Blue Buffalo MashmellowsBlue Buffalo has been one of the greatest disrupting forces in the pet industry post-recession. Against a meaningfully competitive backdrop in pet food, Blue grew a $1.25 billion revenue brand that became the industry’s most meaningful driver of purchase traffic and transactions both in store and online. The company’s meteoric rise defied all known industry convention, and the brand gained a stranglehold over its retail partners, most of whom were used to dictating the terms of engagement. Blue even broke the cardinal rule in pet specialty, launching into FDM.  All of this culminated in the sale of the company to General Mills for $8.3 billion dollars. As I have said previously, Blue played the game, and played it well.

For some, this is where the story will end, as a real-life fairy-tail. However, for most there is another chapter, and when one digs deeper, the conclusion is that this may not all come up aces, creating repercussions for many that follow. While few can dispute that Blue Buffalo adroitly navigated a complex equation over the past ten years, growth and perception have masked some stark realities.

Consider first, while FDM sales are Blue Buffalo’s current and future narrative, it still derives the disproportionate amount of its sales in major pet specialty, and major pet specialty is flagging when it comes to pet food.  Pet superstore market share, according to Euromonitor, declined from ~ 25% of sales in 2015 to ~ 21% in 2017.  This represents a three percent annual decay function.  At the same time, Blue Buffalo’s sales in pet superstores declined from 68% in 1Q2016 to 45% in 4Q2017, dropping in every sequential quarter.  However, Blue Buffalo’s sales in pet superstores declined almost 9% from 2016 – 2017, accelerating in 2H2017 vs. 1H2017.  All of this is pre- retailer repercussions of channel jumping.

The logical response to the above is to cite growth in online sales of both pet food and Blue Buffalo’s solution set. During the 2015 – 2017 period, online sales of pet food grew from ~ 4% – 5% share to ~ 13% – 14% share, and Blue Buffalo became the number one selling brand of pet food online. However, several factors need to be considered going forward.  First, online pet food sales are generally at a lower margin, due to both price transparency and price based competition.  All sales are therefore not created equal, though volume based discounts to major retail partners offsets some of this compression.  Second, the online channel is getting increasingly competitive through the introduction of housebrands (Tylee and American Journey at Chewy.com and Wag at Amazon.com).  Given online is where volume is growing, it is natural to expect Blue Buffalo would experience some market share erosion from brands competing more aggressively in the channel.  Finally, one has to consider the long-term impacts of direct-to-consumer pet food brands.  While small in terms of overall sales, Ollie ($17 million), The Farmer’s Dog ($10.1 million), NomNomNow ($13 million), and its peers have raised considerable amounts of capital to disrupt the category, likely taking with them consumers who purchased through third party ecommerce platforms.

Next, consider that most channel jumping corollaries have been accompanied by share erosion over time and sales velocity deceleration once initial pipeline fills are complete. When Hill’s began emphasizing the online channel in 2016, it experienced sharp declines in growth tied to two factors. First, was the natural latency in ramping up awareness and velocity in an adjacent channel. Second, was due to reprisals from major pet specialty retailers, who reduced shelf space and SKUs and/or relocated the product with respect to its orientation in the store, moving it to less desirable real estate. Additionally, when Iams jumped to FDM post acquisition, it initially began to grow market share (up ~ 2%) over a five-year period, a time where category competition was less pitched and online sales were virtually non-existent, before engaging in a steady decline (down ~ 6%) over the next 10 years.

Finally, we need to consider Blue Buffalo’s track record of innovation. While Blue Buffalo has certainly been innovative in its core product line as well as its marketing strategies to build brand awareness and consumer loyalty, its innovation has been muted in recent years.  I was reminded of this by a close industry friend. Brands (Earth Essentials), form factors (meat rolls), and ancillary products (cat litter) have all been launched and either under performed or been discontinued. Veterinary sales efforts have been virtually non-existent.  Finally, brand awareness outside the U.S. is low and would take meaningful dollars to ignite. There is a general pattern of large CPG companies buying innovative brands and losing that innovation DNA in the process.

The net of all of this should be cause for concern – your core distribution channel is under significant pressure, your growth channel is getting increasingly competitive, your mitigating actions can only sustain you for so long, and it does not appear likely you can innovate yourself out of the dilemma.  While this may seem dire, there is hope, but it is masked by uncertainty.  The ability of General Mills to retain management and ramp up innovation, as they did post acquisition of Annie’s, will be critical. How they navigate the landscape with the sales force is also important.

While only time Blue Buffalo’s flame appears to be burning a little less bright.

/bryan

Note: This blog is for informational purposes only. The opinions expressed reflect my view as of the publishing date, which are subject to change. While this post utilizes data sources I consider reliable, I cannot guarantee the accuracy of any third party cited. herein.

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normalThe pet industry appears closer to arriving at a “new normal” that more closely resembles its human corollary.  The consumer has migrated to the center of the ecosystem, dictating the what, when, where, and how much, as opposed to having to select from a limited set of curated choices prescribed by brands and retailers. Brands are now closer to the consumer than physical retailers, thereby occupying more coveted intellectual real estate, and as a result are better positioned to influence behavior. Large channel dedicated physical retailers are left to compete on the basis of price, leading to a downward spiral in performance, which will persist until they can find ways to differentiate through merchandise mix and/or convenience.

The two largest drivers of disruption have been acquired, which represents an opportunity for the emergence of a new competitive landscape. As Blue Buffalo migrates further into FDM, it provides pet specialty retailers an opportunity to break away from their dependency on the brand for both customer acquisition and growth. Changes in Chewy.com ownership and management, coupled with PetSmart’s debt burden, is likely to usher in a more cost focused form of competition.

We believe these collective changes will manifest themselves in meaningful ways over time. Independent pet retail will return to its role of facilitating brand discovery and educating consumers, reducing dedicated Blue Buffalo shelf space – the manifestation of its conviction to place support behind channel exclusive brands. Major pet specialty will reorient its merchandising strategies around solutions, reducing dependency on brand blocks and ensuring a product mix that offers consumers a range of options and various price points (ultra premium, premium, premium value, etc.) and place greater emphasis on services to drive traffic and transactions. Manufacturers will look for opportunities to engage in direct sales with consumers to diversify channel risk and to offer end customers solutions that are customized for their pet’s situation.

The changing nature of competition will continue to drive industry consolidation. We believe large retailers will make acquisitions to add alternative store formats, service capabilities, additional direct-to-consumer channels, and supporting technologies – but lacking financial resources their options may be constrained.  In the case of PetSmart and Petco, we believe this could lead to a merger given the opportunity to rationalize costs. Leading food brands will look for ways to get closer to the customer, either through technology or acquisitions that have distribution outside of traditional retail. Product companies will look to acquire solutions that can diversify their mix and add capabilities that will enable them to address emerging channel opportunities.

To read about our complete set of industry insights, contact me to receive a complete copy of our Spring 2018 Pet Industry Report.

/bryan

Note: This blog is for informational purposes only. The opinions expressed reflect my view as of the publishing date, which are subject to change. While this post utilizes data sources I consider reliable, I cannot guarantee the accuracy of any third party cited herein.

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blue bffThese things always happen when you are on vacation.

Just prior to my departure on family vacation, I got a call from a reporter passing along a rumor that Blue Buffalo was going to be acquired.  I hear about non-existent pet food M&A rumors week in and week out.  The past month has been no exception.  Most of it is smoke, without the fire.  My response to the reporter — who has $8 billion to spend? On the plus side, I had the price pegged.  Kudos to her for getting the beat correct.

In reality, there are many large corporations with access to those sorts of funds.  Mars had recently doled out $9 billion for VCA after all, and Nestle has a little over $8 billion in cash on its balance sheet.  Apple has $77 billion of cash on its balance sheet, but they tend to favor in house innovation.  The key point is that major pet consumables acquirors have focused largely on product acquisitions to fill portfolio gaps as opposed to transformational M&A.  After all, Purina could have easily acquired Blue Buffalo for $3 – $4 billion prior to its public offering and the two sides could have avoided a lot of subsequent legal fees (further evidence that lawyers always win). I don’t see any of them coming in with a topping bid — Blue in the hands of General Mills is less formidable than Blue in the hands on a proven competitor.  That said, Blue in the hands of General Mills might make General Mills a more attractive takeout target for Nestle.  After all we are likely going to see more mega food M&A as these players grapple with changing operating dynamics for global food companies.

Food companies buying into the pet space is not unprecedented.  The J.M. Smucker Company acquired Big Heart Brands for nearly $6 billion back in 2015.  When Merrick Pet Food was sold, a major food company was the cover bid when Nestle acquired the business.  That said, I don’t see this as establishing a pattern whereby food companies quickly seek to align themselves with pet food brands in an effort to top one another.  Rather, I expect food companies will be more open to kicking the tires in auction processes but that acquisitions are likely to be focused only on true market leaders, consistent with what we have seen thus far.  That said, major food companies could offer pet food leaders unprecedented valuations, given their propensity to pay 5.0x – 6.0x revenue for the growth associated with disruptive brands (e.g., Rx Bar, Daiya, Krave, Suja, to name a few).

Finally, we have to give Blue Buffalo kudos.  They very effectively ran the business into a highly attractive exit (6.3 x Revenue / 25.5x EBITDA).  Twelve months ago, the company seemed stalled.  Growth was clearly flattening due to performance malaise in PetSmart and Petco, who were both undergoing inventory deleveraging, consistent with what was happening in broader retail, at a time when traffic and transaction metrics in these boxes were sagging.  The launch of their veterinary product line, while conceptually interesting, would have a long lead times in terms of sales – veterinarians seem to enjoy the status quo.  Thus, the jump to FDM, made possible by the weakness in major pet specialty, breathed life into the equity.  The company’s stock climbed 40% during the past six months, despite the fact that the FDM roll-out lagged expectations and sales were highly incentivized through discounts and promotions.  All we can say is well played and congratulations to the Bishop family and the Invus Group.

What will surely follow this acquisition is a public airing of grievances about a brand selling out and trip down memory lane for the industry recalling times where brands had values.  This will not be the last time this record is played.  However, the pet industry has been professionalized over the past 10 years and operates with a profit motive, we should have no expectations that capitalistic intentions will be subjugated in an effort to adhere to historical edicts. Rather mourn the transparency again lost through a publicly traded pet company gone private or having been acquired.

/bryan

Note: This blog is for informational purposes only. The opinions expressed reflect my view as of the publishing date, which are subject to change. While this post utilizes data sources I consider reliable, I cannot guarantee the accuracy of any third party cited herein.

The evolutionary cycle that is currently gripping the pet industry is now on full display, impacting all segments and all market participant. The market is no longer benefiting from historical growth drivers as new influences overrun incumbent paradigm. Notably, pet food prices have experienced deflation throughout 2017, and this pattern is projected to continue.

The differentiation and uniqueness in the pet industry’s operational model is rapidly eroding.  The industry is beginning to parallel its human corollary, changing the nature of competition and anointing new winners.  Barriers to product availability have eroded and the consumer behavior patterns resident in the human food and healthcare markets are increasingly exhibiting themselves within the pet industry

The challenge for market participants is that the current phase of competition is not programmatic in nature. The strategies that parties have historically relied upon to compete are unlikely to serve as effective guideposts for future strategic decision-making.  Market participants should brace for higher levels of volatility

This fact pattern will present the best-positioned companies with an opportunity to create outsized value. Capital will flow into companies best-positioned to take advantage of new ownership paradigm and evolving channel preferences of pet owners at pre-money valuations that better resemble technology multiples. Acquisition multiples for market leaders will expand as companies will be “bought” more often than sold. Buyers are more likely to view assets differently, due to the tendency for strategies to diverge in periods of uncertainty, reducing potential competition for deals

However, increased risk associated with the current operational paradigm will also drive a flight to quality and elongate deal cycles due to increased scrutiny. When multiples are elevated, marginals deals are more likely to fail due to associated risk discounts.  We expect buyers to search for companies with meaningful barriers to replication – brand, intellectual property, access to alternative sales channels, or proprietary products.

Against this backdrop there were four theme that caught our attention in 2017 (click through to view content):

  1. Services are increasingly driving the growth of the pet industry.

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2. As anticipated, Blue Buffalo launched into FDM.

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3. Digital distribution is accelerating and changing the competitive landscape.

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4. Supply chain integrity/sourcing are becoming a meaningful form of differentiation.

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In short, we are living in interesting time.

For a full copy of the report contact me directly.

/bryan

Note: This blog is for informational purposes only. The opinions expressed reflect my view as of the publishing date, which are subject to change. While this post utilizes data sources I consider reliable, I cannot guarantee the accuracy of any third party cited herein.

 

aisleEarlier this week, Blue Buffalo released its 2Q2017 financial results.  While the numbers are always interesting, analysts were looking for further clarity on the company’s FDM launch and its anticipated impact on full year results, as well as insights as to where the brand is migrating and how it might offset dilution associated with a multi-channel strategy.  In short, the quarterly results were only the appetizer and the FDM launch narrative the main course. Reactions from the call seem to fall squarely into two camps — satisfied or bewildered.  The stock was up 6.6% on the day, which tells you which camp Wall Street fell into, but off its high during the trading session.  The stock had been up a double digit percentage during the session.

The quantitative metrics made for a mixed bag.  The company delivered in line EPS despite a – 2.5% topline miss.  Management attributed the miss to inventory delevering at major pet specialty accounts.  Organic sales growth was +2.8% (+3.3% in dry and +0.7% in WTO) driven by +1.8% mix gain and +0.9% inflation.  Sell through was ~ 7% representing sequential growth over 1Q2017.  Notably pet superstore sell through declined ~ 6% versus sell-in and was down ~ 11% year-over-year.  In contrast ecommerce growth was robust leading to a total sell through growth rate of ~ 30% in the channel. Gross Margin was also up +235 bps year-over-year, driven by supply chain efficiencies and lower input costs.  This appeared to be +125 bps over consensus.  The company affirmed full year guidance for both top and bottom line. The long short is Wall Street likes earnings and in combination with margin gains, it was enough to look past the sale miss.  The narrative appeared something akin to the following — “We will make it up in FDM!”

Management elaborated on its FDM launch, stating the four retailers it has partnered with represent between 8% – 9% of the pet food market on a dollar basis.  This expands Blue Buffalo’s addressable market by ~ 20%.  The company’s products will now be available in an additional 6,000 doors. Given that FDM over indexes on cat and wet/treats, management believes this unlocks some potential for growth in WTO.  Based on some early looks at the product set in Publix, it appears FDM will be selling 25 lb. bags of Life Protection Formula for a price consistent with a 30 lb. bag on Chewy.com. Blue Buffalo is targeting a high single digits/low double digits share in its FDM accounts.  Said differently, they are targeting 8% – 10% share within the retailers that account for 8% – 9% share of the pet food market.

The most notable aspect of the call, was the fact that Blue Buffalo did not speak to PetSmart or Petco before announcing the launch, which had been in the works for close to a year.  Thus, there was no way for them to weigh the competitive response from their major pet specialty retail partners. Management’s response to analyst queries was akin to, “we are hoping for the best.”  Whether it was coincidental or contributory, PetSmart CEO, Michael Massey, resigned today (see press release here).  My sense is that Blue Buffalo did not want to alert these retailers ahead of their pending category resets.  This would have likely led to greater near term shelf losses as the superstores increase shelf space for their premium private label offerings.  Blue has demonstrated they understand the timing game and are playing it to their advantage.

And the pace of change for the pet industry keeps accelerating…

/bryan

Note: This blog is for informational purposes only. The opinions expressed reflect my view as of the publishing date, which are subject to change. While this post utilizes data sources I consider reliable, I cannot guarantee the accuracy of any third party cited herein.

 

 

 

 

 

 

 

 

 

 

 

blue dogOver the past year, we have covered, at length, the transitional phase that the pet industry now finds itself in.  We have encouraged market participants to question everything they have come to know as the “status quo” for the industry and assess the likelihood that it will continue to prevail over the next three, six, twelve months and beyond.  For those who have dismissed the potential for wholesale industry change, we have pointed to the current political environment as a proxy, where the historical standard for how business gets done has descended into a state of entropy.  While the pet industry’s state of change has not reached the point of chaos, many traditional barriers have in fact fallen and are not likely to be seen again.

And another one goes…

Yesterday, Blue Buffalo began informing customers that it has begun distributing a subset of the BLUE Life Protection Formula (LFP) to select mass and grocery retailers.  Product will begin showing up on the shelves of Target, Kroger, Meijer, and Publix in August.  The company stated, “We have decided that broadening the distribution of LFP, our entry-level natural pet food line, is the natural evolution of our go-to-market strategy.”  The company intends to focus on smaller bag sizes and more mainstream formulations in its FDM solution set.  The company’s other lines will continue to be pet specialty exclusives.  See the full letter here.

To some this will come as a surprise.  After all, the pet industry has relied on well-maintained channel boundaries wherein brands choose to focus on and remain loyal to either pet specialty or FDM as a means of garnering retailer support.  Within these buckets there are soft boundaries between independent pet specialty and major pet specialty and between mass grocery and natural grocery.   When a big brand jumps the turnstile it is a BIG DEAL.  However, in this case it appeared to be inevitable.

When Blue Buffalo went public in 2015, pet superstores accounted for approximately 70% of the company’s revenue and was growing at over 7%.  Fast forward to 2017, and pet superstores are expected to account for less than 55% of total company sales and their growth rate will contract over 6%.  This trend line is not expected to change, with further contraction contemplated going forward.  To offset the challenges within its core channel, Blue Buffalo launched other growth initiatives focused on the veterinary channel and international markets. We viewed these as simply stop-gap measures while the company waited for the right time to make its move to mass.  That time has apparently arrived.  However, it arrived in a somewhat unanticipated way.  Our assumption was that the company would partner with Walmart, but instead it chose Target and conventional grocery.  This leads us to believe that a Walmart launch will be a 2019 event.  Blue Buffalo will wait until its Target and grocery channel account sales anniversary and then launch in other mass accounts, providing them four years of baked in growth optics based on mid-year launches.  That is public company behavior hard at work.  As of this writing the stock is down ~ 2% on the news, but don’t expect it to stay that way.

Now that Blue Buffalo has made its move, the question is what is the competitive response.  Just last week Champion Petfoods and Fromm Family Foods were showered with praise from independent retailers due to their willingness to move off Chewy.com in light of its acquisition by PetSmart.  Just a week later they now are faced with a different decision as they both could undoubtedly enjoy a national roll out at PetSmart, Petco, or both if they are willing to embrace that opportunity.  Other brands that are likely to benefit include Chewy’s own American Journey, which could easily transition to an online/offline brand.  Nulo is another prime candidate given its performance in PetSmart and the emergence of its Freestyle line in independent pet specialty.  Brands like Nulo, who effectively straddle the inner channel boundaries, are likely to welcome the news of a Blue FDM launch.

From a retailer perspective, one has to believe that Blue Buffalo shelf space will decline in the near term, if only as a psychological feel-good moment.  The pet specialty channel has a strong reliance on Blue Buffalo, so it’s ability to have a meaningful response is, to a large extent, muted.  Some back of the envelope math would suggest that nearly 25% of Petco and PetSmart food sales are in Blue Buffalo products.  The likely answer will be less retailer financed marketing support, though Blue Buffalo can take up that spend through national ad campaigns.  Notably, the company intends to begin tagging commercials for its pet specialty exclusive lines with “available at your favorite pet specialty store”.  Independents may have greater perceived influence by curtailing product recommendations, but that only works if they can effectively steer potential customers into alternative brands. Many retailers have found that converting Blue Buffalo customers is harder than it looks.

Finally, we come to the leading FDM brands.  It’s natural to assume that Freshpet, Rachel Ray, and I & Love & You should be concerned.  After all, there is only so much space available for the pet category within these retail environments.  However, each of these companies have forms of differentiation that they can rely on be it form factor or brand attributes, so Blue Buffalo’s ability to drive traffic to the channel may in fact benefit them as consumers begin to rethink the role of their grocery retailer in fulfilling a critical mass of their pet spend basket.

Every day, the pet industry looks less like a behavioral outlier, and more like its human industry peer group.  The change the industry has undergone over the past 12 months is dramatic, but a new end game is starting to come into focus.  That should excite companies with innovative products, salient marketing messages, and strong execution capabilities.  To the victor go the spoils.

ETA: PetSmart bond prices have declined almost 4% since the announcement.

petm

/bryan

Note: This blog is for informational purposes only. The opinions expressed reflect my view as of the publishing date, which are subject to change. While this post utilizes data sources I consider reliable, I cannot guarantee the accuracy of any third party cited herein.

 

rx

I recently had the opportunity to speak at the First Annual Pet Food Investor Forum, sponsored by Susquehanna  Financial Group. The conference was primarily geared towards public equity analysts and it was interesting to see this class of market observers collectively hone in on a few key questions that were affecting the public equities in the pet food sector. Among those questions, one that came up with the greatest frequency was the prospects for Blue Buffalo to penetrate the veterinary channel.  The array of speakers were almost universally asked to proffer our views on this issue, as it is central to the next leg of the Blue Buffalo growth story.

Since Blue Buffalo announced its intentions in the professional channel, I’ve held the belief that it was likely going to struggle to gain penetration quickly. My view was grounded on two basic premises, neither of which speaks to the quality of their solution set, of which I have no knowledge.  The first is that this channel has some very strong incumbents, who have a long history with the channel and its practitioners. The vets I have spoken to suggest that is going to be hard to overcome given how hard it is to create access. Second, was that building sales in the veterinary channel takes time and requires fundamental research that Blue Buffalo might have a hard time producing quickly, unless they had started this process long before the commercialization efforts came to light. Blue has obviously overcome significant hurdles in its history to become a near $5 billion market cap company, and there is reason to believe that if you give them a long enough time horizon that they will make inroads. I only see it as a question of magnitude.

However, last week something caused me to begin to rethink my paradigm.  Lawyers in the State of California, on behalf of California, Minnesota, Georgia, and North Carolina filed a class action lawsuit against the major players in prescription pet food (Mars, Nestle, Hills) and a subset of their primary distributors of their prescription products (Banfield, BluePearl Vet, PetSmart).  The lawsuit contends, among other things, the following, (a) there is nothing unique in the ingredient deck of prescription pet food to differentiate it from non-prescription pet food, (b) the marketing, labeling and sale of these products is deceptive, and (c) the defendants are engaged in anti-competitive practices to sell these solutions at above market prices to consumers.  If you want to read the full complaint it is here.

While I am not a lawyer or a Holiday Inn Express customer, at first blush, it would appear this case is good for Blue Buffalo’s potential franchise in the veterinary channel.  If the plaintiffs were to win their case, it would likely open up the channel to competition, giving Blue Buffalo a seat at the table. Further, if successful, the case could erode the brands of incumbent players in channel, driving faster penetration and sales of Blue Buffalo’s prescription solutions through consumer requests. That said, Blue Buffalo would also have to deal with any implications of the lawsuit given it operates in the category. However, when one digs deeper, it becomes apparent that this case is far from a done deal.

Let’s first deal with the issue as to whether prescription diets should be allowed to be labelled as such.  It is correct that prescription pet food diets do not contain controlled substances and are not manufactured under purview of the FDA. However, they are formulated for specific conditions and feeding them to an otherwise healthy pet is likely, over time, to have consequences. This is what allows the manufacturers to call them “prescription”.  This is merely a labeling issue, and if changed would not make feeding them under general conditions advisable. Further, I don’t think this makes them deceptive by definition. The marketing of these solutions generally indicates they were formulated to specifically treat a condition, not that they contain a drug. These products recommend you only feed them under the supervision of a veterinarian, in case they don’t address an issue that needs addressing or there are negative side effects of feeding them. Personally, I don’t see how labeling them prescription harms consumers and in fact the prescription protocol is, in most cases, necessary to protect pets from self-diagnosis by their owner and improper application. That all being said, these products could be labeled differently and if we adhere to a standard that the label prescription only covers controlled substances a change should be made. Whether that impacts anything beyond that does not, on the surface appear to be all that damaging.

The question of whether they are “different” is where things start to get muddy.  What defines a prescription diet is the inclusion of certain vitamins and minerals that are scientifically proven to help address a specific condition — kidney, cancer, obesity, skin, digestive, etc. The claim that these ingredients could be found in other pet food products sold without a prescription does not make them the same. The notion that pet food is pet food because all of the ingredients are generally available does not hold water in my view. If it did, pet food would only be sold in flavors, formulations and brands would not matter. I suspect lawyers from the manufactures cited in the cause of action have parsed these issues for their clients many times. We also know that brands matter in this category, Blue Buffalo’s success being a prime example of that.

Finally, I can’t speak to anti-competitive behavior, as I don’t know what goes on behind the scenes, but the pricing claims make me smile.  The cost of pet food has escalated significantly post-recession (40% on average on a per pound basis since 2011 according to GfK) without much of a peep from lawyers, despite the fact that class action lawsuits in the pet category have escalated significantly.  The prices of of most Hill’s Prescription Diet dry dog food solutions in 25 lb. bags runs between $80 – $85 online, approximately $3.25/lb.  This translates to approximately $2.40 per 1,000 calories, while higher than premium kibble at $1.75 – $2.25, this is significantly less than dehydrated ($5 – $8), premium cans ($7.5 – $10), frozen raw ($10 – $11) and premium freeze dried ($11 – $18).  If there is outrage around the price, it should be kept in context. When combined with the notion that these solutions are in fact different, these claims lose some of their veracity.  For me, you would have to believe that the veterinarians are coercing their clients into buying these solutions because they have no other choice and then providing them no other means of access than to pay the price for which they are selling them. However, these solutions are available online and transactions are facilitated through prescription verification providers such as Vetsource.  This feels much like a contact lens parallel.  Are there drugs in contact lens? Ponder that.

The net of all this is that it will spur dialog about labeling of these solution sets, and consumers who have purchased these products may end up with coupon books or rebates from manufacturers, but I don’t see that as providing a meaningful recasting of the competitive landscape for the prescription pet food.  And while Blue Buffalo should be a beneficiary in the near term, it is unlikely this provides them the runway they need to rapidly penetrate the channel.

/bryan

Note: This blog is for informational purposes only. The opinions expressed reflect my view as of the publishing date, which are subject to change.  While this post utilizes data sources I consider reliable, I cannot guarantee the accuracy of any third party cited herein.