Owning Production Can Be a Smarter Bet for CPG Founders

While CPG founders have frequently been advised to rent production facilities due to lower initial capital requirements and faster scalability, owning an in-house manufacturing operation can offer significant strategic and financial advantages in the long run.

In past decades, many new consumer brands opted to rent production capacity from third-party manufacturers. This was facilitated by the growth of private-label facilities in North America willing to rent out excess line time. While renting reduces upfront capital needs and allows for rapid scaling within certain limits, it can constrain a brand's control over production costs, capacity, and its overall long-term strategic direction.

Historically, many market-leading grocery brands, such as Campbell's, Jell-O, and Nabisco, were established with their own manufacturing capabilities. The trend toward self-manufacturing has seen a resurgence in recent years. U.S. Census Bureau data indicates a consistent annual growth in the number of CPG manufacturing companies, particularly in the food sector, since 2019.

Owning production provides companies with early control over their Cost of Goods Sold (COGS). This enables the creation of a more profitable business model from an earlier stage, even with modest revenues. It eliminates the need to pay external manufacturing markups and reduces reliance on high minimum order quantities. Furthermore, it allows for greater control over ingredient sourcing and pricing tailored to the company's specific needs.

By compressing COGS through in-house manufacturing, companies can position their products more competitively, potentially at premium prices significantly above category averages. This can accelerate sell-through velocity and reduce the need for extensive marketing investment, thereby strengthening the company's financial foundation.