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    Debbie Phillips-Donaldson, editor-in-chief of Petfood Industry, shares her insights and opinions on all things petfood, addressing market trends as well as news and developments in pet nutrition, food safety and other hot topics for the industry.

    What does latest big petfood company merger mean for the industry?

    May 29, 2013 By Debbie Phillips-Donaldson

    It's become almost a cliche to characterize the petfood and pet care markets as "recession resilient," but the fact is, these industries have weathered the strong economic headwinds of the past five years better than most consumer goods industries, with continued annual growth globally of about 4%. That fact has not gone unnoticed by investment funds and the overall private equity community, as noted by Pets International magazine and Cascadia Capital, an independent investment bank that includes petfood and other pet product companies among its investments and transactions.

     

    "The private equity community has developed a modest fascination with the pet industry over the past five years," wrote Bryan Jaffe, senior vice president for Cascadia, in 2011. "Interest has accelerated markedly since 2007, as evidenced by deal volume. Notably, deal volume grew from 2009–2010 in contrast to the broader consumer marketplace, which contracted."

     

    Jaffe noted multiple petfood transations then, including the Swander Pace acquisition of Merrick Pet Care in January 2011. Since then, Merrick itself has acquired Castor & Pollux Natural Petworks, among a flurry of other petfood-related mergers and acquisitions.

     

    Perhaps two of the most noticeable deals between 2007 and today occurred in 2010. That year, Procter & Gamble (P&G) acquired Natura Pet Products, and Del Monte Foods was acquired by a group of investors including Kohlberg Kravis & Roberts. Those acquisitions may have foreshadowed last week's news of the merger between Natural Balance Pet Foods and Del Monte.

     

    I can remember talking with various pet retailers after P&G acquired Natura; many of them owned independent pet stores and expressed fears that P&G would soon start distributing Natura brands -- which to that point had always been dedicated to the pet specialty channel -- into the mass and grocery channels, just as the large conglomerate had done with Iams cat and dog foods after acquiring that brand.

     

    That fear has not come to pass, as far as I can tell. While Natura's Innova brand is now sold through large pet store chains such as Petco, PetSmart and Pets Supplies Plus, it is not available in mass market or grocery stores. And the other Natura brands (EVO, California Natural, Karma, Healthwise, etc.) are available only in independent pet or farm and feed stores.

     

    It will be interesting to see if similar concerns arise over Del Monte's plans for the Natural Balance brands. Though I have no information other than reports published to date, my sense is that the Natural Balance owners and founders, actor Dick Van Patten and Joey Herrick, after 25 years of developing and nurturing their company, wanted to find a "partner" that could take the brand to a new level without additional investment on the founders' part. Whether that new level includes staying loyal to the pet specialty channel and the natural, premium/superpremium product strategy remains to be seen.

     

    Yet another consideration -- one that could have even more important implications for the petfood industry -- is how this merger shakes up the market landscape. According to our Top Petfood Companies Database, as of the end of 2011, Natural Balance was the 16th largest petfood company globally, with US$300 million in sales. Del Monte was number 5, at US$1.78 billion sales, just behind number 4 P&G at US$1.8 billion. Natural Balance's sales would vault Del Monte ahead of P&G and not far behind the third largest company, Hill's Pet Nutrition. (The Top Petfood Companies Database will be updated January 2014; we can see the effects of the merger then.)

     

    Besides the shifts in numbers and rank, mergers like this (just as with the P&G-Natura one three years ago) make the global petfood industry even more top heavy than ever.

     

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