P&G's Iams Finds Itself in a Pet-Food Dogfight
With Offerings That Look Fit for People, Purina and Others Gobble Up Share
BATAVIA, Ohio (AdAge.com) -- After years as an alpha dog, Procter & Gamble Co.'s Iams is learning new tricks from Nestle and Colgate-Palmolive Co.
As those two rivals step up support for pet food -- an unglamorous business that generates better growth and margins than many other package-goods categories -- volume for the P&G business that encompasses Iams and Eukanuba fell for the full year that ended in June and the quarter that ended last December. Such weakness is surprising for a generally thriving P&G and for its pet business, which has more than doubled sales from less than $800 million upon acquisition in 1999 to $1.8 billion.
Fido's food trend
One reason is P&G's slowness to embrace a trend toward foods for Fido that appear fit for human consumption. While Iams relied on its heritage of serious pet nutrition and understated packaging, Nestle Purina made big gains with its colorful premium Beneful brand and dry nuggets that look like chunks of meat and veggies. It was launched in 2001 as a response to Iams' expansion into mass market from specialty channels, and it may look gimmicky, but its sales rose 18.5% to $173 million last year in a category that grew only 2.9%.
Meanwhile, a newer line of Beneful wet products that look like beef or chicken stews in plastic tubs that people might use for leftovers is another burgeoning hit. Launched last March in only half the country, Beneful's doggie trays still racked up $21 million in sales through Dec. 24, according to Information Resources Inc., not counting Wal-Mart or club stores. That's a big hit for a sluggish $634 million wet-dog-food segment that grew only 3.7% last year, all from grain-fueled price hikes, since volume slid 8.7%.
Colgate, meanwhile, which markets Hill's Science Diet, opened a new pet food research-and-development center last year. And Purina bumped up ad spending in recent years, becoming Nestle's top media priority in the U.S. the past two years and outspending Iams nearly two to one, according to TNS Media Intelligence.
Iams raised spending in the second half of last year -- Purina spent $108 million through the first 11 months of 2006, according to TNS Media Intelligence, compared to Iams' $64.9 million -- but still its shares began to fall.
P&G's leadership claims
P&G is quick to note that Iams remains the leading pet-food brand in the U.S. following its run-up of recent years -- but that title is based on counting category leader Nestle Purina's One, Dog Chow, Puppy Chow and Beneful as separate brands.
Weakness in P&G's pet business was once confined to super-premium Eukanuba and a pet-specialty trade that didn't take entirely kindly to Iams moving into mass. That's a problem P&G has sought to address with a new ad agency, Wieden & Kennedy, and a lineup of breed-specific products launching next month ( Saatchi & Saatchi handles the Iams brand).
But even flagship Iams has started losing share the past three four-week periods, according to IRI data cited by Morgan Stanley -- a direction P&G is rushing to correct.
"We changed the management team," P&G Chairman-CEO A.G. Lafley said in an earnings conference call last month, "and we have got Rob Steele [group president of the pet business along with paper products, snacks and coffee] and a very good team in the seat. We spent the last six months basically taking the industry and the business apart. We have set goals, we have a new strategy, and you should begin to see the innovation in the marketplace."
Jeffrey Ansell, former president of P&G's Pet Health business, left P&G in July to become CEO of Pinnacle Foods. A P&G spokesman said Mr. Lafley didn't mean to imply Mr. Ansell had left involuntarily, adding that many of the innovations P&G plans were developed on his watch. Iams' share decline in IRI-measured channels began after Mr. Ansell left. (Potentially hampering Iams' turnaround, according to people familiar with the business, is another departure, that of Diane Hirakawa, VP-research and development, who has built Iams' R&D center from the ground up in a cornfield over the past two decades. She left last year to work on a charitable project with former Iams owner Clay Mathile.)
Still, P&G is hardly tucking its tail between its legs. "We've got the innovation rolling again in 2007," Mr. Lafley said.
He didn't offer specifics, but a spokesman gave a hint of Iams' future direction. "We've always been a natural product with no artificial colors or flavors," he said. "Many newcomers to the natural category can't even say that. ... You'll see more from us, positioning-wise, in telling that story because we've recognized as well as everyone else has that consumers are interested in the natural category."