Are Clean-Label Demands Raising the Cost of Contract Manufacturing?

Jun 13, 2018

As clean-label consumer demands increase across every aisle of the grocery and natural products store, supplement brands are expanding their portfolios to offer everything from whole-food supplements and non-GMO offerings to organic options and more. And, as many brands choose to work with contract manufacturers to meet these specialized demands, these trends have started to impact the outsourcing industry, as well. According to many industry experts, clean label and, by extension, an increased focus on transparency, are the main catalysts for change today. Though these are certainly positive changes for the industry and consumers’ health, with these changes come new challenges.

“Everybody wants a product with no filler or flow agents, that’s non-GMO and organic,” says Vincent Tricarico, vice president of sales at NutraScience Labs (Farmingdale, NY). 

The challenge, he says, is that many brands are also looking for the same lead times and costs from their contract manufacturers as before, despite the fact that new testing and certifications required to meet non-GMO and other clean-label claims increase both. As a result of this, one of the biggest challenges that NutraScience Labs and its peers face is trying to find the balance between managing these increased specifications without dramatically increasing costs and lead times. 


High Costs

The increased costs that contract manufacturers face are partially a result of consumer demands for certifications they recognize, like non-GMO and USDA Organic. Plus, says Tricarico, ingredient suppliers are refining and condensing their practices, which results in a higher-quality raw material, but less of it, which further impacts costs. Add to this rising minimum wages nationwide, and the expenses add up. But perhaps the biggest contributor to rising costs is the fact that testing is becoming a much bigger part of a contract manufacturer’s job overall.

First, explains Steve Holtby, president and CEO of Soft Gel Technologies Inc. (Los Angeles, CA), raw-ingredient suppliers are not held to the same regulatory standards as dietary supplement manufacturers. “For example, it’s common for distributors of raw ingredients to not perform all the necessary testing needed,” he says. In this case, contract manufacturers like Soft Gel Technologies pick up the tab for testing, including standard analysis on the finished product but also extensive testing on raw materials for identity, potency, and contaminants.

“The question is, how much responsibility should contract manufacturers assume for testing?” he says. “Some contract manufacturers still rely almost solely on raw-material suppliers’ stated results on a certificate of analysis.” For Holtby and others, this isn’t enough. In his view, it is vital that contract manufacturers develop their own testing protocols and qualify each individual batch of raw materials themselves, especially since they carry the biggest chunk of end-product responsibility. Of course, this increases costs.

In addition to the fact that more testing is required overall, contract manufacturers also face pressure to invest in expensive state-of-the-art testing like DNA analysis, says Shaheen Majeed, president of Sabinsa  Worldwide (East Windsor, NJ)—methods often employed to verify the source of natural raw materials. 

According to Robin Koon, executive vice president at Best Formulations (City of Industry, CA), the rise in costs related to testing started almost 10 years ago when the FDA implemented mandatory Good Manufacturing Practices for dietary supplements. Today, “most mature manufacturers and brands already have these processes and costs factored into their product,” she says. “With that being said, the regulatory environment continues to change, which adds more work and compliance; therefore, additional costs will follow.”


Higher Value

The truth of the matter is that contract manufacturers are responding to the cost issue not by trying to cut corners, but by offering unmatched value. 

If you ask John Altenberg, vice president of sales at Vit-Best Nutrition (Tustin, CA), all these added complexities and costs present not a challenge but a solution, all standing to position the contract manufacturer as “a more critical partner to the brand owner,” he says. “After all, the processes put in place by the contract manufacturer are what the brand owner relies upon to validate the efficacy of the product.” 

Indeed, many contract manufacturers are going beyond the basics to provide value.