…But I Won’t Do That!

By Tom Branna, Editorial Director | April 1, 2014

They’ll do anything for the businesses that they love.

They’ll come up with the concept, find their niche and follow their dream wherever it takes them. From toothpastes to Teslas, entrepreneurs are blessed with a can-do spirit that won’t let them make-do with just anything. Fashion designer Donna Karan got her start when she couldn’t find that perfect black dress, recalled Craig Dubitsky, CEO of Hello! Products, an oral care company based in Montclair, NJ.

Closer to the household and personal products category, the founders of Method, that fashion-forward household cleaning product company now owned by Ecover, began making products in the bathtub when they couldn’t find household cleaning products that worked “for you and for the planet.”

Paul Lieber, CEO and founder of Royal Labs Natural Cosmetics, Johns Island, SC, pointed out that the cosmetic industry is one of the last in the world where an enterprising guy or gal can make something in the bathtub.

“Entrepreneurs want to be the next Estée Lauder or the next Mary Kay. You can’t do that with car parts.”

Plus, it just feels good to build something from scratch.

“It’s admirable to say, ‘I couldn’t find it, so I made,’” said Dubitsky. “The difference between visionaries and innovators is that innovators make the product. It is a much bigger undertaking to make one unique item than it is to make a million of something.”

The most successful innovators, however, quickly learn what they can’t do, too. And when they come to that conclusion, it’s time to contact a contract manufacturer—even if their companies manufacture billions of units in a hundred countries.

“Some will outsource a portion of their product line to a contract manufacturer such as ourselves because we can manufacture the product better,” explained Allan Burd, president of Lady Burd Cosmetics, which specializes in all color cosmetics and skin care categories both small runs and large runs.

“We manufacture for over 5,000 customers worldwide, so we need to be flexible to meet everyone’s needs,” explained Burd.
No one is quite sure how big the market is for contract manufacturing services—some guesstimates range as high as 40%. Even a multinational the size of Avon Products uses third-party manufacturers for 15% of its personal care needs. But nearly every company, large and small, relies on contract manufacturers for at least a portion of their production, say industry experts.

“Nobody does 100% of their own manufacturing,” insisted Lieber. “Nobody wants the liability of a factory; it’s less expensive than doing it yourself.”

Whatever the percentage, more companies are entering the competitive FMCG segments, and they’re looking for some help.

Energy Wanted
“We are going to see more companies coming out of the woodwork as the market is looking for new energy,” said Karen Grant, vice president and global beauty industry analyst, The NPD Group. “The retail environment is welcoming novelty niche brands.”
But most of those brand owners prefer to leave the manufacturing to someone else.

“Once upon a time, companies such as Revlon made 100% of their own products,” explained Tracey Leacock, president of Polychromatic, a division of Keystone Research and Pharmaceutical. “Over the years, companies have reduced the size of their teams and have relied on contract manufacturers for innovation as well as branding and marketing tools.”

Doug Arnold of Kleen Test Products cited six reasons why more companies are opting for contract manufacturing services:
  • Access to different manufacturing platforms.
  • Speed to market. 
  • Risk mitigation for new products. 
  • Reduced capital investment.
  • Overflow capacity.
  • Product development resources.  
“Our Nonwovens Innovation Center brings together many diverse nonwovens coating, sonic bonding and converting capabilities in a range from pilot scale to full production,” he explained. “It has been the launch site for many new products including the 2014 Vision award winner, Butterfly Body Liners from Butterfly Health, Inc. ”

Of course, money talks too.

“Clients greatly value the economy of scale at which a contract manufacturer conducts business,” explained Sundeep Gill, CEO, Sun Deep Cosmetics. “Just simply the idea of sharing the raw material costs for common commodities and the expenses of technological advances in manufacturing is enough of an attractive incentive to move away from internal manufacturing.”

Leaving the manufacturing to a trusted partner enables multinationals to focus on other areas that are of growing concern, added Dr. Gill.

“We find that multinationals have a new and ever more stringent set of regulatory guidelines and a transparency in the industry which is ever changing,” he said. “This causes our clients who export to many different countries to focus more attention on these areas, while letting our company handle the challenging logistics of manufacturing.”

Some Misconceptions
Contract manufacturers can help their customers with many, many issues, but even they can’t do everything. Company executives who spoke with Happi agreed that taking a first-timer through the process may cause a raised eyebrow or two.

“They (incorrectly) believe we are responsible for distribution too,” said Leacock, who noted that Polychromatic is a one-stop shop for many startups by offering branding, marketing and manufacturing services.

Arnold said that at times, it seems, there is a negative perception of contract manufacturers. That perception changes once a potential customer comes on site for a visit. 

“When companies contact us and tour our facilities for the first time, they often have positive comments indicating that what they experienced first-hand exceeded their expectations,” he said. “We love it when someone from a leading CPG company says something to the effect of,  ‘Wow, I would rank your operations on par with one of our own facilities.’”

Gill noted that startups often have no concept about how a product makes it on to a store shelf. Rather than taking the time to explain the process, reviewing their marketing plans and developing a suitable formula that fits the first-time client’s vision, too many contract manufacturers pull an existing formula off the shelf and hand it to the newbie.

“You can take away their spirit by producing a product that they weren’t looking for,” said Gill. “We want to see their marketing plan; we want to make sure that it is a sound marketing plan. If we’re producing a product that they weren’t looking for, that’s a disservice.”

Gill often advises first-timers to think carefully about the product category they wish to enter.

“I get my fair share of requests for natural and organic baby care products. We understand the category very well and the products are easy for us to formulate, but it is a daunting challenge to get the products to market,” he insisted. 

Baby Steps
That’s because would-be baby care marketers spend a lot of time and money to sell just one bottle of product. That bottle of baby shampoo often lasts a year or longer and by the time mom is ready to buy another bottle, the baby is no longer a baby, according to Gill.

“By the time the family has a second child, you have to start marketing all over again,” he explained. “Most people who get into the baby care business do so because they want something natural for their own children. It’s a noble idea, but it’s not an easy path to take.”

Misunderstandings go both ways, according to marketers.

“As a startup, you need partners who understand that you are new to the business,” explained Dubitsky. “You need a partner that will grow with you the right way—without minimums that will crush you.”

He noted that it takes time to grow into the requirements and needs of the marketplace. Unfortunately, a lot of contract manufacturers are large and want to go “whole hog” on a project from the get-go, according to Dubitsky.

Misunderstandings go beyond minimums, too. Arnold said Kleen Test receives several calls a year from companies that are dissatisfied with one of their contract manufacturing relationships. The source of the concern is generally in the areas of quality, customer service or concern over the financial viability of the contractor.

“In most of these cases, it seems that the situation could have been avoided if the decision to place the work at the contractor would have more thoroughly evaluated attributes of the relationship beyond price,” explained Arnold. “A contract manufacturer has to offer a competitive price to be considered, but in a bid situation, the lowest price may not offer the best value when factors such as quality, regulatory compliance, on time delivery and product development are factored in.”

Burd said some new customers make the mistake of thinking that one size fits all when it comes to product and packaging.

“Not all products are compatible with all types of packaging. Some require air-tight components, some only work well with a certain type of applicator,” he explained. “Product development needs to be done in coordination with packaging.”

Industry veteran Suzanne Grayson made no mistake when finding a contract manufacturer for her 7 Days of Wonder skin care line, which is available exclusively online www.7daysofwonder.com.

“Dealing with retailers is horrific,” maintains Grayson.

Her product line relies on Rotation Skin Therapy to defeat “the 27 signs and symptoms of changing skin,” according to Grayson. But her unique line calls for seven different formulas—one for every day of the week. But while each formula was unique, with its own blend of anti-aging ingredients, they had to have the same texture. Grayson turned to long-time formulator John Garruto to develop the product and ultimately found Pak Lab to manufacture the product.

“You have to pick the right partners. They can be very helpful,” advised Grayson. “They can make or break you.”

Bad breaks are somewhat of a foreign concept for Scott-Vincent Borba. No sooner had the entrepreneur sold a majority stake in his e.l.f. cosmetics brand to private equity firm TPG Growth, that he shifted his focus to building his eponymous cosmetics line.

“Women want products that work, feel good on the skin and are natural,” explained Borba. “I’ve found the Holy Grail.”

Borba may have concluded his quest, but he didn’t do it alone. During the 22 years that he’s been involved in the beauty business, Borba has made many friends in the industry, including one who lets him play “mad scientist” to create his formulas.

“I’ve been blessed to have a plethora of people to help me,” he told Happi.

That help has enabled Borba to create a five-in-one product that acts as a skin caring formula, primer, mineral makeup, treatment and SPF. One of the key ingredients is red palm oil fruit, which is sourced from Malaysia. He explained it acts as putty on the skin and is the best primer around. The ingredient, which is suitable for cooking, helps keep cell walls supple, according to Borba, who is also working on a fragrance. It too, will be manufactured by a third-party.

“I’m having fun and staying focused,” concluded Borba. “I want to be a destination brand.”

The Right One
Borba may be blessed with friends in the industry, but for a lot of entrepreneurs, finding the right contract manufacturer is an arduous process.

“There is no magic (in the process),” explained Dubitsky. “You have to kiss a lot of frogs.”

As a key player in the Method success story, the chief marketing officer at Popcorn, Indiana and the founder of EOS, Dubitsky has had an easier time of convincing contract manufacturers that his vision for Hello! Products could work.

“As with any new brand, contract manufacturers are scared to take a risk with you, but we were lucky in that I have a history with transformational brands like Method and EOS, so I could explain what we could do and what we hoped to accomplish,” he said.
And work within certain parameters. In order to maintain complete control of the process, Hello! Products hired a formulator early on, who developed each formula that are still kept in-house. Similarly, the company invested and developed its own tools. Along the way, the Hello! Products team developed a six-layer package that Dubitsky maintains is very complex.

“You need to find partners that will try things out with you; who will fill products in a whole different way,” he told Happi.

Salvatore Piazolla, co-founder of Hampton Sun, has relied on the same three manufacturing partners for years.

“They’re all in the US, all local and they’ve been with us for the whole ride,” Piazolla said. “I believe that everything you do in life is about partnership and we have an incredible partnership.”

It’s a big year for Hampton Sun. The brand will be available in Ulta and Neiman Marcus for the first time and new products like SPF 45 Sunscreen for Babies and Air Brush Auto Bronzer are making their debuts.

“Now we offer something for everybody,” explained Piazolla. “We’re the sun care brand that caters to babies, kids and adults with protection products and oils.”

With a broad range of product offerings and broader distribution, Piazolla expects Hampton Sun to top the 23% sales increase it posted in 2013. It’s been a good eight-year run for Hampton Sun and Piazolla expects the good times to continue by staying focused, growing organically and strengthening its relationship with its partners.

“Our customers understand quality. They look for a brand that delivers and performs. Our products protect the skin and hydrate the skin. Once you use it, you’ll never use anything else,” he asserted—even at $32 a bottle.

“We have had no resistance on price,” Piazolla maintains. “Our price is in line with Clarins and other prestige brands.”

Naawk, an upstart sun and skin care brand based in Salt Lake City, UT, fulfills its product needs in an entirely different way, too—it turns to Northstar Labs, which is also owned by Naawk’s parent company, Z Marketing LLC. The Naawk range is designed to appeal to active, outdoor-types who put a value on health, wellness and fitness. Naawk’s available in independent retailers who, according to Naawk’s brand director, Kathy DiFrancesco, often get short shrift from big brands.

“You have to understand the small business retailer,” she explained. “They get such a short end of the stick in skin care. Nobody gives them the advice that they need or good brands to sell.”

To create the Naawk brand, DiFrancesco met with focus groups filled with runners to learn what they want and what small businesses want as well. Now, when a serious athlete enters a running shoe store, they can find Naawk sun and skin care items, which DiFrancesco describes as specialty products at mass market prices. The best-selling Naawk item is a lip balm, available in four variants, which retails for $2.39.

“We’re appealing to a group of people, concerned about wellness, who want specialty products but don’t want to pay a specialty price.”

Consumers and retailers are responding to the brand’s message. Naawk is now available in Fairway throughout the US, Whole Foods throughout Utah, Harmons and other retailers.

Decades of Expertise
Since 1984, Royal Labs Natural Cosmetics has been turning out a wide range of truly natural health and beauty aids, according to Lieber.

“We’re one of the few companies in the world that has the expertise to produce natural products that look and act like synthetic products,” he told Happi. “Most natural products on the market look like something that was made in a bathtub. Companies come to us for our 30 years of expertise.”

Within the color cosmetics segment, Burd noted that lip colors, particularly daring more risqué colors that wouldn’t have been on-trend a few years back, are popular. At the same time, he noted that foundation is the most challenging product to manufacture because there are so many different formulas and skin tones and our clients have a diverse range of needs.

“Fortunately, we’ve been doing this for a very long time so we know how to make them happy,” he added.

With more than 100 years of experience in the dental, medical device and pharmaceutical coatings business, Polychromatic’s specialty is built on coatings—especially nail coatings. Leacock noted that her company invented gel polish, which had its start in the dental field. More recently, Polychromatic added a new feature, LED-curing that ensures the gel lasts for 21 days, versus two or three days for traditional nail enamel.

In a nod to its rich history, Polychromatic is readying its operations to expand into cosmeceuticals. First up, the company will roll out efficacious nail treatments that benefit the nail itself. Further down the road, Polychromatic may offer solutions for makeup, color and skin care.

“We have pharmaceutical license, the equipment, the space and the know-how,” boasted Leacock.

What’s on Tap?
According to Arnold, Kleen Test is receiving more requests from companies looking for developed products that are ready to go to market. As a result, Kleen Test’s product development group has focused on expanding its list of market ready products, in all categories.
Gill noted that the personal care market has been saturated with products for 50 years, but that hasn’t stopped startups from entering the category.

“There will always be room for the innovator. Someone who has the spirit, but maybe not the resources,” he explained. “I enjoy working with people who have interesting ideas.”

Especially during such interesting times as these when entrepreneurs have a cadre of new technology to choose from such as rapid prototyping, 3D printing and crowd-sourcing, observed Dubitsky.

And as more companies, large and small, opt for contract manufacturing services, that bond between marketer and manufacturer will only become stronger, according to most industry experts.

“It is a marriage,” explained Dubitsky. “Without innovation and ideas, you’re just putting goop in a bottle.”  

Need a Manufacturing Partner?
• You’ve dreamed up a great idea for a new household or personal care product. Now you just have to make your dream a reality. When you need a manufacturer, turn to Happi’s Contract Manufacturing/Private Label Directory, which is printed in October and available all year at Happi.com. It includes information on hundreds of companies, based in and outside the US, which make all varieties of household and personal products. If you’re a contract manufacturer who wants to get on our list, contact Tom Branna, tbranna@rodmanmedia.com or 201.880.2223.
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