Consumer products conglomerate Procter & Gamble Co. announced yesterday that it will pay $2.3 billion to acquire Iams Co., a popular maker of premium pet foods known for its tiny paw-print logo and higher-priced meals for finicky cats and dogs.
Procter & Gamble, famous for Tide detergent and Pampers, is making its first foray into the $25 billion pet-food business and grabbing one of its stars. Closely held Iams had more than $800 million in sales last year, making it one of the nation's largest producers of premium cat and dog food.
Founded in 1946 by animal nutritionist Paul Iams, the Dayton, Ohio, company has catered to doting pet owners and has allowed its products to be sold by a select group of retailers and veterinarians. Over the years, it has groomed legions of faithful customers.
"It has been a grass-roots approach over the years, working hard at dog and cat shows and with breeders and veterinarians who recommend the foods," Iams spokesman Bryan Brown said.
The question is, how will the Procter & Gamble, the world's most prominent mass marketer, handle a company that has built successful brands specifically by not catering to the masses?
Procter & Gamble officials say it's too early to tell. But they acknowledge that the company clearly intends to grow Iams. "We do plan to expand distribution beyond the specialty stores at some time," spokesman Don Tassone said.
But bringing Iams products to Wal-Mart and Food Lion shelves could backfire, analysts said. Customers, they said, might perceive a more mainstream brand to be less desirable. Furthermore, Procter & Gamble might alienate specialty pet stores who now carry Iams and its sister brand, Eukanuba.
"It's almost like shooting yourself in the foot," said Robert Izmirlian, an analyst with S&P Equity Group in New York.
James Myers, chief financial officer of the Petco Animal Supplies chain, said he was concerned about Procter & Gamble's plans and how they would affect his company and the Iams lines.
"They need to clearly think it through before they make any significant change," Myers said.
But Procter & Gamble clearly needs a shot in the arm. Many of its brands have matured and are facing new and strong competition. Wal-Mart Stores Inc., the nation's largest retailer and one of Procter's important customers, has announced plans to introduce a private-label detergent that will rival Tide.
Procter's sales inched up just 2.6 percent in fiscal 1999 to $38.1 billion. Chief Executive Durk Jager, who began leading the company this year, has said he hopes to increase annual revenue by 6 percent to 8 percent through acquisitions, tweaking older brands such as Tide and rolling out new products.
Procter & Gamble's shares fell 50 cents on the New York Stock Exchange yesterday to close at $93.25.
Procter & Gamble has been introducing more higher-priced items such as its Febreeze fabric refresher and its Oil of Olay line of cosmetics. Iams also targets customers willing to pull a few more cents out of their wallets to pamper their pets with nutritional and tasty treats--a niche that has been among the most profitable in the pet-food business, analysts said.
This sector has been growing so fast that some analysts jokingly question whether pets eat better than their owners. "Considering the lines I see at McDonald's every day, I'd probably say yes," said analyst Jeffrey Kanter of Prudential Securities.