Sunday, March 19, 2000
P&G ready to prove worth of Iams merger
Premium pet food gets wider distribution
BY RANDY TUCKER
The Cincinnati Enquirer
According to the tag line of its long-running national ad campaign, Procter & Gamble's recently acquired Iams brand pet food is already “Good for Life.”
But life — even for the most pampered dogs and cats — can always get better, says Jeff Ansell, former head of P&G's baby care division and president of The Iams Co.
Improving the lives of dogs and cats has long been the mission of the Dayton-based premium pet-food maker, which P&G bought last August for $2.3 billion in cash.
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IAMS CO. FILE
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• Dayton, Ohio-based maker of two premium pet-food brands — Iams and Eukanuba — that Procter & Gamble acquired for $2.3 billion in September.
• Until this month, its brands were available only in pet stores and through veterinarians. In Greater Cincinnati, Iams products now are available at all 69 area Kroger locations.
• Iams' arrival in stores sets the stage for a pet-food war, pitting the $38 billion P&G Cincinnati consumer-goods giant against such industry heavyweights as Ralston Purina and Friskies.
• Iams, around for more than 50 years, posted $500 million in annual sales last year in 77 countries.
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Now, as a result of the combined strengths of the merged companies, more pets and their owners will benefit from that mission — and so will P&G's bottom line, Mr. Ansell said.
“One of the reasons this is such a great fit — Iams & P&G — is that a lot of the fundamental beliefs and philosophies between the two companies are very, very similar,” he said. “One of those being a deep and continued investment ... to develop products that truly make a difference.”
That product development is a cornerstone in Durk Jager's vision for P&G in the 21st century. As part of the sweeping Organization 2005 restructuring plan, product development is key, the company's president, chairman and chief executive has said.
Organization 2005 will cut 15,000 jobs worldwide, nearly 14 percent of P&G's work force, and eliminate redundancies in management and manufacturing to get new products to market faster. The end result is expected to be a boost in annual sales growth by as much as 8 percent and profit growth by as much as 15 percent.
Even closer scrutiny will be focused on Organization 2005 in light of P&G's recent stock drop, triggered by less-than-expected profit increases for the third quarter and fiscal year.
A good example of Mr. Jager's demand for new products is Iams' new “Hair Ball Care” cat food, which Iams developed to eliminate one of the more unattractive by-products of cats' natural tendency to lick their fur clean.
“The unique fiber system, which is patent pending, in Iams Hair Ball Care formula results in ingested hair ... gently moving through the cat's digestive tract and winding up in the litter box, not on the carpet,” Mr. Ansell said.
The obvious appeal of the new feline delicacy could make it a big seller among cat owners.
But before Iams' merger with the Cincinnati-based packaged-goods giant, many potential buyers would probably never have seen the product.
Until recently, Iams pet foods were sold exclusively in pet supply stores, veterinary offices and clinics, feed and farm stores, and pet grooming and boarding outlets in the United States and 77 foreign countries.
But P&G officials said their own research shows that 70 percent of U.S. pet-food buyers never shop for it in specialty stores.
On March 2, P&G began moving Iams into more than 25,000 grocery stores across the country, including Kroger stores in Cincinnati.
“Had P&G and Iams not come together, we would not be launching this product nationally into thousands and thousands of outlets,” Mr. Ansell said.
As P&G expands Iams nationally and across the globe, into Asia and other new markets, it is increasing Iams manufacturing capabilities to keep up with the growth.
Last month, P&G announced plans to spend $15 million to expand the Iams plant in Leipsic, Ohio — north of Lima in Putnam County — and to hire more workers there and at its plant in Lewisburg, just north of Dayton.
Iams plans to consolidate dry food production in Leipsic, freeing up the Lewisburg research and production facility to concentrate on specialty veterinary and therapeutic pet foods, including its super-premium Eukanuba brand.
So far, P&G has decided to leave Eukanuba to the specialty retailers, although some industry watchers think it's only a matter of time before Eukanuba can be found alongside Iams in grocery isles.
In the meantime, Iams will lead the foray into the mass market, where demand from retailers has been brisk and led to one of P&G's biggest national launches.
“By the time all the orders came in, it was going to require about 2,500 trucks (for delivery) day one, and 3,600 trucks in the first two days,” Mr. Ansell said. “Just to put this in perspective from a supply and logistics standpoint, the previous biggest launch in P&G's history required about 715 trucks.”
P&G is counting on Iams mass-market introduction to generate much greater sales volume, while still maintaining the brand's high profit margins.
Iams — priced at about $17 for a 20-pound bag — has already met the speed-to-market goal.
Its national launch came a little more than seven months after P&G acquired the brand.
That's record time compared to some of P&G's earlier new product introductions, which commonly took up to two years or more from test markets to mass distribution.
But rolling out Iams products on a mass-market scale is only part of the litmus test that many P&G shareholders will use to determine whether Iams was a smart buy, experts say.
Some shareholders have criticized P&G's senior management for paying more than $2 billion for a company that posted only $800 million in sales last year.
But those sales were in limited distribution, and many analysts expect Iams' following to grow now that it's available at more locations.
Those analysts have been expecting the move to general stores since P&G first announced it was buying Iams.
“It's a shrewd strategic move on P&G's part,” said retail analyst Burt Flickinger III, managing director of Reach Marketing.
If consumers respond, Iams can have the same impact on the premium pet food market that P&G's acquisition of Charmin and Folgers had on those product categories in the 1960s, Mr. Flickinger predicted.
P&G officials are quick to point out that its health care division has already benefited from the integration of Iams, which has boosted the unit's sales and earnings significantly, they say.
P&G is convinced the numbers will continue to improve as more new Iams products are introduced and become more widely available, as long as the products' quality is not compromised.
Not a chance, said Iams' Mr. Ansell.
“The real big idea with Iams and P&G coming together is to go further and faster in bringing to life the Iams company mission, and that mission is to enhance the well-being of dogs and cats by providing world-class quality food,” he said.
Helping to ensure that quality, Iams recently recruited biotechnology company Galileo Laboratories Inc. to help identify new ingredients for Iams products that can help meet the specific health needs of pets.
Galileo is known for embracing the same core values as Iams — improving product quality through innovation — which makes the California-based company a great partner for helping Iams expand its product line, Mr. Ansell said.
“As time has gone on, we have found, and we continue to find terrific opportunities to deliver what I would described as health care benefits via nutrition,” he said. “The relationship with Galileo is really along those lines.”
Iams is also sure to tap into P&G's vast scientific knowledge and research and development expertise.
“Our research and development experts at Iams are having a field day working with their counterparts at P&G,” Mr. Ansell said. “P&G obviously has a great deal of scientific expertise in nutrition ... and these are areas in which we're always looking for technology transfer.”
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