Contract Manufacturers: Driving Change in Processed Food—Takeaways From Expo West

When walking the floor of Natural Products Expo West, it’s difficult not to be overwhelmed by all of the new and exciting products. All are on display – and all are ready to be tried out. At one point, though, some things we observed started to click and become clear:

The barriers to entry are getting lower – anyone can start a brand

Though it’s impossible to quantify them, we are of the belief that the barriers to entering the food market are getting lower. Take, for example, the incredibly fast-growing snack brand Hippeas, which sells extruded, plant-based snacks. Plant-based snacks are currently all the rage, because of the healthy image they carry. And that attracts both new and existing companies. We noticed quite a few similar products on the floor, many of them launched by start-ups... and very likely these will be working with co-manufacturers to get the product out.

Glut in some food & beverage products

The market for extruded, plant-based snacks may be growing fast; however, the number of players is currently still limited. In other categories, we saw a true glut in products – bottled water is probably the best example. We noticed so many bottled-water companies, all selling functional water: water with electrolytes, water with alkaline, water from glaciers, water from volcanos… and even deep-sea water. pH levels vary as well: from 7.55 to 10. And while going from one bottled-water company to the next, we wondered who was doing all of the bottling. Some may do it themselves, whereas, in many other cases, bottling will be outsourced. And bottled water is not the only category with an overkill of suppliers. We noticed so, so many snack products as another example.

Shake-out in other categories

If you’ve followed what we wrote up in the last few years after Expo West, you’ll have noticed many trends appearing, such as jerky and kale. And while these products were still visible at this year’s event, we think the hype for some of them may be over, and we are seeing – or will see – a shake-out of players in these categories.

What we described above is, in a way, a life cycle. We’ve talked a lot about how life cycles are getting shorter in food, due to rapidly and constantly changing consumer preferences. But that’s on the demand side.

On the supply side, we’ve also noticed a few changes. We believe that contract manufacturers – companies that are supporting start-ups with production – are offering more sophisticated solutions to help start-ups become successful. And someone mentioned that contract manufacturers have also become more proactive when it comes to reaching out to start-ups. We even saw a booth at Expo West run by one of the larger contract manufacturers in the US. People were scouting around for new ideas and offering services to help young companies ramp up production – but also support existing food companies with product launches.

The potential downside of the increased innovation pace – driven in part by contract manufacturers – is visible in the maturity stage of the life cycle. Given that access to contract manufacturers has become so easy, barriers have been lowered – and we see a flooding of similar products into the market. Which – quicker than before – again results in an inevitable shake-out.

We believe contract manufacturers play an important role in driving innovation in the sector, and they are capturing some of the value that is being created – or at least shifted, with all of the changes in US food consumption and production. Some have at least spotted the opportunity and offer solutions that try to support the continued disruption of packaged food.