The Hidden Powerhouse of US CPG: Contract Manufacturing

Every year, over 1,000 new food and beverage products are launched in the United States through contract manufacturing. Surprisingly, this constitutes more than 10% of all new products in the CPG category. In this article, we'll take a closer look at this often overlooked sector, distinguishing it from private label production. We'll also delve into its significant impact on the Consumer Packaged Goods (CPG) industry, exploring the main categories of contract manufacturing and the geographical distribution of these manufacturing partners.

The Impact of Private Label

It's worth noting the role of private labels in propelling the external manufacturing ecosystem. The more mature the private label market becomes, the more sophisticated and well-established the contract manufacturing ecosystem that follows. In the United States, 14.7% of the $5.3 trillion revenue generated in the Food, Beverage, and Consumer Health CPG market is attributed to private labels. There is still room for further expansion when compared to Western and Eastern Europe.

Share of private label in the CPG market:

• Western Europe: 36%
• Eastern Europe: 14.7%
• North America: 14.4%
• Africa & Middle East: 6.1%
• Asia Pacific: 6.1%
• Latin America: 2.3%

Source: Nielsen IQ Retail Measurement Services (RMS), Q2 2022

Categories Driving CPG Contract Manufacturing

While accurate statistics on contract manufacturing in the US are challenging to pinpoint due to a lack of mandatory disclosure, it's evident that this sector plays a substantial role when it comes to enable the launch of new products. The top five food and beverage categories that consistently introduce numerous New Product Developments (NPDs) in the US include:

1. Snacks
2. Bakery products
3. Sauces and Condiments
4. Processed Fish, Meat, and Eggs
5. Dairy products

Source: Mintel - New Products Developed in 2020, 2021 and 2022

Geographical Concentration of Contract Manufacturers

When examining the geographical distribution of contract manufacturers in the US and its neighboring countries, a notable concentration can be observed in the US Midwest. This region, known for its rich industrial heritage, skilled workforce, advantageous geographic location, and supportive business environment, has become a hotspot for contract manufacturing. With a legacy of manufacturing expertise, a central location facilitating access to major markets, a well-developed transportation network, and lower operating costs, the Midwest is the preferred choice for businesses seeking contract manufacturing services. Additionally, the presence of universities and research centers fosters innovation and collaboration, while various incentives provided by Midwest states further solidify its position as a hub for contract manufacturing operations.

41% Midwest

19% Northeast

14% South

8% West

Neighbor countries add to the robustness of the Coman supply chain:

14% Canada

5% Mexico

A Personal Provocation: The Quest for Transparency

One of the intriguing aspects of the CPG industry, especially in the US, is the challenge of tracing the origin of products manufactured through the contract manufacturing route. Like in private labels, it is not mandatory to disclose the manufacturer's name on the product's packaging. As we explore this sector, it's essential to acknowledge the growing demand for transparency among consumers. In many parts of the world, consumers are empowered with information about the source of their products, and many believe that it should be no different in the United States.

In a world where the CPG landscape is marked by innovation, choice, and consumer expectations, contract manufacturing stands as the invisible yet indispensable force driving the industry forward. Consumer awareness, combined with the expertise and dedication of the manufacturers, holds the key to a more informed and empowered marketplace.

GrowinCo: The co-manufacturing ecosystem

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