Colgate losing share in petfood market

Colgate is best known for toothpastes and soap, however about one out of every $7 in sales and profit comes from the Hill’s pet-food division, or roughly 13% of the consumer-product company’s $17 billion in annual sales. But for the past few years, pet food has been the dog of the portfolio—in part because of its name and ingredients.

The Hill’s main brand, Science Diet, which is sold only through specialty stores, justified its high price tag by using research to back up claims that its recipes proteins, carbohydrates, vitamins and other ingredients derived from corn, grains and meat products were particularly good for pets.

But the market has changed and consumers want dog and cat foods with ingredients and flavours that mimic their own meals. Hill’s tried to respond with foods like Science Diet Nature’s Best, whose ingredients included lamb, brewers rice, soybean meal and apples. But “the consumer had a disconnect with this idea of Science Diet and a naturals product,” Ian Cook, Colgate’s chief executive, told investors last year.

“People now think of Science Diet as something artificial and not natural,” says Javier Escalante, an analyst with Consumer Edge Research in Stamford, Conn.

Hill’s was founded in 1948 and acquired by Colgate in 1976. The company expanded the brand to over 95 countries. The division became a source of consistent growth and a star performer in Colgate’s portfolio. It also makes food under a Prescription Diet brand that veterinarians recommend for certain ailments.

When Colgate posted fourth-quarter results, sales and profit were up, but in the Hill’s petfood business sales fell 1%, and operating profit declined 2%. In 2011, Hill’s share of the US dog and cat food market was down to 9.4% from its peak of 10.7% in 2008, according to Euromonitor International.

Hill’s has lost share to smaller makers of petfoods containing high-quality meats, vegetables, whole grains and fruits as their main ingredients. Companies including Blue Buffalo Co. have used marketing campaigns to persuade pet owners to read ingredient labels and avoid foods containing corn, meat by-products and preservatives.

In 2011 sales of petfood in the US were $18 billion, up 15% from 2006, according to market research firm Mintel Group, which expects pet food sales to hit $21.2 billion by 2016. So Colgate is not looking to move out of this lucrative market but plans to launch a line of petfood without the Science Diet name. Hill’s Ideal Balance will be its first new brand product since 1968 is scheduled to hit store shelves in March. The foods will contain ingredients like chicken, salmon, fruits and vegetables, and no corn, wheat or soy.

The company also recently reformulated its core Science Diet line, listing meats and natural ingredients prominently and doing away with chicken by-products and artificial flavourings.