U.S. CPG manufacturers are sitting on excess capacity, which could be a boon for brands

"Results showed that one major theme they're grappling with is significant overcapacity: About 1 in 10 factories is running more than half-empty, and about 1 in 3 has at least 31% of its production capacity unused."

"“You have more machinery and more people available to run it, but very few factories are running 24/7. Most are running one to one-and-a-half shifts a day,” said Keychain CEO and founder Oisin Hanrahan."

"Hanrahan said it's partly a result of investments made six to eight years ago, when manufacturers took advantage of 0% interest rates and tax breaks to build out their products. Then Covid-19 arrived, disrupting overseas options and consumer behavior. Hanrahan said that time led manufacturers to invest in more capacity to meet forecasted demand."

"For brands, excess capacity means a moment of leverage, such as obtaining lower minimum order quantities or becoming more competitive on pricing. This means it's a ripe time for CPG startups, Hanrahan said. “If manufacturers were super busy, you wouldn't see so many new brands getting started because they simply couldn't get made,” he said."

U.S. CPG manufacturers hold excess production capacity that can support new brand growth. A survey of over 1,000 manufacturers found about 1 in 10 factories run more than half-empty and about 1 in 3 have at least 31% of capacity unused. Many factories operate one to one-and-a-half shifts per day rather than 24/7. The overcapacity stems partly from investments made six to eight years ago during 0% interest rates and tax breaks, followed by COVID-19 disruptions that changed demand forecasts. As demand shifted, machines built earlier began arriving later. For brands, excess capacity can provide leverage through lower minimum order quantities and improved pricing competitiveness. Manufacturers that added capacity are more likely to expect strong revenue growth.

Read at Digiday