Going to the Dogs: Why J.M. Smucker Bought a Pet-Food Maker

Can Milk-Bone and Jif Thrive Under the Same Roof?

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Dog bones and jelly might seem like an odd combination. But not according to executives at J.M. Smucker Co., which this week detailed their rationale for buying the maker of iconic pet-food brands like Milk-Bone, Meow Mix and Kibbles 'n Bits.

The $5.8 billion deal to acquire Big Heart Pet Brands, which was announced earlier this month, marks the largest acquisition in Smucker's history. So why did they do it?

"It fits extremely well with our purpose of bringing families together to share memorable meals and moments. And one of the key parts of the family nowadays, and probably has been historically, is your family pet," CEO Richard Smucker said Tuesday during a presentation at the Consumer Analyst Group of New York annual meeting in Florida.

J.M Smucker, of course, is better known for human food like Jif peanut butter, Folgers coffee and its namesake fruit spreads. But as the company's coffee business struggles, pet food will give the marketer a presence in the fast-growing pet food and snacks category.

Pet food sales grew at a 3.6% compound annual rate from 2007 to 2013, outpacing a range of human food categories such as frozen food, dairy, soup, cereal and ice cream, according to figures J.M. Smucker shared Tuesday. While every pet food segment is growing, dog snacks have been the star performer of late with 6.3% growth during the 2007-2013 period.

One factor fueling the growth is that pet owners view giving snacks or treats to their pets as a bonding experience, executives said Tuesday. And company leaders, it seems, have confidence in their ability to harness those emotional connections to sell more bones, just like the marketer does with jelly.

"Our competency is really connecting with our consumers and building an emotional bond with our customers," Mr. Smucker said. "Pet foods is the same way. And so, we really see a real opportunity for continuing to build that bond with the consumer. And once you do that, you can really have great products at a right price."

Rising pet ownership rates is another reason the company is bullish. Some 68% of household own at least one pet and ownership rates are showing strong growth among millennials and empty nesters, executives said. "In these households, pets are treated like members of the family, either replacing children for empty nest boomers or for some millennials, as they delay starting families," said David West, the CEO of Big Heart Pet Brands who will become president for the division under J.M. Smucker after the deal closes later this year as expected. "Not too surprisingly, we feed our pets like we feed the rest of our families or often we feed them even better."

Of late, Big Heart has poured profits back into marketing. Spending is expected to jump 50% from the 2012 fiscal year to 2015, according to Tuesday's presentation. (The brands at Big Heart brands were formerly part of Del Monte Foods' Pet Products business before Big Heart launched as a standalone pet food company in early 2014.)

Some of the new marketing spending has been used to support last year's launch of Milk-Bone Brushing Chews. The treats are packaged to look like a toothpaste box. The bones have nubs and ridges that are designed emulate bristles on a toothbrush. The product is touted as being "effective as brushing a dog's teeth twice a week" when used daily.

The brand expects to reach $75 million in sales for the product's first year, according to figures shared Tuesday.

The opportunity, according to Tuesday's presentation, is that the $3.6 billion canine oral health category is today is dominated by vet services, not consumer products. Only 14% of pet owners brush their dogs teeth regularly because it is difficult, according to Tuesday's presentation.

Ads (like the one above) state that the new bones "taste like a treat but clean like a toothbrush," noting that "nothing says you care like a Milk Bone Brushing Chew."

In other words, the emotional pitch goes like this: Do you love Fido? Then toss him a bone.

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