What is OEM means in the Beverage Industry? Pros & cons of it

OEM has become an everyday norm on the Internet in recent years. OEM products have become standard in many industries such as IT, automobiles, mobile phones, etc.

Besides, we saw a stable growth rate in the beverage industry. Therefore, to have a  good overview of beverage OEM and take its advantages, it is definitely essential to know what it is, how it works, etc.

The article will help you get a comprehensive definition of OEM in the beverage industry nowadays.

What is OEM means? What does OEM stand for

According to Investopedia, OEM (standing for an Original Equipment Manufacturer) is traditionally defined as a company whose goods are used as components in another company’s products, which then sells the finished item to users.
In the beverage industry, OEMs typically sell their products in a B2B (Business to Business) market. They cooperate with other firms, usually as a manufacturer, packaging designer, etc. The other company will mark the product up and resell it to final users with some kind of value-added.

According to Business Wire, the 2018 global beverage market is evaluated at US 1,544.61 billion. It is projected to increase at a 3.1% CAGR to reach a market size of US$1,854.589 billion by the year 2024. Those figures illustrate the potential future of the drink industry in the coming years.

As a result, it is easily understood that there is a growing trend of OEM in the F&B industry.

Differences between OEM and ODM

With the rapid increase in new types of international business, OEM and ODM are considered emerging formats welcomingly received by investors in recent years.

On Alibaba.com and other e-commerce sites, customers commonly notice that suppliers claim to offer ‘OEM service’ and ‘ODM products. Both the terms ODM and OEM are related to the manufacturing industry, and they sound very similar. Still, there is a fundamental difference between them.

As the name of each type, ODM stands for Original Design Manufacturing, and OEM refers to Original Equipment Manufacturing.

Additionally, OEM refers to a company producing products on behalf of another company. The purchasing company then markets the product under its own brand name. In contrast, an ODM takes responsibility for designing a product as per another company’s specifications.

OEM in the Beverage Industry

From the previous sections, you’ve learned about the basics of OEM. OEMs in the beverage industry are not very different. Beverage OEMs basically take advantage of good local fruit ingredient sources, sourcing trusted partners to develop high-quality drinks at competitive prices.
In simpler terms, beverage OEMs are suppliers who meet various partners’ needs, including beverage formulation, raw material purchasing, beverage manufacturing, and packaging.
Thanks to these high specializations, the business process will be optimized.

For example, company A makes a request for its packaging design (private label) to Tan Do. We’ll incorporate it into the drinks and export drinks back to A. In this case, Tan Do is the OEM.

Pros and cons of OEM in the beverage industry

The following pros and cons are analyzed from the view of the OEMs and their partners.

1. Pros

With the characteristics of OEM analyzed, an OEM relationship possibly provides a very effective route to market and increase sales, for example:

• Access to new markets such as geographic or industry sectors. Wide international trade has created a chance for firms to penetrate and do their own business in many regions across their boundary.

• Assembly or integration into a complete solution that might be impossible for the vendor. The specialization allows both manufacturers and exporters to minimize costs and keep prices down without lowering product quality.

Cost reduction – one of the most outstanding advantages of OEM

• Resources such as brand, marketing resources, sales resources, working capital, physical distribution, or manufacturing assets are essential to the end-customers. These activities are being proceeded only by OEM partners – large manufacturers and distributors.

2. Cons

• The principal may insist on product improvements driven by inner perspectives, rather than market requirements. As a result, the drinks’ quality depends on OEMs who take all responsibility for the manufacturing process. This might definitely lead to supplier-customer conflict.

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• The ultimate problem is the lack of product perception or sales enablement as a consequence of suppliers not directly involving in the production. Hence, their sales departure cannot significantly understand 5W product questions such as what, why, what, where, and when.

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• Exclusivity stops the OEM from understanding the end customer and implementing product improvements to suit real market requirements. Whereas specialization helps us minimize unnecessary costs and increase productivity, manufacturers will find it more challenging to approach and satisfy final customers.

OEM’s upcoming trends in the beverage industry

According to Business Wire, the private-label Food and Beverage Market in the US will accelerate at a CAGR of almost 4% through 2020-2024. The report offers an up-to-minute analysis regarding the current market scenario, the latest trends and drivers, and the overall market environment.

From Technician, the global private label food and beverages market size will likely grow by USD 215.81 billion during 2020-2024. It means a clear potential for sales in private beverage labels, which creates chances for OEMs to expand markets worldwide. If you want to start a beverage company, this is a good opportunity.

A product line extension is one of the key factors driving the market growth. In addition, consuming premium brand trends are contributing to OEM development nowadays.

Summary

OEM (Original Equipment Manufacturer) recently has been one of the leading trends in beverage manufacturing. Taking its advantages can help entrepreneurs, companies, or firms to work efficiently in their fields.

Understanding the OEMs meaning clearly is to make use of its benefits, invest in, and develop the OEM beverage industry.

Tan Do Beverage is a credible beverage manufacturer based in Vietnam. We offer a full suite of OEM beverage manufacturing services.

We can provide one-stop services to your beverage brands:

• Formulation development: We have experience developing 600+ beverage recipes, across 9 product lines for over 200 companies.
• Diverse packaging: We offer many different sizes of aluminum cans, PET bottles and glass bottles.
• Exotic beverages: We specialize in producing many types of tropical fruit juices, as well as novelty functional drinks like basil seed drinks, aloe vera drinks and other sodas.
• Low MOQ: For each beverage flavor, we only require at most 1000 cases to start production.
• Flexible pricing: Our production service can be priced based on the client brand’s needs. We offer affordable products up to the most premium options

You can download our OEM catalog to find a suitable service for your brand.