India's F&B industry has rapidly increased over the past couple of years, driven mainly by an upsurge in consumers seeking more processed and packaged food items. Businesses are trying to satisfy this demand and yet contain costs by going in for contract manufacturing as the business model allows them to transfer the production to a third-party manufacturer. This model supports rapid scaling, efficiency gains, and improved profitability.
The contract manufacturing market in the F&B industry was valued at $120.96 billion in 2021, with an expected compound annual growth rate (CAGR) of 9.5% through 2030, globally. India, with its vast consumer base and diverse market needs, is fast becoming a key player in this space. Let's explore how contract manufacturing works and how Indian businesses can benefit from this approach.
What Is Contract Manufacturing?
Contract manufacturing is the process of outsourcing production processes to specialized third-party manufacturers who have the necessary facilities, equipment, and expertise. This will allow businesses to focus on other critical functions such as marketing, distribution, and branding without the heavy burden of investing in manufacturing infrastructure.
In India, contract manufacturing is very favorable for companies that want to expand without high capital costs. Businesses can outsource several stages of production, including processing and packaging, allowing for the rapid and efficient introduction of new products.
Another such process that is also finding much popularity in India is contract packaging, otherwise referred to as co-packing. Here, companies outsource their product packaging to third-party experts who can pack goods better to meet the needs of the market. It aligns with the emerging requirement of India for innovative and environmentally-friendly packaging.
Key Advantages of Contract Manufacturing
1. Scalability:
Indian businesses often face challenges when trying to scale up operations, especially during peak seasons or new product launches. Contract manufacturing provides the flexibility to quickly increase production without the need for additional infrastructure, ensuring that companies can meet market demand without delay.
2. Cost Efficiency:
In the Indian F&B sector, manufacturing facilities investment in SMEs is quite costlier. With contract manufacturing, these businesses do not incur those capital costs; hence they would have enough resources to pursue growth of the brand and products portfolio.
3. Innovation and R&D:
The Indian market is constantly evolving, with consumers seeking healthier, plant-based, and organic options. By outsourcing production, businesses can dedicate more resources to research and development (R&D) and stay ahead of market trends. Contract manufacturing allows companies to innovate without the burden of managing production in-house.
4. Speed to Market:
In a competitive market like India, speed is crucial. Contract manufacturing allows companies to get products to market sooner by leveraging the existing infrastructure of third-party manufacturers. This is particularly useful when launching new product lines or entering new markets.
Examples of Contract Manufacturing in India
There are several Indian F&B companies already leveraging contract manufacturing to their advantage. One example is Haldiram's, India's leading snack brand, that utilizes contract manufacturers to expand its scale of production and to keep pace with growing demand both at home and overseas. That way, it can expand without heavy investments in manufacturing facilities.
This market is the ready-to-eat meal segment where MTR Foods and ITC are using contract manufacturers to fulfill the high demand for convenience foods. The advantage of using a contract manufacturer has helped such companies introduce new products rapidly as well as increase their presence in the market.
The use of technology in contract manufacturing
To fully reap the benefits of contract manufacturing, businesses need to adopt advanced technologies like enterprise resource planning (ERP) systems. ERP solutions designed specifically for the F&B industry can help manage production schedules, inventory, and quality control, ensuring smooth coordination between businesses and their manufacturing partners. These systems also provide real-time visibility, helping companies make informed, data-driven decisions.
Conclusion
Contract manufacturing is an effective strategy for Indian F&B businesses to scale efficiently, reduce costs, and focus on innovation. Outsourcing production enables companies to respond to market demand while staying flexible and profitable. Businesses looking to grow in India's dynamic food industry can prove their way to efficiency and competitiveness through contract manufacturing.