With Nestle Acquisition of Merrick Pet Care, Mass Market and Specialty Spheres Draw a Little Closer

Nestlé Purina will acquire Merrick Pet Care, a leading natural pet food brand in the U.S., from Swander Pace Capital, Merrick’s private equity owner. Terms were not disclosed. Merrick, which has operations in Texas and Illinois, will continue to operate as an independent business unit.

Merrick specializes in superpremium natural dog and cat foods and treats. Its brands are sold through pet superstores, independent pet stores, natural food supermarkets, and online. In addition to its eponymous brand line, Merrick markets Castor & Pollux Organix pet food, Ultramix natural pet food, and Good Buddy natural pet treats, as well as Whole Earth Farms, a bridge pet food brand into the natural category. In 2012, Merrick became the first certified organic manufacturer of both dry and wet pet foods under the USDA National Organic Program. Along with Merrick, the top players in specialty channel natural and organic pet food include Blue Buffalo, Natura, Natural Balance, Nutro, and WellPet.

As Packaged Facts reported in our study on Natural, Organic, and Eco-Friendly Pet Products in the U.S. (October 2014), U.S. retail sales of natural pet products exceed $7 billion and achieved a 15% compound annual growth rate over the 2010-2014 period. Natural and organic pet foods account for the bulk of these sales, at $6.6 billion. In pet food as in human food, such extraordinary growth rates, albeit from a much smaller sales base, have inevitably drawn the attention of the giant mass marketers.

Nestlé’s Purina division remains the pet food kingpin: Packaged Facts estimates that Purina corners 35% of dog and cat food sales in the U.S., or seven times the dollar share of Blue Buffalo, the top-selling specialty natural pet food brand. In contrast to fast-growing sales for specialty channel natural pet foods, however, the mass-market dog and cat food categories are flat at best, and mass-market dry pet foods in particular are posting incremental declines in dollar as well as volume sales.

The big three mass marketers of pet food—Nestlé Purina, Mars and Big Heart Pet Brands (recently acquired by J.M. Smucker)—are therefore all investing heavily in the natural segment via brand reformulations, new product introductions, and acquisitions. In July 2014, for example, Nestlé Purina revamped its Purina One Beyond line as Purina Beyond, renamed to distinguish itself as a natural pet food brand. Grain-free and superfood ingredient varieties were integrated into Purina Beyond, thereby aligning with specialty channel natural pet food counterparts.

Previously, in a deal that closed in December 2013, Nestlé Purina acquired Zuke’s, a specialty channel-focused natural pet treat company based in Durango, CO. Zuke, like Merrick, benefits from acquisition by global giant Nestlé in international market expansion potential, especially in Europe. The domestic U.S. manufacturing of Zuke and Merrick, in turn, will be attractive to specialty pet product shoppers internationally in an era of heightened concern over pet product manufacturing safety and ingredient quality standards.

“Merrick has especially claimed leadership in the ‘humanization’ of dog and cat food,” notes Packaged Facts publisher David Sprinkle. “This involves not only marketing superpremium natural and organic pet foods, but aligning with human food trends such as grain-free, limited ingredient, raw, or locally sourced, positioning its product formulations as ‘recipes,’ and pushing the pet pampering envelope with gourmet and sometimes playfully retro flavor varieties.”

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