a real thorn in my side,” she said. “We work very hard as an American manufacturer to create the best products. Someone is always taking that away, trying to find it someplace else. We put a lot of time and pride into every sample and formula that comes out of our laboratory.”
Corwood’s Levine takes his disdain for this trend one step further, stating, “I’m not a politician, but it wouldn’t disturb me one bit if the word ‘tariff’ came back into the business lexicon.”
Unit Pack’s Loesser said the growing “global marketplace” atmosphere may seem daunting, but accepting it is necessary. “We can no longer assume we will remain safe behind national market barriers (because) the technological advantages of the West over third world countries are quickly disappearing,” he stated. “The labor expense disadvantage of operating in the U.S. or Western Europe is not going to disappear. Some types of packaging are going to be out-sourced to Eastern Europe or the Far East. This cannot be stopped. The trick is adapting your organization to find markets that cannot go that route.” |
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Rising Star Product Categories
Today’s hot products include stretch-mark creams, Botox-like products, self-tanners and aromatherapy products, according to Larry Levine, director of sales and marketing, Corwood Laboratories, Hauppauge, NY. He added that “organic” is another area of burgeoning interest. “We were recently licensed to develop, manufacture and fill products that contain certified organic ingredients,” he said. “This certification allows our customers to put on their label that the product has been developed in a certified laboratory. It’s an exciting, growth area for us.”
On the packaging side, new delivery systems, both in formulation (i.e. micro-encapsulation) and packaging (i.e. airless systems, unit dose) are in demand. Sonic Packaging, Westwood, NJ, offers specially configured unit dose packages that saturate the applicator only at point of use—a design that’s especially useful to customers who have aggressive ingredients capable of eating through the applicator material and/or the binder that holds the applicator to the package.
Racing the Clock to Deliver
A close second to creativity, speed-to-market continues to be one of the most important drivers of the contract services industry, as time is critically of the essence. Turnaround time for concept-to-launch has been compressed, placing heightened pressure on suppliers. “You’d like to have 18 months of development time, but you just don’t. Time is always short because of speed to market demands,” pointed out Garment. “It’s why so many companies shop for manufacturers that have products that are at least half-way to where you want your product to be. Contract manufacturers are ahead of the curve with pre-developed products at the ready because there’s not enough time to start from scratch.”
“Our biggest challenge is coming up with the product the customer wants at the most cost-effective price in the least amount of time,” agreed Corwood’s Levine. “You have to be anticipatory.”
Increasingly shortened turnaround times have also necessitated the demand for signed approvals at each stage of product development. “Today we have more documentation and order confirmation and signature pages because everyone is in such a rush that we must be careful not to overlook any single detail,” added Sonic president, Howard Thau.
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Lady Burd's creative department can enhance brand images and provide a fashion-look by adding a logo or image on custom face or eye powders. |
Unit Pack’s trained inspectors assure quality control of products and packaging for maximum consumer appeal and satisfaction. |
Thau noted that properly communicating why certain minimum leads times are necessary is essential. “It’s imperative to communicate where you can and can’t accommodate shortcuts,” he said. “Our most persistent challenge is coming up with reasonable turnaround times for a finished concept/product. Retailers and alternate distributors don’t give marketers sufficient time from the time they make the presentation until the time they want those goods in their warehouse. We strive to put together proper timelines that give our customers approval dates in advance.”
A growing demand for products that perform as promised, have additionally tasked contract manufacturers with providing substantiated clinical backups for the products they create. “Some drivers of that are QVC and HSN, which are governed by the FTC,” explained Garment. “Their requirement for product claims is much higher than those you see in the store.”
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Albertson’s Unveils Equaline
Private Label Health & Beauty Brand
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Design firm Anthem Worldwide, San Franciso, CA, has helped Albertson’s, the second largest U.S. supermarket chain, create and launch its new OTC and health and beauty private label brand, Equaline. “The bigger story is less the launch of the Equaline brand than of Albertson’s bold approach to, not just create private label brands that can compete with national brands, but to essentially, leapfrog them as well,” said Ted Leonhardt, president of Anthem Worldwide.
Equaline was created by Anthem as a single, comprehensive OTC, health and beauty brand to house all pharmacy, health and beauty offerings sold under Albertsons five grocery store banners (Albertson’s, Acme, Jewel, Shaws, Star Markets) and two pharmacy banners (Sav-On and OSCO.) The brand architecture for Equaline was created to reference national brand equivalents, while establishing a differentiated, ownable brand. Equaline enables Albertson’s to unlock the potential of 1,240 SKUs in seven categories in 25,000 stores across 37 states. |
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Advancing technologies have dramatically raised the bar on product performance. Garment pointed out that there are a number of companies that now specialize in pre-made products with completed claims that are ready to go to market in more highly demanding channels as HSN and QVC. “The turnaround time is incredibly short because every six weeks you need a new show,” she said.
Forging a Successful Partnership
When the time comes to shop for a contract manufacturer or packager, industry experts say it’s important to ask a lot of questions and be as specific about your products and goals as possible. Some of the basic things to look for in a contract manufacturer would be willingness to meet your budgetary allowances; equipment, manufacturing prowess and testing capacities suitable to your product goals; and lastly, a proven track record for meeting deadlines.
A quality service provider will ask a lot of their perspective customer too. A key step to a productive partnership is getting a thorough understanding of the customer’s expectations for the product and for the package, according to Sonic’s Thau. “It all boils down to us asking the right questions so we can have a better understanding of their expectations and performance goals,” Thau said, adding “In many cases, it forces them to think in advance about what they really want to achieve because there is no time to make any changes.”
“We start by getting a grip on the basics: what type of package do you anticipate using; anticipated product qualities such as color and fragrance levels; the regions your product will be sold into as well as the retail channel—dollar stores or up-market venues, domestic markets or global markets, etceteras,” stated Corwood’s Levine. “The more information they provide about the product and the market they want to sell into, the easier it is for us to hit their ideal target.”
Sometimes, location can play a role in a customer’s selection process. For instance, The Color Factory is based in Los Angeles, where there are many make-up artists and celebrities. “We have been fortunate to be instrumental in developing many of the brands that you have seen come to market over the last fifteen years and found strong customer bases in specialty stores, department stores, infomercials and on QVC and HSN,” commented TCF’s Zegarelli. “Being in the heart of the fashion and entertainment industry, we have an appreciation and respect for talent and our door remains open to anyone with a new product or idea. When we started the company, we had a lot of the ‘little’ companies in southern California whose names are very big now, who came to us when they had their first idea for a product and fortunately we took them seriously and spent time with them. They later grew into companies that were acquired.”
Zegarelli added that it’s also wise to search for a company that has a drug license and is qualified and approved by the FDA. “Bigger companies don’t want to be bothered starting from scratch. They want to come in and get started,” she explained. “Smaller companies will obviously also benefit from (a partner that has) those certifications.”
It also helps when a company is realistic about its abilities. “Having been in business for 36 years, we have an understanding of what we can do and more importantly, we know what we can’t do. We’re not afraid to say on day one that we’re unsuited to work on a particular project,” said Corwood’s Levine. “For instance, we do not do efficacy or challenge testing in our own lab because we believe it’s best done in external, neutral laboratories.”
After Unit Pack ascertains its customer’s needs they suggest what package they have that’s appropriate, but if the company can’t provide the best solution, they will suggest other styles and even other packagers that might better fulfill the client’s needs. “We may not get this job, but the customer is generally impressed that we want to help them even if we cannot do the package they need,” said Ernest Loesser, president and owner, Unit Pack, Cedar Grove, NJ.
“Ask the contract packager of choice to perform a line trial or short run, which would be representative of the contract packager’s ability to perform,” advised Terence Sweeney, vice president sales, Unette Corporation, Wharton, NJ. “The line trial or short run gives the potential customer the confidence needed to proceed into full production or the warning signs that let them know they’re at the wrong subcontractor.”
Vignone of TrendSetters’ (Verla) cautiously suggests that you get what you pay for. “The cheapest is not always the best. You get what you pay for,” she stressed. “Be very selective in who you (choose to) work with. Both parties should fully understand what is expected of each other.”
What does the future hold for outsourcing? Unette CEO, Joe Hark puts it best when he says, “Outsourcing thrives on a changing market. When sales decline, companies downsize and outsource whatever they can to cut overhead and labor costs. When sales are increasing, companies can’t keep up with demand and outsource in order to supply the demand.”
Whichever turn the market takes, the frenetic pace of today’s cosmetic and personal care market is sure to create a win-win scenario for contract service providers and their customers.
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