If you follow the pet trades, or place close attention to what food you put in your dogs belly, you probably are aware that, last week, Procter & Gamble (NYSE: PG) purchased Natura Pet Products, a privately held producer of holistic and natural pet foods.   If not, let me bring you in on the not so secret combination.

The transaction, which was kept very low key inside the trade puts P&G squarely on the front lines of the battle for the premium pet consumer.  Natura possess a well respected portfolio of premium brands, including California Naturals, Innova and Evo.  In the name of full disclosure, I feed my dogs Evo, among other things.

For some the transaction was curious for P&G.  The company possess a small pet business relative to the overall size of the consumer mother-ship.   Many people were betting that the company would go in the other direction, possibly divesting Eukanuba and Iams.   Instead, P&G is trying to catch a bigger wave in the pet world and ride the premium pet food movement to higher profits and therefore an improved equity price.    However, P&G is but one constituency that stands to win, lose or draw from this transaction.  Below we analyze them all.

Winners

  • Consumers.  No one wins more than consumers in this deal.   However, this comes with a caveat; it assumes that P&G keeps the formulations and authenticity in tact.  Given the history of such actions in the consumer space this is a reasonably big leap of faith (Ben & Jerry’s anyone).  Let’s assume they do for arguments sake (and for the record I think they will, because it would not be that hard or cost prohibitive).  Consumers win when P&G pushes high quality pet foods into the mass channel making them more widely available.  Further, their ability to produce at scale economies will make them more accessible from a cost standpoint.  Even I might go to Petco to save $10 on a bag of Evo.  Well, at least I would think about it.
  • Independent Pet Specialty Brands.   Love ’em, hate ’em, Natura brands had cache in independent pet specialty.   The safe assumption is that P&G is going to move the brands in to mass, opening up precious shelf space in independent pet specialty, which is space constrained.   Brands like Honest Kitchen, Orijen, Ziwi Peak, Mulligan’s Stew,  and others stand to gain share within this channel as boutiques and  independent chains retrench from Natura brands due to channel conflict.
  • Nature’s Variety/Castor & Pollux.  Congratulations, you just became the number one acquisition targets in natural and holistic pet food in the specialty and natural channel respectively.   I can feel the smile from Catterton Partners and Highland Consumer Partners all the way from the east coast.

Losers

  • Independent Pet Specialty.  As much as I love this channel, this is not a favorable turn of events for them, in my opinion.  Natura offered many independent pet specialty stores a one stop shop solution for wellness oriented food products.  Further, these brands have strong affinity that may follow the brands to mass.   Further, if these products do exit pet specialty stores will likely have to take some risk on one or more brands whose staying power is as yet unknown.  There will be a lot of shelf and floor space to negotiate over.

Draw

  • Pet Mass.   One would think that Petco and Petsmart would go into the “winners” category as they will get their hands on a well known series of brands consistent with where they are trying to take their image and focus.    Given how easy it would be to market the brand portfolio within mass (grains are bad for your dog, these have no grain), one would think that would be the case.  However, this is Petco and Petsmart we are talking about.  I suspect they will find ways to under monetize their pending asset.
  • Proctor & Gamble.  Only time will tell how this deal turns out for P&G.  I suspect they paid a modest premium on what many believe is a $150 million revenue business, but given the mixed performance within the portfolio it is unlikely that they had to break the bank.   In mass they will go head-to-head with Wellpet, Castor & Pollux, Solid Gold, Blue Buffalo and others, in what has suddenly become a crowded field.   One has to believe their muscle — capital, branding acumen, retail relationships, etc. — will help drive the business to the next level, but only time will tell.

/bryan

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