Vertically-integrated US brands leverage in-house manufacturing amid tariff uncertainty
The last few years have seen a rise in vertically integrated food and beverage startups.
Over the past few years, companies that have raised funding to fuel in-house production include the California-based Ugly Co., which upcycles and packages dried fruits. Others in the food space include Egglife and Voyage Foods. These models provide supply chain advantages and control over production, but they’re also capital-intensive. That investment is paying off as retail companies face tariff challenges, according to vertically integrated companies that spoke to Modern Retail. At a time when many brands are worried about the state of overseas production or the reliance on co-packers, having more control over one’s supply chain is as vital as ever. While this model has its own challenges — including high upfront costs and sourcing raw material first-hand — it can also be an advantage.
The upfront and operational expenses for an owner-operated facility varies widely, depending on the product, necessary machinery and its location, which impacts labor costs. For instance, sparkling water system brand Aerflo closed a $10 million round in 2024 to build out its facility. Vertically-integrated pet food startup Spot & Tango spent $20 million in 2022 to open its manufacturing facility.
Strength in nimbleness
Yogurt snack brand Clio operates its own 80,000-square-foot facility in New Jersey, where the company makes its products in-house, including the chocolate used for dipping its yogurt bars. The company employs over 100 people, with the facility making 70 million bars last year. “In 2025 we’ll make about 120 million bars,” McGuckin CEO John McGuckin told Modern Retail.
McGuckin went on to say that, as the company expands rapidly into national retail chains, nimble manufacturing is a major advantage in getting orders out on time.
“Vertical integration is critical to Clio’s business,” McGuckin said. “It allows us to ensure consistent high-quality standards across all aspects of production.” It also optimizes inventory and forecasting, to enable on-time and in-full fulfillment. He added that, in addition, vertical integration fuels innovation and allows for rapid speed to market. “It promotes in-house R&D expertise and strengthens our organizational knowledge,” McGuckin said.
Clio’s end-to-end manufacturing model is also a key factor in international expansion. McGuckin said that, due to the yogurt bar’s virality on social media, Clio just began exporting its hero product to China, facilitated through an Australian-based exporter.
“We’re now in 500 locations in Canada,” he added. “And Sam’s Club just took us across the border into Mexico.” McGuckin said this type of distribution would be difficult to execute, and would take much longer, when working with a third-party co-manufacturer.
Control over the manufacturing process can also make scaling quicker when needed. As carbonated water maker Aerflo showed, its recent price drop was largely due to the company’s ability to find efficiencies and scale up production.
A way to futureproof the company
In 2022, pet food brand Spot & Tango opened its Pennsylvania facility, a $20 million investment for the direct-to-consumer brand. The endeavor was funded with the company’s combined $51.75 million the company raised up to that point.
Spot & Tango co-founder Russell Breuer said the decision to take the plunge was informed by the brand’s Covid-era supply chain challenges.
Now, with ongoing concerns over tariffs, Breuer said the company is able to confidently promise customers there will be no price hikes on their subscriptions. Per a marketing email the brand sent out in recent weeks, the company cited its facility and U.S.-sourced ingredients as the reason. “Because we make UnKibble at our own facility in Allentown, Pennsylvania, we’re not impacted by recent import tariffs,” the message read. “That means no price hikes, no surprises — just the same nutritious, high-quality food your dog loves, at a fair and steady price.”
“It’s a huge competitive moat,” Breuer explained. “We’re able to produce at scale consistently and mitigate any supply chain hiccups.”
With so much on the line, brands that own their own manufacturing and fulfillment facilities say they’re better positioned to pivot when challenges hit.
Massachusetts-based cookie brand Fancypants Baking Co. started out as a bakery supplier, and in 2024, it launched its own branded line. Fancypants founder and CEO Maura Duggan said the company’s established operation helped set it up for rapid national expansion in recent months. It launched at The Fresh Market in February, followed by Costco Northeast in March, followed by Whole Foods’ mid-Atlantic region in April.
Duggan said the model also gives Fancypants other opportunities to diversify revenue streams if demand for its branded line is low. “Having our own facilities means we have to keep it running at all times,” Duggan explained. “So as a co-manufacturer for private labels and other brands, we’re always looking for different avenues for sale.”
That capability can give the company an upperhand, especially when considering that many customers turn to store brands to save on groceries. “If we were to see a shift to private labels, it’s fine, because we manufacture some of those, too,” she said. “That’s meeting customers and retailers on all fronts.”
With the risk that comes with being owner-operated, brands have to make the most out of their investment. For those that already have vertical integration in place, the latest tariff-induced headwinds are a bit easier to face.
“A lot of brands now wish or want their own production facility, but they’re still beholden to third parties,” Breuer said, noting that often comes with unpredictability and supply chain risk. “We made a proactive decision to move in this direction to future-proof our company.”