What’s With All The Secrecy About The Relationship Between Beauty Manufacturers And Brands?

Traditionally in the beauty industry, brands have kept their contract manufacturers under wraps and vice versa, and the main tool to enforce secrecy has been a non-disclosure agreement.

There are reasons to believe that greater candidness is creeping into the relationship between contract manufacturers and brands, including the Modernization of Cosmetics Regulation Act of 2022 (MoCRA), which requires brands to register their manufacturing facilities, although it has an exemption for those that generated less than $1 million in the last three years, and consumer interest in openness.

In light of the shifting regulatory environment and contemporary consumer preferences, we were wondering what contract manufacturers thought about the role NDAs play today and the possibility of increased transparency in the relationship between brands and manufacturers.

So, for the latest edition of our ongoing series posing question relevant to indie beauty, we asked 12 of them the following questions: What’s the importance of an NDA between a manufacturer and a brand to both parties? Are there ways you think these agreements should evolve? Do you think brands should be more open about the contract manufacturers that work on their goods? What are the advantages and disadvantages of more transparency? 

MEGAN COX Founder, Genie Supply

I refused to sign NDAs any until sometime in 2019 when I realized that my viewpoint was not shared by many and was holding back my business. My opinion has always been that, to the extent that NDAs exist to keep relationships private, I believe they’re more harmful than helpful. Let’s explore why.

For formulations, I can understand having an NDA in place before sending a formula to a manufacturer so that they do not misuse your IP. This makes sense as brands work hard on their formulas and spend a lot to own them.

However, just discussing a concept rarely requires an NDA. We hear so many ideas every day, and although I can understand the need to preserve a first mover advantage, how often is a brand truly a first mover? Success in the beauty industry requires a perfect blend of idea, market fit and execution. Ideas are worth little to nothing, execution is everything.

Finally, given the difficulty of patenting formulations and the cost of trademarking specialty blends, there’s rarely legally protected information being shared. If a brand approached us to reverse engineer something, we reasonably could, although we’d put a new twist on it, of course to avoid infringement—and that’s enough.

Most brands don’t have the reserves to fight battles every day in court that they might not win about brands “copying” their concepts. I may be saying the quiet part out loud here, but that’s what I’m good at.

My honest take that is asking for ironclad NDAs in this day and age in the beauty makes no sense. Brands are becoming extremely picky with who they choose to work with. They feel proud of the attributes of the lab they work with and want to pass those down through their brand. Why not share with the world? A few are.

The rest may be stuck in a past mindset, perhaps freeze mode, because of the way beauty content consumers have obsessively sleuthed and viciously tore brands apart for every minutiae before. They’re afraid that any misstep on their part or the manufacturers’ part might wreak havoc on their sales and/or supply chain, in a world that’s lost the capacity for nuance.

Those days might not quite be over, but the internet is slowly becoming a kinder place. If a brand works with a manufacturer that reflects their brand values, they should share it proudly.

I am hopeful that MoCRA changes and brand/manufacturer registration requirements will bring necessary change in this department. Though brands must list with the FDA who they manufacture with, the FDA has said they will not disclose to the public. However, this one step may spur change in the mainstream thought process of disclosure, and I hope it does.

It will likely also continue to challenge brands’ line of thought around who they work with. Brands who champion domestic manufacturers with great values will be championed by their customers, and this can and will become the new norm.

It’s been an extremely expensive endeavor to be a manufacturer like us—domestic, women-owned, privately owned, women-led, with a purposely diverse majority LGBTQ and BIPOC team. We will rejoice in the day that our clients don’t just choose us in private, but proudly share our relationship with the world. Shout-out to the few brands who already have! We love you!

MATT UNGER President and Chief Commercial Officer, Cosmetic Solutions

We prefer mutual NDAs as they protect the intellectual property and trade secrets of both a trusted manufacturer and/or custom formulator such as Cosmetic Solutions and that of the brand, founder or company as well. It clearly defines what will be treated as confidential information and what may have existed before your relationship, or if the NDA is explicit to a project or topic, IP that existed before the discussion of that specific subject.

This industry thrives on the confidentiality of the topics we discuss. We hold the information a client or prospective client shares with us very dearly just as we value our confidential information and IP we offer.

We feel it’s very important that NDAs continue to become more straightforward, mutual in nature and focused on the benefits of sharing important information with an experienced manufacturer and custom formulator to develop an innovative new product.

When brands share more information upfront, it enhances their speed to market, the precision with which we can do our work and the focus we can provide to develop solutions with the strongest claims possible.

We do not see a drawback to more transparency. Innovation and the ability to share information freely between parties should be treated like open coding on the internet, something every brand, founder and company should experience and benefit from.

Tish Poling President and Chief Development Officer, International Products Group

Intellectual property is the most important asset on both the brand and vendor partner’s balance sheet. Creating an award-winning product is predicated on both parties exchanging proprietary information in a transparent, earnest fashion.

IPG always insists on executing a mutual NDA with potential customers as we want to intimately understand the brand’s strategy and vision and, conversely, we want to transparently discuss innovation, new technology and our strategy for creating exclusive formulations. IPG honors those NDAs and never publicly reveals our customers.

Importantly, we don’t believe the brand should ever feel obligated to disclose their lab/manufacturer. We firmly believe that the formulator and manufacturer should be the behind-the-scenes silent partner, and that the external media and public spotlight should always be on the brand.

However, many of our customers have generously referred IPG to other potential customers, which is gratifying. Our wonderful beauty industry is characterized by a spirit of collaboration and friendship, hence the much-appreciated referrals to IPG between founders, influencers, celebrities and retailers.

Mary Berry Founder and CEO, Cosmos Labs

NDAs protect the brands and any information that's passed from them to me. As a manufacturer, we get told ideas all the time. Someone will come in and be like, “We want to do this super fantastic mask that’s really different.” It’s important for me to keep that to myself. It’s not my property, it’s the property of the person who brought it to me.

On the manufacturer side, we make sure we remember that and assign the right intellectual property to the right person. We don’t turn around to someone else and say, “Oh, this person had a great idea for a mask.” That idea stays with that person.

If we're talking about ideas, anything that comes up during a conversation, I'm not going to tell anyone else. For brands, they have to make sure they understand the language of the NDA that they’re signing and what that means. As far as NDAs evolving, if there needs to be more clarification, then brands should be asking for it.

If they're not comfortable with manufacturers being open about working with them, I totally respect that. It just depends on the person. If they’re like, you’re my secret sauce, I totally get that, but the industry is only so big, so people know people, and I think that we start to understand the value of the manufacturers in the supply chain.

People have understood my value and the value of my team and what it will do for a brand. Back in the olden days, brands would rather die than let anyone know we did business together, but it’s become kind of a trend that it’s no big deal to let people know.

Jeffrey Martin Director of Marketing, Federal Package

As a contract manufacturer, we are glad to see that more brands are open to letting us share the fact that we do their production, especially since more than 50% of the products on beauty shelves are made by a manufacturer like us. At Federal Package, we also work with large household brands that want to maintain their anonymity.

As a manufacturer, we’re here to make product, so at the end of the day, if you want anonymity or you are willing to share your production partners, we’ll respect your wishes either way.

The NDA is a perfect device to help maintain the integrity of a formula that can literally be the “secret sauce” of a brand. When much of the identity of a product comes down to the recipe for formulation, it’s easy to see why brands can be so protective.

Similarly, contract manufacturers like Federal Package spend time and energy to develop and test stock formulations and look for the same type of protection over their property. A good NDA ultimately protects both parties.

When you think of an NDA as protection rather than a formality, it helps to provide peace of mind when you begin the manufacturing process. Then, the nature of an NDA could narrow or expand based on your relationship with your manufacturer.

We’ve seen a real change in attitudes toward contract manufacturing in the last several years. Using a contract manufacturer is no longer a deep secret in many cases. More brands are opening up about working with contract manufacturers and touting their expertise.

Being transparent about working with a contract manufacturer is great for us as the manufacturer. Similarly, sharing the fact that your product is produced by an experienced, diligent manufacturer should inspire greater confidence in your brand.

I expect that as more brands, businesses and consumers become savvier about how their products are created the more transparent brands will become about where their products are produced. Ultimately, this is a good thing for consumers who are demanding greater sustainability and accountability in the products they consume.

NOEL DUTCHER Business Development Director, Craft Beauty Lab

The NDA between a brand and a manufacturer is like the secret sauce of the beauty biz, and it's crucial for both parties. For brands, protecting their unique formulas is everything. It's like their secret recipe that sets them apart from the competition. Even if there's no official NDA in place, respect for a brand's formula should always be a given. Everyone's got to play fair, right?

As a turnkey lab/formulator/manufacturer, we're all about creating top-notch products from start to finish, especially working in the more natural or luxury ingredient realm. We're proud of the work we do and the quality of our formulas, and it'd be awesome to showcase our collaborations without giving those away.

But, at the end of the day, the formula is the brand's baby, and we've got to respect that. Whether or not there's an NDA in place, our employees know that privacy is paramount.

Now, here's the thing, some brands are super secretive about who they work with because they're afraid consumers will know they don't formulate or make their own stuff, but that’s kind of missing the point. Every brand has its own vibe and story, so it's not like one manufacturer can copy-paste another brand's success.

Plus, manufacturers can handle lots of clients at once, so there's no need to stress about scheduling conflicts. They're already working with tens, hundreds or thousands of other clients. It’s important clients find the manufacturer their brand can grow with, figure out where they want to be, and they'll end up with the best formulator/manufacturer for their brand. Other brands could then say, "Oh, I like the quality of products that this manufacturer puts out," instead of searching for a needle in a haystack.

Overall, I think we need to talk more about this stuff. Let's ditch the secrecy and embrace transparency. Brands should feel cool sharing their manufacturing partners, and manufacturers should get a chance to shine. It's all about building trust and helping brands make smart choices.

The use of an NDA between a brand and their chosen contract manufacturing partner is a very common practice. Every contract manufacturing group that I know of has their own NDA, and that document is often shared with a brand as a first step towards building a business relationship. This serves to protect both the brand and the contract manufacturer from future instances where a myriad of issues may arise.

Most agreements are boilerplate with the ability to make amendments at the request of either entity. Very rarely does this happen as most agreements are broad enough in scope to protect those involved.

I don't see the language or structure of these agreements changing much over time. What has changed, however, is how both brands and contract manufacturers are now being more open and transparent with their business relationships. I think that the fashion industry may serve as a model for how the relationship between brands and contract manufacturing groups has evolved over the last several years.

Consumers are increasingly aware of the role of contract manufacturing in the beauty, health and wellness space. Most folks realize that smaller or startup brands simply don't have the capacity to make their own products. They may come up with their own formulation, but need someone else to bring their products to market. Brands have started to be more vocal about who makes their products, where they are made and how they are made.

I think that this trend will continue as people continue to make choices for the good of humankind and the planet. Consumers want to be sure that the groups making their products provide safe, clean and modern facilities and amenities for their employees. Near-shoring is no longer a buzz term as brands look to have their products made closer to home to avoid the pitfalls of carbon emissions from trans-ocean shipping and concerns about labor treatment overseas.

MARIA OSORIO Director of Marketing and Product Development, Cosmetica

An NDA between a brand and a manufacturer is an essential tool to bring clarity and build trust. It helps both parties to protect sensitive information and maintain confidentiality throughout the partnership while fostering an open environment ideal for limitless collaboration.

I think these agreements should evolve at the same pace as the technology that is being used. There are some cybersecurity issues that might be more challenging today than what they were before. And, as technology evolves, intellectual property is more difficult to protect.

For the manufacturer to keep supporting the brand as a partner of choice, I also think that there needs to be more customization in each agreement to align to the individual needs and strategy of each customer. Over the last couple of years, I have started to see those changes in the industry.

Yes, I think brands should be more open about the contract manufacturers that work on their goods. The main advantage is that brands as well as manufacturers would increase stakeholder trust since transparency demonstrates shared values, accountability and a commitment to responsible business practices.

From a consumer perspective, a more transparent approach would give more visibility across the supply chain. Thus, creating a better understanding of a product’s added value through information about ethical sourcing, environmental responsibility and even labor practices.

However, if we think of potential disadvantages, both parties could face some risks by choosing to be more transparent. In the beauty industry, brands are more reserved due to competitive pressures and regulatory constraints. Disclosing brand-manufacturer partnerships could bring competitors from both sides of the business looking to gain competitive advantage in unethical ways.

The trend toward greater transparency in supply chains, which includes disclosure of contract manufacturing partnerships, will continue to grow in the coming years. Companies that embrace transparency and proactively address concerns about their supply chains stand to benefit in terms of reputation, customer loyalty and long-term sustainability.

In addition, digital platforms have empowered consumers to share information and hold companies accountable for their actions. So, open and transparent companies are likely to acquire more support from consumers and advocacy groups.

MARC DESMARAIS Co-Founder and Chief Innovation Officer, Blue Beautylab

I think an NDA is a good formality to start off the relationship with a company, whether they are actually enforceable and actually protect us is another topic, but starting off a new relationship by signing an NDA does show a certain level or professionalism.

I’ve had many clients who contact us, ask lots of questions and ask for tons of info, and when I ask to sign an NDA before going forward, I never heard from them again. At the very least, it’s a good tool to screen how serious people are, especially when dealing with startups and entrepreneurs who don’t yet have an established brand.

One of my biggest pet peeves is when a someone sends me an NDA to sign, and it’s not a two-way mutual NDA. It’s actually really offensive like the time, resources and information that we share with them isn’t worthy. If you want me to a sign an NDA to protect your confidential information, you best be doing the same with mine!

I think the openness between brands and manufacturers is great. I think that it shows a level of business ethic. An unscrupulous manufacturer might not want to be public about their customers as it could be found out they are selling the same “exclusive” product to multiple brands just as an unscrupulous brand could be sharing confidential information and formulas to other manufacturers. I think the transparency can only help build strong bonds of trust between brands and manufacturers.

Ultimately, the manufacturing agreement between a brand and their manufacturer is the key to solidifying the relationship. It helps to iron out details on formula ownerships, contingency plans in case of force majeure and ensures that everyone understands where their responsibilities begin and end, no surprises, everyone’s on the same page.

Since a brand and manufacturer relationship is a bit like a marriage, the manufacturing contract is like the prenup. No matter how much you care about one another, it’s always good to plan out in the event a worst-case scenario happens. We all sleep better at night this way.

If we could sign a manufacturing agreement in place of an NDA, we would, but without having a product developed and knowing what’s at stake, it’s hard to put a suitable manufacturing agreement in place.

MATT STEARN President, Innovative Cosmetic Labs

The nature of the NDA between brands and manufacturers is a topic both parties should address upfront. Some manufacturers want the ability to publicly promote the customers they work with. On the other hand, brands do not always want the public to know where their products are made, it’s their secret.

At Innovative Cosmetic Labs, we believe that the term private label means the relationship is private. The big question I have is, will MOCRA inevitably change this?

Philip Miller Co-Founder, Product Society

An NDA holds importance for both manufacturers and brands, particularly in an industry marked by intricate trade secrets and sensitive information. Ultimately, while an NDA provides a necessary layer of legal protection, it is the ongoing management and harvesting of the manufacturer-brand relationship that truly defines its effectiveness.

NDAs, while crucial, are just one facet of a broader commitment to protecting customers' interests, and for the manufacturer, that commitment is to all of its customers each time a new NDA signed is with a newly engaged brand. The paperwork has limitations such as it is generally broad and signed early on in the relationship. A manufacturer needs to have a culture and standard operating procedures (SOPs) that are clear and speak to the safeguarding of information in tangible ways for brands to understand.

The NDA is a formality that should be baked into that culture within this industry, but how it really protects either party when something goes wrong has many limitations, and for both parties to evaluate if the relationship has trust and safeguarding of information in mind they must vet that by understanding the DNA and procedures of each organization.

A broad NDA may not prevent a manufacturer from wanting to spread information to the public or to a small audience on a brand/product they worked on and that they are proud of in a way that is not objectively sharing specific details. However, I think what's key to ask yourself is, even if the brand doesn't objectively mind, wouldn't it be a culture of trust if their manufacturing partner checked in with them to get sign off before doing that and vice versa? The trust goes beyond the NDA and is all in the execution of day-to-day business and relationship management.

We believe that it is a disservice to brands that they often lack key information on what capabilities a manufacturer may have. Even the term "contract manufacturer" can have so many meanings. There are a whole host of reasons as to why there is much less accessible information on manufacturers compared to the news, data and general information readily accessible to the public on brands.

However, reasons aside, shared information and knowledge is critical to growth for all parties involved. Whether it be consumers, brands, CPG investors, regulatory officials or legislators, everyone is dying for transparency and authenticity when they try to make a determination on a product's viability, efficacy and safety, and what seems to be understood least is the manufacturing process behind the product.

There would be many more educated consumers, successful brands, successful manufacturers, successful investors and aligned regulatory messages if the manufacturing process and key attributes of manufacturers were more accessible. Brands may objectively fear they are sharing information that would allow their competitors to more easily compete. However, the contrary to that is more information leads to more accountability across the supply chain and more informed decisions ultimately powering industry growth for all parties involved.

Brands need manufacturers, and it’s a complicated channel for them to navigate, but if they knew how to pick and find the right ones for their needs, how much more efficient a business would they have? The main advantage of transparency that we believe is critical in a manufacturer-brand relationship is the benefit of more efficient, effective and intelligent decision-making that too often lacks in this dynamic based on what we view as more antiquated industry norms. The negatives from a brand perspective rightfully so would be the importance of protecting trade secrets from competition or that information visibility may allow for more competition to catch up.

There is a perception that the brand-manufacturing relationship is different, and lack of transparency stems from the perception that behind the scenes is where the holy grail of brands’ secret sauce lives. I think that perception and the lack of transparency out there hurts business for many on the brand side.

What are the key ultimate results? Less information for consumers, brands and manufacturers on best business practices and the truth behind a product's success. Manufacturing unfortunately is filled with gray areas when it comes to proper procedures and regulatory requirements. Furthermore, you are left with great companies on all sides that cannot share work they are proud of or achievements of note.

As a manufacturer, we are transparent that what our client wants and desires is paramount for us to prioritize, assuming it doesn't interfere with another client's desires, but, if we can provide clarity, guidance and information on our processes and agree on the nature of what's most important to each in that relationship, then trust and transparency dictate the future of that agreement being upheld and that arrangement being successful for both.

At Product Society, we believe transparency is a key pillar in solving nightmares for all stakeholders. We also believe that what transparency means culturally to us is that you owe each and every customer trust, visibility to your general operational procedures for them to make informed decisions for their business, and that you are committed to safeguarding their secrets. Obvious guidelines in every relationship are taken very seriously at Product Society.

Transparency fuels success and is a pillar in general business that gets left behind in this industry too often. What the word means is often misperceived and that creates inefficiencies that need to be resolved. We feel today's great brands understand the modern-day definition of transparency, but many antiquated manufacturers ignore how their brands think in this respect, creating a disconnect and missed opportunities. We think and act like our customers as a core philosophy in our organization and in our opinion that's what it takes to be a successful manufacturer.

FRED KHOURY President, Above Rinaldi Labs

NDAs safeguard both parties' proprietary information, ensuring confidentiality with the information exchanged. They foster trust between the parties, encouraging open communication and collaboration.

Specifically for the brand, it ensures their product specifications, designs and any other sensitive information shared with the manufacturer remain confidential, protecting the brand's competitive edge and preventing unauthorized use or disclosure of its intellectual property.

NDA agreements could evolve to include provisions for more robust protection of digital assets and data security, given the increasing reliance on technology in the beauty industry.

Complete transparency may not be feasible or desirable for all brands, especially those operating in highly competitive markets or relying on complex manufacturing processes. However, increased regulatory pressures, industry standards and consumer demand could also push brands towards greater transparency in their supply chains.

Key advantages to more transparency are increased consumer trust and loyalty through transparency and encouraging ethical and sustainable practices throughout the supply chain.

Key disadvantages include the risk of exposing sensitive business information or proprietary processes to competitors or the potential for reputational damage if manufacturers are associated with negative practices.

Ultimately, with the consumer demand for ethically sourced and environmentally sustainable products, a gradual increase in transparency is inevitable.

If you have a question you’d like Beauty Independent to ask beauty manufacturers, please send it to editor@beautyindependent.com.