Importance of contract packaging in retail product businesses
Contract packaging is a subset of the ‘Place’ element of the marketing mix. The ‘Place’ element encompasses a host of activities such as final assembly, retail packaging, warehousing and distribution to retailers. Typically, large brands with a large number of SKUs find it extremely time consuming to set up the facilities required to prepare the products for final delivery to retailers and then on to customers. Further, they find it far too expensive and unwieldy to distribute the different SKUs in a timely manner to retail points. Often, they are at the receiving end of retailers if the supplies don’t reach them on time and retailers lose business to competitors on account of no supply or late supply. This is where the concept of contract packaging services comes to the rescue of large retail product brands.
Thus, hiring a contract packaging company to take care of the tail-end of the manufacturing to customer supply chain is a possible approach for retail product companies. There are five compelling reasons among others as detailed below why this is a pragmatic approach.
When there are large numbers of SKUs
A company manufacturing and marketing food product typically makes hundreds of products. These are made available in pack sizes that are required by customers resulting in thousands of SKUs. These need to be made available to the distribution chain in short order and continuously. Large companies cannot be nimble because of their hierarchical structure and many a time they lose business because of non-supply or simply no supply. Thus, if a retail product business has large number of SKUs then it is advisable to hire a contract packaging company.
When market is seasonal and there are frequent changes to pack size
A company present in seasonal business or catering to different customer preferences frequently would do well to hire a contract packaging company to handle the distribution smoothly. A small contract packaging company can handle frequent changes more efficiently than a large company indulging in in-house distribution activities.
When frequency of new product introduction is high
Many consumer product companies thrive on new product launches and more often than not resort to test market of products before they actually roll out in different markets. These require smaller production runs which can be better handled by contract packaging companies rather than committing the company’s resources. In such situations, hiring a contract packaging company is a great option.
When products need non-standard packaging
Many companies offer products that have unique packaging design which qualify under non-standard packaging. Such packaging would require specialized machinery and in special cases the packaging could be labour-intensive. In such circumstances it is prudent to hire contract packaging companies which can perform the same functions without tying up company resources.
When a company wants to save 7-9% of operational costs
Numerous studies have indicated that contract packaging services can help to reduce operational costs by 7-9%. This saving is a huge bonus for companies who can improve their bottom lines substantially. Besides the financial savings there are the qualitative benefits in the form of unlocking company resources, reduced manpower, and zero capital investment on packaging machinery, lesser labor issues, lower maintenance costs and quick turnaround. The financial savings alone should encourage companies to seriously consider contract packaging services.
The contract packaging market the world over was valued at US$ 45 billion in 2018 and is projected to reach US$ 103 billion by 2024 clocking a healthy CAGR of over 15%. The US market accounts for the largest share of the market. Segments that dominate the contract packaging market include beauty care, pharmaceuticals, beverage and food.
The size of the market encourages innovation and evolution of new technologies, manufacturing and assembly systems, professionalism, intense competition and availability of quality services at highly competitive prices resulting in the projected 7-9% savings on operational costs.
Contract packaging is a boon to thousands of consumer product companies and companies should seriously examine the option of hiring contract packaging companies.
