Commercial Kitchens vs. Co-Manufacturing: What’s Best for My CPG Brand?

Wondering if a commercial kitchen or co-manufacturing is right for your CPG brand? Let’s explore your options and recap our AMA with Amped Kitchens!

The Startup CPG community was lucky enough to have Mott Smith from Amped Kitchens join us for an Ask Me Anything session – the perfect opportunity for brands seeking commercial kitchen space to get their questions answered in real time. Amped Kitchens rents commercial kitchens built for scale, quality, and speed to market. They offer permit-ready, private commercial kitchen spaces in Chicago and Los Angeles. 

For any questions or to tour a facility in LA or CHI, reach out to Mott Smith on our Slack channel or contact leasing@ampedkitchens.com.

What Kinds of Products are Best for Commercial Kitchens vs. Co-Manufacturers?

Is your product fairly standard, or is it specialized? Co-mans can be great solutions for products that are common in the marketplace and don’t require special ingredients, processing, or packaging – and that are manufacturing at some scale. Specialized brands may want to look at the commercial kitchen route (i.e., self-manufacturing) as a better option.

Who can best support your margins – a co-man or a commercial kitchen, and what might my costs look like?

At the entry level, an hourly kitchen with equipment for part-time use will likely cost around $1,000-$1,500/month. A full-time kitchen with no equipment will likely cost a bit more — starting around $2,500 /month plus utilities in most cases. The cost can go well above $10,000/month for much larger spaces. It all depends on your brand’s needs. 

It’s helpful to compare the cost of self-manufacturing to co-manufacturing in a few key areas: startup costs, minimum order costs, and unit costs. Amped Kitchens has found that when you’re selling less than $5 million of a particular SKU, and the product is innovative (including specialized ingredients, processing, or packaging), producing in a commercial kitchen is often a better deal than using a co-manufacturer. Generally, but not always, co-mans start to become more efficient once your brand has passed the $5 million in annual sales level. Sometimes sooner, sometimes later, sometimes never. It all depends!

Speaking of Specialized Products: Commercial Kitchens and Cannabis – How Do They Work?

You may be surprised to learn that cannabis is still not considered to be a food additive — even where it’s legal. Because of this, it’s hard to predict how regulators and commercial kitchens will treat cannabis.  You have to research the informal practices among the particular regulators and kitchen providers in your area. Your best bet is to connect with your local health department and speak to an inspector. If you have the green light from the health department, you are more likely to get it from commercial kitchens. Better safe than sorry!

What Factors Should I Consider When Seeking Out Commercial Kitchen Space, and What Affects Pricing?

First, define your needs. One rule of thumb is that your rent should be about 10-12% of gross income, and that’s a good place to start.  If you hit your revenue targets for the next year, will your rent end up bring below 12% or so? . If you’re pre-revenue or growing, look to make a projection for where you can realistically expect to be revenue-wise in the next year or so to accurately weigh your costs. 

Here are some other things to consider:

• Quality – is the space clean? Is there onsite management and maintenance? Talk to your local health departments – inspectors will often have inside information on which spaces are high quality and which ones are not. It’s worth getting their insight before making a commitment.
• Permitting and certification compatibility – Can your space handle retail/direct to consumer, wholesale, SQF, USDA, allergen-free, kosher, etc., and are their building systems well maintained? Note: while all three of Amped Kitchens’ locations have USDA offices, and are designed primarily for wholesale CPG, be sure to check with your space regarding their suitability for USDA inspections. This is must know info for your brand to stay compliant!
• Hourly (part-time) vs. full-time occupancy – self-explanatory, we hope! Also consider if you want to have a space dedicated solely to your brand, or if you’re OK sharing space with other brands.
• Equipment – will the space come equipped, and what does it include? Will you need to bring in any of your own equipment? Make sure you have an equipment list before you occupy a space so you can ensure the electric, plumbing and HVAC are compatible.  Make sure you’ll minimize the chances your production stalls out at the starting line or you’ll get hit with unexpected costs..
• Storage – how many shelves or pallet spaces will you need?  Be sure there’s enough dry, cold and frozen space for your in-process production. 
• Amenity space – is there onsite loading? Storage? Locker rooms? Office space? Is it set up for truck delivery, or just cars? 
• Services/staffing – is there an onsite support team to help with logistics and maintenance, or are you on your own?
• Surcharges – some ghost kitchens charge a percentage of sales in addition to rent (Amped does not do this!), so you’ll want to know this ahead of time and avoid any surprises.
• Size and location – Does the location make sense for your brand and team?  If you’re delivering on the apps, being close to customers is important.  If you’re shipping on pallets, though, you might care more about being close to industrial hubs and where you workers live. 

How Much Space Will I Need?

Less than you think! If your commercial kitchen offers amenity spaces outside the private kitchens (like Amped does) you might only need a room that’s 20-30% the size of what you’d need in a stand-alone facility.  In other words, as long as there are locker rooms, loading docks, warehouse space, etc., a brand coming from a 1,500-SF standalone facility might need just a 300-500 SF kitchen to be well served. 

To determine how much space you’ll need for your kitchen, take these factors into consideration:

• Equipment/workflow – while it may seem obvious, this is the most important, and should not be overlooked. If you have equipment, you need room for it! Ask yourself (and your kitchen provider) these questions: How much space do you need for your equipment, considering how it must be laid out for optimal function?  How many lineal feet must go under a hood, and does the room have enough hood space? How much space will you need to move around equipment during your manufacturing process? Keep in mind: some equipment vendors (like Zepole Supply Company) will often help lay out your space as part of an equipment purchase proposal.
• Staffing – how many people will be on shift at any given time? A good rule of thumb is 40-50 square feet per person, but this can vary depending on your process and workflow.
• Storage – how much “in process” storage will you need? Think about how much space you’ll want to dedicate to in-room pantries, refrigerators and freezers, and more.
• Packing, Shipping and Amenity Spaces – when searching for commercial kitchen spaces, don’t forget to ask about packing and shipping space – do they offer this outside of the kitchen space, or will you need to accommodate it inside your kitchen? If you need to plan for it in your space, make a checklist and start with items like tables, sealers, label machines, etc.

I’d like to find a commercial kitchen, but I’m not in Chicago or Los Angeles – where do you recommend I look?

The Kitchen Door is a great resource to find local commercial kitchens outside of Chicago and Los Angeles.

What’s it going to be for your brand? Commercial kitchen or co-manufacturing? If you find a great space or co-manufacturer, be sure to share your experience in our Slack channel – our community is always on the lookout for great resources!