Some Say P&G Barked Up Wrong Tree With Natura Purchase

Angry Independent Pet-Supply Retailers Believe Distribution Channel Was Key Attraction

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NEW YORK (AdAge.com) -- Procter & Gamble Co.'s purchase this month of Natura Pet Products took a lot of people by surprise -- some analysts had actually expected that P&G might be closer to divesting its own pet brands rather than acquiring new ones. But it also caught unawares many independent pet-supply retailers who are expressing a dim view of the deal on Twitter, Facebook and blogs.

Some are even threatening to drop the affected brands once the deal closes -- a potentially big problem for P&G, since observers of its pet business believe a key attraction of the deal was its distribution channel of independent pet stores.

P&G pegs sales of Natura at more than $100 million, but one person familiar with the industry said Natura's six brands have combined sales of $175 million to $200 million, which likely would have netted a purchase price of $450 million to $500 million. Overall, P&G's pet business likely has sales of under $2 billion globally (the company doesn't break those figures out separately), including billion-dollar-plus Iams and Eukanuba.

The six brands in the Natura deal include Innova, Evo, California Natural, Healthwise, Mother Nature and Karma. They're positioned respectively as holistic, grain-free, for sensitive stomachs, balanced nutrition, healthy snacks and organic.

A P&G spokesman said in an e-mail that some independent retailers have expressed concerns, which he called "completely understandable given we are limited in what we can share and say" prior to closing, which is expected by next month. He said P&G is "fully committed to Natura's independent pet specialty retailers" and sees "significant opportunities for growth" in the channel, but "can't comment on specific future plans."

Having a hard time with independent retailers isn't new for P&G in pet care. The company has faced trouble with them since its move of the flagship Iams brand into mass retail in 2000.

But what is relatively new is such trade disputes spilling into social media, which give a bigger bullhorn to independent owners who number more than 5,400 by some estimates and already had influence with their relatively upscale and health-conscious customer base.

The operator of a Gainesville, Fla., store named Earth Pets Organics posted on Facebook and Twitter recently, "I was told by a bully P&G exec that Earth Pets will go out of business if we stop selling Natura Pet Products." Earth Pets didn't return a call for comment, and the P&G spokesman called the assertion of the threat "nonsense."

"We are in touch with several of Natura's customers," he said, "including Earth Pet Organics. But again, we are not in a position to discuss future plans, and we would never make such a statement."

Ric Sommons, owner of the three-store Dolittle's chain in Charleston, S.C., posted a different solution on his blog, Dolittle's Blog (http://bit.ly/9Vgfia). He noted that Natura makes up 50% of his pet-food sales that "I cannot just kick out the door." But he said he would compile a list of "Bad in the Bowl" ingredients and remove any products found to contain those.

Similar backlash in 2007
Natalia Foster, owner of Healthy Products Colorado, posted on Twitter that she will remove Innova and Evo from her stores upon deal closing. She said in an interview that Iams and Eukanuba changed their formulas after P&G bought them, and some dogs didn't tolerate the new kibble. P&G also took the products to mass retail and the big-box pet chains Petco and Petsmart, which she said lower prices below levels where stores like hers can compete.

P&G has changed ingredients on Iams and Eukanuba over the years "but for the better," the spokesman said. "We've never compromised product quality ... and we will not do that on the Natura brands."

A few independents do say they might drop Natura products, he said, "But we have heard from countless others that they look forward to hearing ... our plans." The reaction was anticipated, and he said the company believes it will win over the retailers post-closing.

Michael Hoye, a consultant and CEO of North American Consumer Products, which acquires and operates package-goods brands, said independents, whose prices run 20%-25% higher than big-box pet chains and as much as double those of Walmart or club stores, get priced out of carrying brands that move to other channels. Mars, he said, faced a similar backlash from independents after it bought Nutro in 2007.

Given that P&G has six new brands, he said the most likely strategy will be to take one or more to big-box pet chains and one or more to mass retail, leaving some exclusively for independents.

While pricey, he said grain-free and other natural/holistic products have fared well of late despite recession, even as Iams and Colgate-Palmolive Co.'s Hill's Science Diet have seen volumes decline, particularly amid price hikes.

The 2007 pet-food recall, from which Iams and Eukanuba have had some trouble bouncing back, got many consumers to focus more on ingredients and avoiding grains and glutens, adulterated versions of which were linked to dog and cat deaths.

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