A Masterclass On Co-packers | Chris Bauer, Catapult Commercialization Services

Speaker 1: 00:00
Welcome to Shelf Help. Today we're speaking with Chris Bauer, who is joining us from the Milwaukee area. Chris is the CFO at Catapult Commercialization Services, a services company that does a lot of really cool things working with brands on the commercialization process, RD, setting up production and supply chain, as well as helping them scale and troubleshoot as they grow. I think Chris is an expert on a number of areas in the CPG world, but uh we're definitely going to be focusing majority of the conversation on Copackers. Just to kind of set the stage, just for the listeners that aren't as familiar with Catapult, Chris, maybe just give us a quick lay of the land in terms of an origin story of the company, course services you guys offer, and then kind of maybe a bit about the structure of the org in terms of how you bring in different people into projects depending on what the focus is.

Speaker: 00:47
Yeah, absolutely. Uh thanks for having me. I appreciate it. I always appreciate the convers uh the ability to have a conversation with someone. Catapult itself, we're uh eight years old now. Uh we were started on April 1st, which is always the best time to start a uh a new business uh of 17. I've been with Catapult uh since the following year. And what it was is uh Jamie Valenti Jordan is our CEO and founder. He's worked for some of the larger groups in the world, right? The Campbells, the Del Montes, you know, milk bones, outsource of groups. And then he started working working for smaller and smaller CPG groups. So he went from, as a process engineer, he went from a huge organization with multiple people in the same department launching new products down to a smaller level, where he was the only one working on these technical operational side of things. And then he kept going down in size all the way to the point where he got asked, Well, what's a process engineer and why do I need you? Which is an interesting question to have in an interview. So that's where the genesis of Catapult began is how do we bring these technical services to smaller groups that don't necessarily have the financial wherewithal to add the headcount or don't have the need for to add a full-time process engineer or whatever. So that's where Catapult uh is founded. It was started as a solo consultancy and it now has grown to a group of 80 or so of us, spread all across the United States. All of us have some sort of expertise in the food and beverage world, obviously, and then the commercialization side of things, more specifically, the technical side of things. So product ideation and brand positioning, kind of that fuzzy front end of figuring out what the brand wants to be when it grows up, into the product development phase, making sure that it checks all the boxes, it's food safe, it's ready to go into production across state lines, and then into all the bits and bobs that you need and actually to land on shelves. So contract manufacturing, which is my area, supply chain development and management, logistics, packaging, quality, regulatory certifications, all of that. And then it gets back into process engineering, right? Because all of this is just becomes an iterative thing to drive down cogs, drive up production.

Speaker 2: 03:09
Yeah.

Speaker: 03:10
And so just kind of keep keep growing the uh the the business and the industry. So how we work is actually somewhat different. Most, if not all, uh clients come to us with some sort of problem, some sort of pain point. We're looking to grow beyond the commercial kit. Can you help us do that? Well, great. But here are the steps that you need to do, and here are the different experts that Catapult can pull on in order to make that help make that work. You're working under cottage law, you want to sell across state lines, great. We have to bring in a product developer to make sure that your supply chain is redundant, uh, is good and industrially sourced. And then we can also find help you find the coman and negotiate with them on board with them because that's all a process, and I'm sure we'll get into that here shortly. Or it's a larger group. We are having this problem. We need someone to fly out to California tomorrow to look at what's going on and why we have insects in our meal and figure out where they came from and figure out how to fix it going forward. We've done that project too, where we had someone on site within two days to figure out what happened and do an after action report. You don't want to necessarily hire a person to be able to do that you know, year round, right? You don't want to add headcount. So let's just bring in an expert and take care of the problem. And I can keep going, but I don't want to bore everyone.

Speaker 1: 04:36
But the idea is catapult's a CPG fixer, kind of to a certain extent.

Speaker: 04:41
Very much so, yeah, absolutely. Like, what is your problem? Here's how you here's the general steps on how you solve it. Here are the experts that we need to get it done. And then we provide an estimate, of course, and say, great, it's going to take 100 hours of work. Boom, there's your book. How long it's going to take and your budget too.

Speaker 1: 04:58
Yeah, that totally makes sense. Yeah, it sounds like you guys are you come in when founders and operators having really big challenges. I I feel like you're probably the saving grace for a lot of operators. So it's cool what you guys do.

Speaker: 05:09
The interesting thing is that people who know us absolutely love us because we do exactly that. And then they don't tell anyone else because we become their sacred sauce. Great, we have a new problem. Let's go talk to Chris and figure out how we fix it. All right, so let's do this. So yeah, absolutely. It we are the secret sauce of a lot of small starting out from the the first stages.

Speaker 1: 05:32
Let's just yeah, starting with just sourcing and evaluating co-packers. What would you say are the best way or best way is actually just go about sourcing copacker options and you know where are the best places to look, whether it's like you know, events, directories, those kind of things. Because from what I know, copackers don't have often the best websites, they don't really market themselves all that well. So it doesn't seem like it's the easiest type of business to find. So we'll start there.

Speaker: 05:58
Yeah, absolutely. When I joined Catapult, it was my first foray into the food and beverage industry, and Jamie was telling me that it's really just kind of like a you know, a boys' club, right? You have to know them, know where commands are in order for you to know that they even exist. Um, a lot of them are very technically minded and some of them are very brilliant, but that's not in marketing, right? That's not something that you can find easily.

Speaker 1: 06:27
Yeah.

Speaker: 06:28
So it takes time, it takes reaching out to them over multiple things, or at least that's my the reason why I'm able to charge money for what I do, because the process itself is not rocket science. It's building out a list as long as you can from all the different sources, right? There are lists that exist online, there are event directories, there's, hey, did you ever meet Bob? Bob does this, and just talking through, hey, just talking through with someone, be like, great, this is what what I'm working on. And they're like, Oh yeah, George is just on the street, he's been in business for 30 years, he doesn't have a website, right? Okay, great. Does he have a phone number? I've literally had to fax people information in order to get it into the hands of the right person, which is very strange to say in 2020. The time of 2023, but it's just one of those things where I'm like, okay, great. Um, I'll I guess I'll figure out how to use a fax now. But yeah, absolutely. It's everything. Yeah. Just building out that network, building out a reputation of just knowing who who to talk to is a critical piece there.

Speaker 1: 07:33
People that are at the center of the hub and spoke, so they've got a lot of network and kind of they can point your other direction, I imagine.

unknown: 07:38
Yeah.

Speaker: 07:39
Absolutely.

Speaker 1: 07:39
Let's just say you're a new brand, new operator, found a copacker that seems like it'd be good to be a good fit based on let's just say recommendations or research that you've done. From what I know, it seems like co-packers that are good copackers, they're probably close to capacity with bigger clients. They can work on this for a long time. Onboarding a small new brand, integrate, integrating them within their operations and workflow and everything is not always probably the easiest and fun thing to do. So I generally what I've heard is it can be challenging to kind of get a copacker's attention and get you to give them the time of day, get give you the time of day. So I'm curious what would be you know two to three points that a a brand owner could could use or focus on when they're reaching out to Copacker to make it sound like, okay, this is a real brand, this is a real person, and this, you know, I'm the copacker side, I'm actually going to give these people the time of day.

Speaker: 08:30
The trick of that is to realize that these are businesses, right? And I'll kind of hit this over and over again, right? And if they're a successful business, they're going to be really busy. So the first thing is every single time that you interact with them, realize that they also have about 30 other things going on in their mind. So you have to be exceptionally to the point because you have about 30 seconds before their mind wanders on to the next one, especially if you're just doing uh a cold email, right? So you have to be very precise. This is what I'm looking for, these are the certifications, this is the process, this is the volume, this is the size of the prize. Are you interested? Let's talk about once you get in front of them, they generally have more time and attention. But if you're not actually talking directly to them, you know, talking to their gatekeeper, for instance, or to just cold emailing them, you'd really just have to realize that they're humans that are very, very busy. And then as they ignore you because they you're number 42 on the list of a hundred emails that they have to respond to.

Speaker 1: 09:37
Right, of course.

Speaker: 09:38
And you transition from a cold email to a follow-up call or to connecting with them in LinkedIn or anything like that. Realize that they're not going to respond to you right away and that it takes a couple of times. Be like, hey, I get that you're busy. I'm here. This is the project. Are you interested? And the answer will likely be no, right? It's going to be a numbers game to an extent because they might not have capacity. You might have misunderstood their capa uh their capabilities. They might just be having a bad week and they have an audit and a Fortune 500 company in in the building at the same time in a day. Like I've had that happen too. That happens, right? It's going to take time. I always recommend that it takes about six months, six to nine months from introduction to actually getting to the point of being able to have product in hand.

Speaker 1: 10:26
Yeah.

Speaker: 10:27
And that's can be on the aggressive side depending on the the part of the industry that you're in.

Speaker 1: 10:32
Yeah. Matt, the complication, how complicated formulation and touch points are and everything too, right? Yeah.

Speaker: 10:38
Or just the nature of the product, too, right? Like there's there's uh barriers to that too. Totally.

Speaker 1: 10:44
I guess you've brand they've they've gotten attention of a copacker, now it's kind of on even footing, the copacker's really engaging them. Feels like you know, they're getting the real attention. Now it's kind of on the brand a bit to be doing some real evaluation and due diligence. Like, what should that co-packer evaluation checklist look like? And you know, I guess what are just some of the most important factors that a brand should be considering to make sure that they're going to be dependable and a good fit and all those things.

Speaker: 11:12
Yeah. Um as you work through, right? So typically as I hand off the relationship to my clients and the co-man, the next steps are usually doing a data transfer, right? Get them samples, get them, get them samples, get them the formulation, get them your list of ingredient suppliers. The quicker that you can get that to them, the quicker that they can put that in the queue, right? Because some commands literally don't start until they have all of those things. And if they don't, you know, you're just going down on the queue because you're less of a serious client. After that, like you can realistically expect them to want to test it on their machines, right? A thing that I call test day. And that takes time to schedule and to be there. That's really where you want to make sure that you're also there if you if at all possible. To sit there and just talk with them. Realize that they're human, make them realize that you're human, walk the line with them if you can, right? You shouldn't be seeing extreme examples. You shouldn't see rats flying through. You shouldn't see big puddles of water just standing there, you know, not getting cleaned up. Right. That's the type of level that you want to be at at that first that first meeting in person, QA side. Other than that, it's making sure their documentation is in order, making sure that they're being reasonably responsible in getting back to you again. They're very busy people. And then making sure that at the end of that test day, the product that is coming out is what you want, and that you've written down how you got there, right? Because test day, they're going to try 50 different ways of doing that. Right. Are we cooking it for 18, 19, or 20 minutes? Are we doing this? Are we doing that? So that way, once it's all written down, you can trust that the co-man, so long as they adhere to that product spec, they're going to be doing it right every single time. And that's exactly what you want out of COBAN. And the good contract manufacturers know that, they'll adhere to that, and they'll make sure that uh it's exactly the same thing a hundred percent of the time.

Speaker 1: 13:23
So yeah. All those make total sense. That's that's really helpful. All right, so brain gets through that due diligence process. They like the Copacker, they're getting to the point of negotiating terms and actually putting things on paper and putting together an actual contract. What's uh what do you feel like are some of those top-of-mind things that are most important to include in that Copac agreement just to ensure success, minimize risk, and really aligning expectations from the get-go?

Speaker: 13:50
Um working through all of those things one at a time, right? Figuring out what your entire logistics chain looks like from ordering supplies and ingredients, landing it, where's it going to be, how much does that cost, right? That's another thing that you're always going to want to keep an eye on is where where are your packages being stored? Where are your trays being stored? Are they branded? Are they safe? How much does that cost? Going into each individual thing. How much you should they might throw it all together as one lump sum cost all in, and that's fine. Others line it all out, right? How much is it? How much is the cost of the facility? How much is the cost of the employees? How much is the cost of storage on the front end and the back end? Because you're not always going to have a truck right there for them to load each pallet on individually, and that would be kind of expensive and silly to do it that way. So having all of that kind of spelled out in a fair way in the contract is important. I mean, don't be necessarily rude and demanding about it because, again, they're humans, and this is more akin to dating than it is a marriage or just a straight business deal. You have to want to make sure that you work with them. Other high points that you want to make sure that you pay attention to, who owns the IP, right? One thing that I have encountered multiple times is groups try to take the shortcut. They try and say, Great, I have grandma's recipe. Can you make a million of them for me? The co-man might have a product developer, they might not, depending on what their infrastructure looks like. And they might be willing to front that cost to you, but always make sure you know who owns the IP. If you're not paying for it, the likelihood is that it's the co-man's IP because they're paying for it. That's theirs now. So there have been several examples where the client's relationship with the co-man was going right for several years. Something happened, it's spoiling, and now they want to move to a new Copacker, but they took the shortcut in the beginning. They don't actually own the IP, they have to regenerate their own product, which is a position to be in that is not particularly good. So know who where the IP is.

Speaker 2: 16:03
Yeah.

Speaker: 16:04
And the last piece, I completely blanked the when things go wrong, right? Because things will go wrong, right? Someone will cook it for 22 minutes instead of 19, and suddenly you burned an entire batch of something. Mistakes happen. So making sure that there is a well spelled out way of reconciling that, figuring out how to work together in order to fix it and to move forward, that's done in a fair way because commands are always going to walk, they'll at least going to bulk. They might walk away from a deal that is too stacked in the brand's position, right? And the brands should do the same thing if it's too stacked in the command's position. Yeah. And that sort of negotiation is is always kind of touchy at the start, right? Because you don't necessarily trust the other person across the table for you. So having someone there with you to kind of go through it is useful.

Speaker 1: 16:55
Yeah. You talked about you mentioned IP a little bit. I was gonna ask about that. In terms of protecting IP. I mean, if yeah, let's just say you you did go the correct route, whether you developed that formulation with a copacker and you you paid for that IP or whatnot, or you brought a formulation that you developed somewhere else to that co-packer. I guess how do you prevent that you know formulation magically ending up in the hands of another one of the co-packer's clients with like a very small minimal tweak that makes it not totally single IP? And or I've also heard about here and there a copacker decides to launch their own in-house brand after a while, or maybe they didn't have in-house brands before and they decide they're going to, or they're always have, and then somehow you know that brand finds out, oh, the formulation of their own in-house brand products are basically almost identical to theirs. Like, how can I sure there's you can't entirely prevent it, but I guess how can brands think about that in terms of minimizing the risk of that, let's say sure.

Speaker: 17:59
And I have this conversation with clients regularly, right? They say, Great, I want to make 10,000 cookies a month. No problem, we can do that. I want to be the only one who makes chocolate chick cookies in that facility because my brand, my formulation is so special, I don't want it stolen, that sort of thing. That's not going to fly, right? This is a business, they're going to need to use these ovens all sorts of in all sorts of different ways. The IP rights and how that IP is protected should be in your contract as you're talking through this with your co-man, right? Where is it going to be stored? How is it going to be defended? What's how's that all work? Then you realize that commands are going to be here even when you're not. They were here when you were not in existence, right? And they were making effectively the same way. They might know ways to make your chocolate chip cookie better than you do, because they've made billions of them. So that comes with a fair amount of expertise. So, and there's only so many ways to make a chocolate chip cookie, right? There's only so many ways to make anything, right? So you also have you, the brand, also have to realize that one, they've been in existence in a business a long time. If they're just giving away or stealing other people's IP in order to give it to someone else, that's not going to work for them long term. They're going to get sued, they're going to get closed down, they're going to develop a reputation in the industry where that's exactly what happens. And they're going to be shunned, rightfully so, if that's what's happening. So realize that their reputation is online and their reputation is probably more valuable to them than your business. And that's okay. Then the final thing is realize that there are groups out there, and their job is to literally take a product off the shelf, reverse engineer it, and then make a small tweak so it's not the exact same thing, and then sell it off to whomever wants to do it, right? How many chocolate chip cookies are there? Great. We can make a different one. We'll make it a little bit saltier this time, or we'll do something else about it. In that case, the thing that you're selling, and brands sometimes have to realize this the thing that you're selling is not your chocolate chip cookie. And that's where I'll stop using chocolate chips as the example, but it's not chocolate chip cookie anymore. It's your brand. And it's the following that you've developed. That's the important thing. People will buy your brand over someone else's brand. And realizing that that marketing is the thing that keeps you sustaining, even when Me Too products come on board. Because if you're completely new and you do all sorts of things that are astonishingly new and it's successful, someone's going to rip you off. They're going to make it great. Oreo made one to whatever the thing was before Oreo, and they're more successful than the original brand.

Speaker 2: 20:46
Right.

Speaker: 20:47
Okay, that happens. They that other brand that remains nameless because I can't think of it right now. Okay, um, they didn't have the same marketing skills as Oreo.

Speaker 1: 20:58
Yeah. All those, yeah, those are really valid. I think that's a good reality check, I would say. How about from uh a um projecting cogs and margins in terms of how you're working with your co-packers? What are some of those you've seen the most common hidden light items that can balloon total landed costs, whether it's you mentioned storage costs if you're not picking it up right away, or maybe it's you know testing costs, that kind of stuff. Like what should brands, I guess, try to address up front in that in that co-pack agreement, and or just be you know keeping a close eye on in general.

Speaker: 21:29
Sure. And this is where it really gets very fuzzy in almost any contract negotiation because it becomes very specific to the product and how all these things do you need to take it and send it for testing every single time? Can we do it in house? Right? How long does it take to and how expensive is it to land all of the equipment? Or not the equipment, the the supplies and the food and the ingredients, right? Right, all the inputs, right? How long does it take to amass all those things? How much does that cost? On the flip side, how much how quickly can you get a truck there to? Pick up your 10 pallets of product and get it to somewhere else. These are a lot of variables that can be controlled through the contract, right? So making sure that you work through the entire process of where does it come in, what and how should it all be put together, when does it go through, how much does that cost, and then all the different pieces. And then there are going to be a whole bunch of things that you don't get to control, right? You don't get to control the price of milk or eggs, right? You you don't get to control tariffs, you don't get to control the cost of labor because minimum wage jumps legally in the state that you happen to be producing in. You don't get to control those. Those are all things even outside of the control of the co-man, and that's going to be passed on to you, the brand. Yeah. So how do you mitigate that? If you can figure that part out better than anyone else, you should be in my shoes. Because locking a co-man into a contract that limits all those things, they're not going to do it.

unknown: 22:57
Right.

Speaker: 22:57
Not if they're smart. And if they do, good on you.

unknown: 23:01
Right.

Speaker 1: 23:05
The ticker pay minimums uh specifically. I've heard those can be challenging for brands. Basically, they're not. I correct me if I'm wrong if I'm defining ticker pay incorrectly here, but it's basically whether it's an agreement or not, basically you're securing certain line time at the Copacker, and if you don't use it because you're you know projecting forecasts are meeting that, you're still gonna pay for that line time essentially whether using it or not.

Speaker: 23:27
Yeah. Um yes, it's challenging, particularly for small brands. Um, 100%. How do you avoid it? You match it as best you can. So there's two ways that minimal order quantities really get created. One is it takes so many gallons of liquid in order to pressurize the machine so that I can get it into your bottle. Yeah that you're not gonna mess with, right? You have to go to a smaller command if you are going to try and play with those minimums. You just there is no alternative physically on how to do that.

Speaker 2: 23:59
Yeah.

Speaker: 24:00
The one that you do have more flexibility with is working your way through other things, right? So typically the other way that you can establish a minimum order quantity is how many widgets can you make in six hours? Because you know it's going to take an hour to set up the line, it's going to take an hour to clean up the line, there's your eight-hour shift. Boom, how many widgets can we make? Now, if you only need three hours of production, sure the command can do that for you, but you're still going to pay for that full eight hours because no one's going to work for them for three hours just making your widget. So it's more of a match making sure that you're matching their minimum order quantities and you're not going to really huge groups for small stuff, right? That's just not going to work. The other thing that I've seen is are people and people get good by doing the same thing over and over again, right? So the more that you can get um your production together and replicate it multiple once a month, for instance. Uh there are commands out there that do it once a month, uh, once a quarter, one once a year is really kind of difficult. Or can you bring those four days, five days of production all together? Does your shelf life support it? And sometimes the answer is no, and that's unfortunate for you. That's a lot of times the answer is yes. All right, the difference between um a fro a uh a loaf of bread that has been frozen for five months versus a loaf of bread that has been frozen for one month, the common consumer is not going to notice that. Why not make it all sure you have more costs in terms of in terms of keeping it frozen for that long.

Speaker 1: 25:46
Right.

Speaker: 25:48
But that usually is a wash or in the brand's advantage to bring it together as opposed to worrying about minimum or quantities. The other flip side to your take and pay idea is that some parts of the food and beverage industry simply require higher minimums. The plant-based milks and the plant-based creamers. Those are exceptionally difficult to get into because of the techniques used to get them to be shelf stable at ambient temperature. And you're going to have to start with seven, eight digit numbers in terms of volume in order to have any coman be interested in you. So just choosing the right product if you're in the right venue, whether it's refrigerated or frozen or a shelf stable at ambient, is all going to be part and parcel to making sure that you're even in the right part of the industry for your size. Or if you have to figure out different ways of doing it too.

Speaker 1: 26:47
Right, totally. Yeah, that's that's that's super helpful too. It sounds like a lot of brands are coming to you when they're in kind of pivot points their or their business or challenges as well. So I'm curious, I imagine it might be a pretty common scenario where a brand that's in their earlier stages, they have been just self-manufacturing, whether it's in their, you know, probably not in their kitchen, they're probably beyond that, but maybe in like a you know, kitchen where they're still doing it themselves. And now they're getting to the point, they come to you and say, hey, we're gonna scale, we can't do this anymore. We need to transition to a copacker. Can you help us? Um I'm curious, what have you found is is the most often like challenging part, whether it's like having to change the formulation to optimize for scale or um just different, you know, manufacturing processes that have to be due at scale versus what you can do in a small kitchen. What do you what have you found is the most challenging part of this? And and how does catapult, how do you guys help with that process overall?

Speaker: 27:41
You're really not going to like this answer. The most challenging part of all of that is actually realizing that you're that the brand is not paying the individual, right? So a lot of groups, as they're going into their first com-an, they're self-producing commercial kitchen, no big deal. I'm just going to do it on my weekends when I have the day off, and I'm just going to get it done. No problem. You're not going to get away with that with a coman. The coman needs to pay themselves. So that would be number one. Can that catapult help with that? No. What catapult can do is all the other pieces that you're talking about. If you're working out of a commercial kitchen under cottage law, so you're just going to Costco and buy flour and you're bringing it in. That's great. You can do that. But once you get to a coman, that game changes. They have to have formulations, they have to have it in the right way, they have to have industrial suppliers, they have to have all of their documentation in order. And that's the type of challenge that catapult access in is figuring out all of those things.

Speaker 1: 28:42
That makes a lot of sense.

Speaker: 28:44
And then, but yeah, I think the best example I have of both of those is actually a co-man that came to me and they wanted to stop being a co-man. They just wanted to convert from being a co-man into being a brand. No problem. Here's, you know, I go through my search, here's a dozen different groups that can do the same thing that you can, more or less in your area. Um, and they ended up rejecting them all, and there's a co-man to this day. Why? They were underpaying their management, right? Their leaders. And two, um, while they had the formulations, they were doing it roughly as efficiently as anyone else was. So the you weren't saving all that much in employee costs and that sort of thing. Uh, I still call them to this day and say, hey, do you want this gluten-free bread or whatever? Yeah. Because they're still in business. They were, I don't know if they're doing it now, but they were underpinning themselves. If they didn't shut their doors and then hope to make that leap, right? Yeah, absolutely. And we had that conversation too at the onset. And we're like, I mean, you're doing this, you're making it work. Like, and you figured out the hard part, which is how to be a manager of individuals on a process as we replicated 100% of the time. That's the part that you're paying for, is that expertise and that machinery and that mortgage and those lights and ad moving down the chain a bit.

Speaker 1: 30:09
Brand has has kicked off things with the Copacker, they're starting to kind of get into regular cadence. What do you recommend to your guys as clients in terms of what should a kind of ideal, let's just call it KPI dashboard, look like in terms of the core metrics that this brand should be closely tracking in terms of the Copacker output? Sure.

Speaker: 30:31
On the product side, it should be keeping an eye on any complaints that come in. Hey, this bread that you've been making suddenly tastes different, right? That's an indication of something going very wrong at the command level. Other than that, are they meeting their deadlines? If you're doing it just in time, is everything arriving just in time? Are they scheduling you regularly enough and efficiently enough that you're meeting all of these things? Noting that if you have a sudden explosion in demand for whatever reason, a marketing sales thing goes well, they're not going to be able to pivot as quickly as you would like them to. But being able to have things arrive when you need it to would be the first one. Consumer experience should stay the same, right? You shouldn't be seeing up swings up and down, right? That's an indication of something going wrong at the CO-MAN. On the financial side, keep an eye on the cogs. Are they staying reasonable and about the same each time? Is it going trending upward, trending downward? Sometimes co-mans get more effective and more efficient the more they do run your product. So they can actually produce more widgets during that same eight-hour period. And that's something that you should be having regular conversations with your co-mans on. Hey, I'm noticing this. What is causing the cost to go up? Well, flowers going up, or eggs are going up. Like this is out of our control, and we're buying it for you. So, I mean, those would be the two make a lot of sense. Those two things that I would want to keep an eye on.

Speaker 1: 32:01
Yeah, those make a lot of sense. And how about just from a kind of like SNOP process cadence standpoint? Do you typically find it's probably also this comes down to how often copackers are willing to meet with you as well. But in terms of like from a cadence SNOP standpoint, do you typically find you're recommending, or most common, is it you know monthly, bi-weekly? Is it even like weekly, or is it something else?

Speaker: 32:23
Realistically, however long, however often you're running the product in their facility, you should probably have one, just a check-in. It might be only a half of an hour, right? Just running through, hey, anything change? Nope, good, lovely, let's move on.

unknown: 32:36
Yeah.

Speaker: 32:37
So they don't need to meet with you bi-weekly if you're running once a month. Yeah. They don't need to necessarily meet with you monthly if you're doing it quarterly. Yeah. And again, those sorts of things, or at least the option to have those sorts of meetings, should be outlined in your contract. Like we want to have a 30-minute meeting before launching any product just to update you on what's going on. That would be um a reasonable enough point to keep in there. I would expect to see setting it up a little bit different, right? More time on site, more time setting things up.

unknown: 33:09
Yeah.

Speaker: 33:09
But once things start getting going and rolling, it's more check-ins, making sure that everything is going well, making sure that management over there is staying stable, right? Because if you have a new management, suddenly they read your standard operating procedure in a different way than the previous person did. Yeah. Okay. That's fine. That that happens. But also, why isn't your SOP being tried to explain it?

Speaker 1: 33:34
So all make a lot of sense too. From a um a risk planning standpoint, I think it's probably especially with this tariff situation coming into account, it's more top of mind in some of the conversations you're having with your clients. But I'm curious from how importance is redundancy and supplier diversity, let's say, and then kind of a building on that question is like, what does supplier diversity actually look like? Is it just having a few backups or is it more strategic than that?

Speaker: 34:02
That's where it starts, right? There's currently several projects that are ongoing that are just looking at different suppliers and then testing it, both at the bench and then also testing it in production, making sure that they react the same. So that way when one flower that's being produced in, I don't know, the Ukraine has problems generating that grain and that flower, you have a US-based facility that's able to help out, or you have a Canadian facility that's able to help out. And that's, you know, a wise brand has that in place, especially as they scale up. Despite whether or not we're worried about terrorists, because who knows the next time a country invades another country and throws everything into chaos, or you know, anything else. So, how does all of that work? A wise one, a wise brand usually has a couple of options in their back pocket, able to work on, and they check regularly in like, well, has the prices changed at all? Like, what's the harvest looking like in Florida for oranges as opposed to somewhere else? Just kind of keeping tabs on that and working their way through. Does it have to be if oranges get over this price, then we're going to this? Does it have to be that precise? No, not necessarily, especially not if you're a small brand. It can be much more of a I know these two things work, and I'm going to go with it, whichever one makes sense at the time.

unknown: 35:30
Yeah.

Speaker: 35:30
And the co-man should be able to help with that too, because if they're bringing in flour for you, they're bringing in flour for someone else too.

Speaker 1: 35:36
Once a brand has scaled to a certain scale, they've been growing for a while, things are going really well. Yeah, the margins are good, they got app, they've got access to some fair amount of capex at pretty reasonable terms and whatnot. For those brands where vertical integration moving away from code back or that they're working with for a long time would make a lot of sense, whether it's at some point they may be able to save costs, bringing it in-house or whatnot. When from your experience or knowledge, when does it usually make sense to start looking at bringing manufacturing back in-house, let's say?

Speaker: 36:10
And maybe you maybe never, but the answer maybe never for any sort of brand, right? The startup costs of building your own facility absolutely need to be considered. So if you are in UHT aseptic fill, those you have to be very, very large in order for those costs to make sense. They have to their barriers to entry are very high to begin with, right? So you have to make sure that makes sense. But to get to your point, like when does it make sense? There's no good answer for that. The question then becomes is the margin that the co-man putting into their costs for you, right? Does that starting to impede in your your margins? Or is it just an ego power play where I'm like, well, I can take that 40% and put it in there? And if that's if that's where you're at, that's great. That's a wonderful place to be in. And there are several brands that I've worked with that are looking like, I just want to make sure that this is a product that can sell, and then I want to build up my own facility. Wonderful. It's about where the business is and where the where the skill sets of the individuals in that brand are. Yeah. I have met brands that under no situation should they ever run their own facility because they do not have the personality type that it takes to be an operas person. They're a marketing person and they're a salesperson. Great, go do that. Have a co-man make it for you. And if you want to eventually buy that facility, as one of our clients recently have, okay, great, good, have at it. But what at what point does that change? It changes at the point where the margins no longer make sense to give away, and you want to bring that in-house.

Speaker 2: 37:48
Yeah.

Speaker: 37:49
And that will change dramatically based on the um that'll change dramatically based on what uh part of the industry you're in and the complexity of the process.

Speaker 1: 38:04
For those ones where it does make may make sense, what what I assume you just don't want to do it cold turkey and just like immediately shut down their co-packing and you know, what is the kind of a if you had to make a recommendation from a step-by-step process as an example, is that you start maybe sourcing your own ingredients first to you get that under your belt and you're sending those to the co-packer. Then maybe you start producing you know 30% of the your own overall SKU count, some certain portion of your SKUs in-house, still keeping some of the co-packer, and then you eventually transition the rest of them. Yeah, I'm curious what what does that kind of step-by-step process look like in your mind?

Speaker: 38:43
We're going to assume in this example that we have to build our own facility, right? We have to buy a piece of property, we have to land the equipment, we have to do that. That does not happen overnight. That's anywhere from one to two to five to ten years, right? Depending on what exactly you're making. Realistically, two years from start to finish, right? So, how does that process look like? First, build the business case, right? Run the numbers. Does it actually make sense? How much do how much does each piece of equipment that you're going to cost uh come out to be? And that's where Catapult would be very useful to a brand like that because we can come in and be like, great, you're making orange juice. You need this machine, this machine, this machine, this machine. Here are all the costs associated with it. Here's what line you're looking for, here's how much it's going to cost not to buy the product or buy the machines, but also land it, commission it, make sure it's good to go. Here are all the other pieces that you need to have in place. So you're looking at a $10 million uh facility. You're looking at a hundred million dollar facility, right? And then the brand would then have to make sure that it is viable for them. So the first thing is actually just plan it out all on paper without a f without looking for land necessarily or anything like that. And then there really isn't a wonderful way of introducing it stepwise, right? Because once you have the machines, you want it running 24-7, because otherwise you just have idle line time, and that's just a cost on you. So you land the machines, you call or you land the machine, commission them, and then you start production. You start with whatever makes the most sense to bring it in. Let's bring in one SKU, let's run it, let's compare the two. Does the command still make it better and why? Or do my does mine and why? And then after that, it's just a very rapid transition in. Transitioning ingredient sourcing to you has to be built into that. And then where are you going to store it? Where are you going to all of these things, right? But yeah, I mean, it's going to be jumping in very rapidly once you execute the paper exercise. The paper exercise is where you figure out whether or not you even want to do it or can do it.

Speaker 1: 40:50
Yeah, fair. Coming back to IP a little bit. Are there any other, you know, typical those kind of joint structures that you see whether it's like, you know, if they're applying patents, is it like you're applying for patents together, or they're, you know, I don't know if there's like royalty structures or like joint venture or something along those lines, or is it mostly just as simple as, you know, pay us X dollars and you can keep the formulation?

Speaker: 41:12
In my opinion, the right way of doing it is pay us X amount of dollars, get it done, let me own the IP, right? It might just be my own mentality of like, I need to know who owns that IP because tomorrow we might have a problem and I need to go somewhere else. So everything else is a derivation of that. So do we want to sign a contract? You'll give me a deal if I sign a contract and I make a million of these things, and you're going to make your money of product development back in that way. Yeah, that's a way to do it that is cheaper, but then you're just handcuffing yourself to that co-man for a longer and longer uh point of time. Yeah. There is the royalties model where great, I'll develop it, I'll own it, and then I'll license it to you to build the brand around it. That's usually the co-man talking to the brand. Yeah, absolutely. If you want, but again, you're handcuffing yourself to that co-man necessarily because they own the IP. The IP is the, in my opinion, is the only thing that matters at the end. So knowing how to do that and how you want to take a less expensive option in the beginning in order to make sure it gets done and gets done well, that's all up to that negotiation. But again, that should be in the contract, right? Make it black and white and hopefully not in the fine print.

Speaker 1: 42:30
Yeah. Super clear. Last question for you. This is a very broad question, but any, I just know you and catapult in general, you guys have so many conversations with so many different brands and different parts of the CPG space. I'm curious, any specific brand that do you want to mention, or just general trends in the CPG space that you're particularly excited about, or ones that you're seeing are gaining a lot of traction in?

Speaker: 42:53
I always joke with my colleagues in the co-man world that for so whatever reason, I'll have five or six products that are all very similar trying to come to market at the same time period. So I'll reach out to the same co-mans five or six times within three, four months. And then I'll just go quiet for a year, two years even, and then before I have another product in that same space. It always seems to come in waves. Interesting. So the wave that I'm seeing right now coming through are individuals who are individuals or brands, brands generally, who are looking to take any all sorts of products, right? Beverages, chocolate, anything else like that. And they're trying to make it a better-for-you product by including vitamins or probiotics or something like that. So that's the trend that I'm seeing on the catapult side. And they're kind of all scattered all over the place. They might be in the formulation stage, they might be in the command stage, right? All these different things. Um, but that's the thing that's going on right now, right? And that's very interesting to me for a variety of reasons. Six, seven months ago, it was a different thing. It was puddings for whatever reason. So it always comes in waves. It's very interesting, but products that fall on that really gray area between food and supplement is what's popular right now from my vantage point.

Speaker 1: 44:14
That doesn't surprise me at all. I definitely seem like that's yeah, that's definitely yeah.

Speaker: 44:18
The society itself has kind of it goes in different ways, and that's how it works.

Speaker 1: 44:23
So yeah, which is great. Good for you. Yeah, I can I don't think that's a bad thing.

Speaker: 44:27
No, not at all.

Speaker 1: 44:29
Well, yeah, Chris, this has been awesome. I really appreciate the time. I think this has been really valuable for brands, especially are in this process of you know, starting to think about co-packers, Morgan Copackers are in the middle of one and trying to figure out some challenges. So I think it's been super helpful. What's the best way for people to follow follow along with you? Andor what's the best place for to people have to follow along with Catapult as well?

Speaker: 44:49
Sure. The easiest way for a lot of people to keep kind of keep in touch with Catapult and see what we're up to is actually through LinkedIn. Um, our CEO Jamie has a fairly large following in the food and beverage world, and he kind of regularly produces various, he produces posts and that sort of thing to kind of keep people abreast of what Catapult is up to, what he's up to, what are the different trends in society, ask answering questions, that sort of thing. I think you and I met originally through Startup CPG, which is another wonderful organization to kind of keep track of what's going on in the industry. And then also Catapult has a solid presence there, just answering questions. Hey, I'm doing this. Great. Here's the general thing. And if you want more, let's talk about that offline. And then, of course, there's always our website, catapultserve.com, that people can always look us up and find our immediate contact information. There.

Speaker 1: 45:41
All right, cool. That sounds great. Well, yeah, Chris, Ruth, for you to the time, and uh hope you have a great day.

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