How to Protect Customers & Margins When Contract Brewing & Co-Packing

How to Protect Customers & Margins When Contract Brewing & Co-Packing

Case Study: When Life Hands You Lemons, Make Consumer-Friendly Lemonade

Recall expenses can range from the immediate costs of removing a product from the market and reimbursing consumers to the long-term expenditures of decontaminating the manufacturing plant and equipment. Some of the essential costs include the expense of establishing the underlying cause of contamination, which can take weeks or months, and the cost of repairing failure spots in the manufacturer's food production system.

“Get ready to add “home mixologist” to your resumé. Take your cocktail game to the next level with PC® Black Label Lemon & Ginger Sicilian Soda. Whether you’re stirring it with a splash of gin or sipping it straight out of the bottle, this tart, gingery soda is crafted using real Sicilian lemons. It’s sure to elevate any nightcap.”

– PC Black Label Lemon & Ginger Sicilian Soda Product Copy (President's Choice, n.d.)

How Does Canada’s Food System Work?

Anyone selling food in Canada must ensure that it is safe to consume. The Canadian Food Inspection Agency (CFIA) enforces federal food safety rules for domestic and imported food. Risks cannot be removed, even in a modern, competent food safety system like Canada. When dangerous food is introduced into the marketplace, the CFIA collaborates with the firm to ensure that the public is notified and that the recall successfully removed the product from the market (Government of Canada, 2021).

Consumers may protect themselves and their families by practising proper food handling at home and updating food recalls and allergy warnings. However, the average consumer does not always have the skill sets or knowledge on the small details of each product. For example, Canadian consumers expect products such as beer and soda to be shelf-stable. It is typically on the manufacturer to ensure that they can be kept at room temperature without risks.

The Canadian Food Inspection Agency (CFIA) receives 2,225 consumer notifications regarding food safety hazards each year on average and oversees roughly 440 recalls. A food safety investigation's purpose is to discover if a food hazard exists, analyse the nature and scope of the problem, and take necessary steps to remove or reduce any consumer hazards (Government of Canada, 2021).

Why is there a recall?

Due to the presence of "extraneous" glass, Loblaw recalls PC brand Lemon & Ginger Sicilian Soda from stores. The beverage was offered in a four-pack of 200-ml bottles across the country, with a best before the date of September 24, 2023. According to the Canadian Food Inspection Agency, no injuries have been reported due to the beverage (CBC News, 2022).

“We sincerely apologise for any inconvenience this recall may have caused.”

– Loblaw Companies Ltd.

How do containers break in a packaging plant?

Damaged containers (cans or glass bottles) are a constant concern in bottling operations, with various causes. In-line sensors allow for the measurement of mechanical forces that might damage containers. Reduced downtime, more efficient operations, and lower costs can be achieved by locating and eliminating the fault source (Bonakis, 2019).

How do you prevent packaging materials from getting into the product?

HACCP

Using a combination of Hazard Analysis and Critical Control Points (HACCP) and accurate packaging logs, many of these issues can be minimised or avoided. HACCP is a scientific, methodical, and systematic methodology to detecting, assessing, and managing critical food safety hazards throughout a food manufacturing chain, from raw material acquisition to final product consumption. There are three main concerning types, Biological, Chemical and Physical (Master Brewers Association of Americas, n.d.).

  • Biological: Microorganisms that have the potential to cause diseases in humans, such as bacteria, viruses, yeasts, moulds, parasites, and protozoa, pose a threat to food safety and public health such as Salmonella.
  • Chemical: Toxic chemicals and other chemical agents can potentially be hazards, rendering a meal unfit for ingestion. 
  • Physical: Foreign material which can cause injury when consumed, broken glass is the most common in many applications.

The simple method of describing a HACCP program is firstly to pick a hazard and map out all the ways glass can be introduced into the product, secondly map out how to prevent that from happening, and thirdly create programs for what to do should it occur. For example, with a bottling line, the following steps can be taken:

  • Keep empty glass bottles in the packaging hall, away from the juice production.
  • Inspect glass bottles before entering the bottling machine to reduce the chance of the empty package having glass shards.
  • Install shielding to contain any bottle breakages.
  • Should a bottle break, have a procedure to stop the bottling machine, remove broken glass and isolate nearby filled bottles.

Using such a process for all known biological, chemical, and physical risks with the product, the bottling plant can help monitor and ensure that they create a product safe for consumer use.

Detailed Packaging Logs

The overall logs of a packaging line can be a great aid when problems occur, as they can help measure the line efficiency and map out when additional resources need to be made for maintenance and upgrades. Using current and historical data to map out either litres or cases with running time is an essential first step. It should be known how long a typical packaging run will need to be with startup, filling, and shut down stages. Increases in any of these areas will be a symptom of more significant problems. Longer run times will be the most direct measure of maintenance and repair needs, as the higher these numbers get, the more problems the line will have as a whole. From there, individual machines can be evaluated for wear and tear and routine maintenance suggested by the original manufacturer. Broken bottles count as downtime! The more often bottles break, the more operators will have to stop the machine and clear out any broken glass.

Who has to clean this up?

The original complaint has come from a product consumer, which is the least favourable situation for the manufacturer. It isn't easy to gauge how many products remain in the marketplace and how customers have already opened many. Ideally, defects should be identified as early in the supply chain as possible, so recall costs are the lowest. Dumping a batch within the factory is cheaper than all the packaging costs downstream, which is, in turn, more affordable than having to cover the shipping and replacement costs to retailers and customers.

traceability program

 Figure 1 - Basic Traceability Requirements

While the onus is on Loblaw Companies Ltd for the responsibility of the defective lemonade bottles, they may not be at fault. Having HACCP programs and employing Good Manufacturing Processes are great ways to minimise risks when you produce your product, but what happens when someone else is contracted with that work?

Loblaw Companies Ltd and Weston Foods (Wonder Bread, Country Harvest, and Ace Bakeries, to name a brief few) do have the same parent company (George Weston Limited, 2011), it is not possible for the thousands of products that the several retail chains owned by the Loblaw Companies Ltd carry to all be produced by Weston Foods. It makes sense for the many bakery products to have close production ties due to the low margins and the short shelf life of baked goods. Still, it is not possible for Loblaws to also control the dairies, larders, bottling plants, pickle canneries, and flash freezer plants for many reasons. In most cases, it is much more reasonable for Loblaws to approach facilities with the staff and resources already and to agree to a contract.

In general, these contracted services are where one company tasks the manufacturing of a product to another. In the brewing industry, the most publicised is contract brewing. Still, contract canning services do exist as well, and this is in addition to any necessary trades or services required for day-to-day operations. The most basic agreement is when one company leases out its additional production capacity to another corporation.

These exist because this business model has many small advantages, making it very common across the food and beverage industry. Co-packing allows easy access to new markets to create store brands while offering lower initial capital costs. These contract co-packers can provide the necessary equipment and technical aptitude to produce and develop products.

Table 1 - Advantages & Disadvantages of Contract Brewing

Since the Sicilian Lemonade is declared an Italian product, what would the first steps be in negotiating the production of the bottled drink? In general, four main types of agreements can be made: Traditional, Nomadic, Distribution, and Collaboration. These obligations may differ somewhat from one another, but they will always be specified in the legal agreement. Either party's level of participation might fluctuate. In some instances, the Client brewery and corporation serves as the company's face, mainly focusing on marketing and public relations.

Traditional Contract Production

The Client grants another corporation, the contractor brewery, production control of their product under this agreement. In these cases, the Contractor is usually in charge of the whole manufacturing process, record-keeping, labelling, obtaining required certificates, and even paying taxes when the product leaves their facilities. This is especially important in controlled substance industries such as beer, wine, or spirits. In other foodstuff industries, these taxes may be applied at the point of sale or when crossing international borders. The Contractor’s responsibility is to make and maintain a product in line with the Client’s specifications.

Nomadic Production

A Nomad brewer does not have its facilities. Instead, the brewer visits a working brewery and pays to utilise the premises to make their beer. This can be done in other industries, but it is mainly reported in brewing. Nomadic brewing means the Client does not have to invest in the physical location, allowing them to take advantage of different market trends and spaces incredibly quickly. It allows for a high level of niche products with little capital. Should a product not meet expectations, the Nomad moves on to the following projects in the next market (Bell, 2016).

Distribution Rights

As the name indicates, Brand distribution rights are permissions to sell specific brands in specified countries. As applied to the brewing industry, a contract between the brewer and the distributor establishes these rights. The distributor is given the authority to sell and distribute the brewer's brands, and the distributor is in charge of selling, delivering, and servicing the products. Some in situations, the distributor is also responsible for producing the product according to the brewer’s specifications. This is very common in multi-national brands where different producers are awarded the rights to produce for their local market (Shumway, n.d.).

Collaboration

Collaboration beers have become more common in the realm of craft brewing. The concept behind these "collaborations" is simple: two or more brewers collaborate to develop a new product (Pomranz, 2017). Typically, the product recipe and branding are generated based on the strengths of one or both brewing partners, it can be made at one or both facilities, and generally, the host facility is responsible for materials, the majority of production, and eventual distribution and sales. It is uncommon for money to change hands from one brewery to the other with these agreements, as generally, the majority of costs are covered by the brewery that will gain the profits from the respective sales.

The Contract Basics

There should be several basic concepts in any of these agreements to ensure. The short is who is responsible for what. The long-form is more complicated but should include division of materials, labour, responsibilities and duties. These should be reviewed with legal assistance in advance to ensure both parties are protected. Additional items to include:

  • Start Date
  • Contract Length
  • Details of Items and services
  • Prices
  • Payment Terms
  • Mailing Addresses
  • Corporate Seals

With our lemonade case study, the manufacturing contract should outline what happens in the event of a recall. Is the original manufacturer at fault for the defect, or does Loblaws cover the costs? Such a large recall could hurt the overall long term production relationship should this not be outlined in advance. Additionally, when such specific terms are negotiated ahead of time, the appropriate liability insurance can be purchased in advance to protect either party from these costs. Should product recalls persist, the insurance premiums may increase due to repeated pay-outs, which is a great incentive to ensure that Good Manufacturing Processes are used and examine if a program such as HACCP is beneficial to operations.

References

Bell, E., 2016. What is "Gypsy Brewing"?. [Online]
Available at: https://vinepair.com/wine-blog/what-is-gypsy-brewing/ [Accessed 7 February 2022].

Bonakis, N., 2019. No more broken containers!. [Online]
Available at: https://blog.krones.com/en/no-more-broken-containers/
[Accessed 7 February 2022].

CBC News, 2022. Loblaws recalls PC brand Lemon & Ginger Sicilian Soda due to possible 'extraneous' glass. [Online]
Available at: https://www.cbc.ca/news/canada/new-brunswick/recall-pc-soda-glass-lemon-ginger-sicilian-1.6340363
[Accessed 7 February 2022].

George Weston Limited, 2011. Weston Foods. [Online]
Available at: https://www.weston.ca/en/Weston-Foods.aspx
[Accessed 7 February 2022].

Government of Canada, 2021. Food Safety for Consumers. [Online]
Available at: https://inspection.canada.ca/food-safety-for-consumers/canada-s-food-safety-system/eng/1332207100013/1374822930369
[Accessed 7 February 2022].

Master Brewers Association of Americas, n.d. Introduction to HACCP. [Online]
Available at: https://www.mbaa.com/brewresources/foodsafety/haccp/Documents/HACCPIntro.pdf
[Accessed 7 February 2022].

Pomranz, M., 2017. How Are Collaboration Beers Really Made?. [Online]
Available at: https://www.foodandwine.com/beer/how-are-collaboration-beers-really-made
[Accessed 7 February 2022].

President's Choice, n.d. PC Black Label Lemon & Ginger Sicilian Soda. [Online]
Available at: https://www.presidentschoice.ca/product/pc-black-label-lemon-and-ginger-sicilian-soda/21338506_C04
[Accessed 7 February 2022].

Shumway, K., n.d. The Value of Brand Distribution Rights. [Online]
Available at: https://craftbreweryfinance.com/the-value-of-brand-distribution-rights/
[Accessed 7 February 2022].