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

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

In the food and beverage industry, product recalls can be a costly and complex challenge, ranging from immediate costs like removing products from the market to long-term expenses, such as decontaminating manufacturing facilities. Identifying the cause of contamination, fixing failure points, and repairing consumer trust can take months. Companies must balance protecting customers with protecting their brand and profitability.

In this case, we’ll look at a recall involving PC Black Label Lemon & Ginger Sicilian Soda and how proper planning can help companies mitigate the impact of product recalls.

“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 Safety System Work?

In Canada, food manufacturers must ensure their products are safe for consumption. The Canadian Food Inspection Agency (CFIA) is responsible for enforcing federal food safety standards for both domestic and imported products. While Canada has a strong food safety system, risks cannot be entirely eliminated. When unsafe food enters the market, the CFIA works with the manufacturer to notify the public and remove the product from circulation (Government of Canada, 2021).

Consumers can protect themselves by practicing proper food handling and staying informed about food recalls and allergen warnings. However, most consumers expect that products like beer, soda, and other packaged goods are shelf-stable and safe to store at room temperature. It is ultimately the manufacturer’s responsibility to ensure that their products meet these expectations without posing risks to consumers.

On average, the CFIA receives 2,225 consumer notifications related to food safety concerns and oversees approximately 440 food recalls annually. The goal of each food safety investigation is to determine if a hazard exists, assess its scope, and take action to mitigate any potential risks to the public (Government of Canada, 2021).

Why Was There a Recall?

The recall occurred due to the discovery of extraneous glass fragments in PC brand Lemon & Ginger Sicilian Soda, prompting Loblaw to remove the product from stores across Canada. The affected soda was packaged in four-packs of 200-ml bottles with a best before date of September 24, 2023. Thankfully, as of the recall, no injuries have been reported in connection with the product, according to the Canadian Food Inspection Agency (CFIA) (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, whether they are cans or glass bottles, are a frequent issue in bottling and packaging plants. Several factors can contribute to breakages, including mechanical stress, improper handling, or defective materials. To prevent such issues, in-line sensors can be used to monitor and measure the mechanical forces exerted on containers. Identifying and addressing these sources of damage can reduce downtime, increase operational efficiency, and lower overall costs in the production process (Bonakis, 2019).

How to Prevent Packaging Materials from Contaminating the Product

HACCP

Contamination in packaging can pose serious risks, but these can be minimized through the implementation of Hazard Analysis and Critical Control Points (HACCP) and maintaining accurate packaging logs. HACCP is a scientific and methodical approach designed to detect, assess, and manage food safety hazards across the entire production chain—from raw materials to the finished product. There are three primary types of hazards HACCP addresses: biological, chemical, and physical (Master Brewers Association of Americas, n.d.).

• Biological Hazards: Microorganisms, such as bacteria, viruses, yeasts, molds, and parasites, that can cause foodborne illnesses, like Salmonella.
• Chemical Hazards: Toxic substances or chemical agents that render food unsafe for consumption.
• Physical Hazards: Foreign objects like broken glass that could cause injury when consumed, and are common concerns in packaging operations.

A successful HACCP program follows three essential steps:

1. Identify the Hazard: In this case, focus on how glass could potentially enter the product.
2. Implement Preventative Measures: Create safeguards to avoid contamination.
3. Establish Action Plans: Set protocols for what to do if contamination occurs.

In a bottling line, here are some practical ways to prevent glass contamination:

• Store empty glass bottles in a separate area, away from production zones.
• Inspect all glass bottles before they enter the bottling machine to catch any pre-existing shards or damage.
• Install protective shielding to contain broken glass in case of bottle breakage.
• If a bottle breaks during production, follow a strict protocol: stop the machine, remove the broken glass, and isolate any nearby filled bottles.

By incorporating these preventive measures, bottling facilities can monitor and mitigate contamination risks, ensuring the product remains safe for consumers.

The Importance of Detailed Packaging Logs

Maintaining comprehensive packaging logs is essential for improving line efficiency and identifying issues before they escalate into major problems. Detailed logs help track both current and historical data, enabling manufacturers to pinpoint when additional maintenance or upgrades may be required. The first step in optimizing your packaging line is to track key metrics like liters or cases processed within specific time frames, focusing on startup, filling, and shutdown stages.

A typical packaging run should have a standard duration. Any increases in time at any stage—whether it’s during setup, filling, or shutdown—can indicate more significant problems lurking beneath the surface. Longer run times are a direct indicator that maintenance or repairs are overdue. The higher these numbers climb, the more inefficiencies the line will experience as a whole.

By analyzing this data, you can evaluate the condition of individual machines for wear and tear and perform routine maintenance as recommended by the equipment's original manufacturer. Broken bottles count as downtime—the more frequently they occur, the more time operators will need to stop the line, clean up broken glass, and resume production. Identifying the patterns in these breakdowns can help you adjust maintenance schedules to avoid bottlenecks, reduce downtime, and ensure smoother operations.

Who is Responsible for Cleaning Up a Product Recall?

In the case of the PC® Lemon & Ginger Sicilian Soda, the initial complaint came from a consumer—an unfavorable scenario for any manufacturer. At this point, it becomes challenging to assess how much of the affected product remains in circulation and how many consumers have already opened it. Ideally, defects should be detected early in the supply chain to minimize the costs associated with a recall. Disposing of a defective batch within the factory is far cheaper than addressing the downstream packaging, shipping, and replacement expenses tied to retailers and customers.

 Figure 1 - Basic Traceability Requirements

While Loblaw Companies Ltd is responsible for the recall of the defective Sicilian Lemonade bottles, they may not necessarily be at fault. Implementing HACCP programs and following Good Manufacturing Practices (GMP) are essential strategies for minimizing risks during production. However, complications arise when another company is contracted to manufacture the product.

Loblaw and Weston Foods (which produces Wonder Bread, Country Harvest, and Ace Bakeries) share the same parent company, George Weston Limited. Still, it is impractical for Weston Foods to manufacture all the products Loblaw retails. It makes sense for bakery items to have production ties within the company due to low margins and short shelf life. However, controlling bottling plants, dairies, pickle canneries, and other production facilities for all products would be challenging. Therefore, it is often more efficient for Loblaw to contract with external facilities that already have the necessary equipment and staff in place.

These contracted services allow one company to outsource its production needs to another firm. In the brewing industry, this practice is known as contract brewing, though contract canning and other co-packing services are also common across the food and beverage sector. The most basic version of this agreement involves leasing extra production capacity from another corporation.

The appeal of this business model lies in its advantages, particularly for reducing capital costs and accessing new markets. Co-packing enables brands to enter new territories with their products while the contracted co-packer provides the equipment, technical know-how, and production capabilities needed to develop these products efficiently.

Table 1 - Advantages & Disadvantages of Contract Brewing

When negotiating the production of a product like Sicilian Lemonade, which is declared an Italian product, companies typically explore several types of production agreements, each with varying degrees of involvement and responsibility for both parties. Below are the four main types of agreements used in such cases: Traditional Contract Production, Nomadic Production, Distribution Rights, and Collaboration.

Four Common Types of Production Agreements for Contract Brewing and Co-Packing

Traditional Contract Production

In this model, the Client—in this case, the brand owner—assigns production control of the product to another company, often a contractor brewery or bottler. The contractor oversees the entire production process, including record-keeping, labeling, obtaining the necessary certifications, and handling taxes when the product leaves their facility. This method is particularly relevant in controlled substance industries, such as beer, wine, or spirits, where taxes and certifications are heavily regulated. In other food industries, taxes may be applied at the point of sale or when crossing international borders. The contractor’s primary responsibility is to meet the Client's specifications to ensure the product matches the brand’s vision and standards.

Nomadic Production

Nomadic brewers don’t own their brewing or production facilities. Instead, they visit another facility, such as a brewery or bottling plant, and pay to use the premises for a specific batch or product. This model is highly flexible and often utilized by smaller brands or those wanting to experiment without investing in physical infrastructure. The nomadic model allows a brand to produce niche products quickly, taking advantage of local market trends. However, if a product fails to meet market expectations, the nomad can easily shift to a new product or location without significant losses (Bell, 2016).

Distribution Rights

In the case of distribution rights, the agreement allows one party to sell a specific brand in designated regions or countries. In brewing and food industries, this model often involves a contract between the brand owner and a local distributor. The distributor is responsible for selling, delivering, and providing customer service for the product in their assigned area. Sometimes, the distributor also handles manufacturing according to the brand's specifications, making this a common model for multinational brands. For example, a brand like Sicilian Lemonade could be produced in Italy but distributed in other countries by local manufacturers under distribution rights (Shumway, n.d.).

Collaboration

Collaborations are increasingly common in craft brewing but also apply to other food and beverage sectors. In this arrangement, two or more companies work together to create a new product. The collaboration typically leverages the strengths of each partner, with one party focusing on production and the other on marketing or distribution. Often, the host facility handles most of the production and distribution. While revenue from the product is shared, money doesn’t always change hands between the partners, as costs are often covered by the party selling the product (Pomranz, 2017).

The Essentials of a Contract Agreement

When setting up a contract brewing or co-packing arrangement, a few key concepts must be clearly outlined to ensure both parties understand their roles and responsibilities. At its core, the agreement must define who is responsible for what. A more detailed contract should include a breakdown of materials, labor, responsibilities, and duties. It's important to review this with legal assistance to ensure that all parties are protected. Essential elements to include are:

• Start Date
• Contract Length
• Details of Items and Services
• Prices
• Payment Terms
• Mailing Addresses
• Corporate Seals (Signatures)

In the case of our lemonade recall, the contract should clarify what happens if there is a recall. Does the manufacturer bear the responsibility for the defect, or does Loblaws? A large-scale recall can strain long-term production relationships, so it’s crucial to establish these terms upfront. Having specific conditions in place also enables the appropriate liability insurance to be purchased, protecting both parties.

Should recalls become frequent, insurance premiums will likely rise due to repeated claims. This creates a strong incentive for the producer to follow Good Manufacturing Practices (GMP) and implement HACCP or similar quality control programs to minimize these risks.

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].