[The New York Times]
Last year, an estimated $5.4 billion in pet food was sold in America, almost four times more than was spent on baby food. Grocery stores took in more money selling pet food than they did selling cereal, candy, soup or coffee.
But if pet food is a big industry, it is also lethargic, growing at only 2 to 3 percent annually. Expansion through marketing and new-product development can be slow and uncertain. Companies more and more must consider acquisitions to achieve significant growth.
When Quaker Oats outraced the Ralston Purina Company recently to acquire Anderson, Clayton & Company, it was said to be motivated more by that company’s familiar pet food labels – including Gaines Burgers, Top Choice and Cycle dog foods -than by its well-known food products for humans.
Quaker won the battle for Anderson, Clayton with an $805 million offer, or $66 a share, topping the $64-a-share bid made by Ralston. Ralston is by far the industry’s largest seller of pet food, with 26.9 percent of the market in 1985. Quaker tied for No. 5, with a 7.1 percent share last year.
Without an acquisition, ”you’re lucky to gain a half of a point” of market share a year, said John C. Maxwell Jr., an analyst with Furman Selz Mager Dietz & Birney Inc. in New York. He estimated that Anderson, Clayton’s Gaines division had a 6.6 percent share last year, which will nearly double Quaker’s market share. ”They’ll gain shelf space any way they can,” he said. ”This just pushes Quaker Oats into No. 2, but it still is very competitive.” ‘A Major Opportunity’
”To have an opportunity to double your share is a major opportunity,” said George J. Yapp, president of Quaker Oats’s pet foods division. ”Market share position has become fairly entrenched. To double your business from a share standpoint without an acquisition is a much longer-term prospect.”
With 51.7 million dogs and 56.1 million cats owned in the United States, more than half of the households nationwide have at least one cat or dog, according to Lawrence E. Fisher, manager of MRCA Information Services in Stamford, Conn. In a study conducted for the Pet Food Institute, MRCA estimated that the dogs were owned in 38.7 percent of the country’s homes, while 29.4 percent had cats.
The pet food industry is a relatively modern-day phenomenon, dating only to 1860, when James Spratt, an American from Cincinnati, began selling dog cakes to the British aristocracy as treats for their pets. In 1907, the dog biscuit was introduced, when the F. H. Bennett Biscuit Company started marketing F. H. Bennett’s Milk-Bone Dog and Puppy Food. It was not until 1957, when Ralston Purina began selling Dog Chow, that pet food became a common grocery item.
Today, the competition among pet food producers involves some of the largest food companies in the United States, including the H. J. Heinz Company, (9 Lives and Meaty Bones); Nestle’s Carnation unit (Friskies and Come’N Get It), and Mars Inc. (Kal-Kan and Meal Time).
With hundreds of brand names on the market, the competition for shelf space is strenuous, and companies look for opportunities in demographic changes in pet ownership. Last year, for example, while dog food sales increased only five-tenths of 1 percent, according to Mr. Maxwell, cat food sales grew 5.7 percent. Pet Owners Turning to Cats
”People were getting a lot of big dogs for protection in the early- to mid-70’s, and they eat a lot,” said David P. Garino, an analyst with A. G. Edwards Inc. in St. Louis. ”With people moving into condos in the early 1980’s, it slowed the dog growth and they got cats.”
Recent growth areas in the industry include canned cat food, which was up 7 percent last year; gourmet pet food, such as Quaker’s Moist Meals cat food and Ralston’s Moist & Chunky. which was up 9 percent, and specialty snacks and treats for both dogs and cats, according to statistics compiled by Mr. Maxwell. Analysts said that as the increasing population of people who live alone get pets -usually cats – they are likely to shower the animals with affection and fancy products.
Nestle and Heinz, which boast strong cat food labels, have benefitted from these changes, while Ralston and Mars, which are primarily dog food producers, have slipped slightly in market share. High-Profile Products
Many of the trends within the pet food industry mirror those of the food business as a whole, analysts said. Industry experts speak of a return to basics and a narrowing of interests. With brand loyalty strong among consumers and higher profit margins on branded items, many diversified food companies are concentrating on their high-profile products, in pet foods as in other foods.
”The key is that brand-name products have very high stability and high predictability of earnings,” said Mr. Maxwell.
As the industry worries that pet ownership may have reached its peak, still more innovation and acquisitions may be seen.
”On the whole, you can push pet ownership only so far,” said Ron Penoyer, a spokesman for Ralston, adding that there is ”a saturation point” for pets – ”You can only have so many.” B.P. Buys Ralston Unit British Nutrition, a unit of the British Petroleum Company, yesterday completed the previously announced purchase of Purina Mills Inc., the United States feed unit of the Ralston Purina Company, for $545 million.