Mars Inc., buys another animal hospital chain as candy sales drop(Read article summary)
As sales of packaged foods decline, the booming pet foods and services sector has attracted global food companies.
Diane Bondareff/Invision for Banfield Pet Hospital/AP
Mars Inc., the century-old, global company best known for making M&Ms and Skittles, on Monday said it will buy a Los Angeles-based chain of animal hospitals, VCA Inc.
The $7.7 billion deal, not including debt, will expand the company’s pet-products portfolio, which already includes Portland, Ore.-based pet hospital chain Banfield Pet Hospitals, and pet-food brands Whiskas, Pedigree, and Royal Canin. Pet-focused products are already the second largest contributor to the candymaker’s $35 billion annual revenue, as Bloomberg points out.
At a time when sales of candy, soda, and other junk foods are declining, the pet food and services business offers immense rewards. According to the American Pet Products Association, pet owners spent about $60 billion on their beloved furry companions in 2015. Spending on pet food, supplies, and veterinary care has grown by about 4 percent annually in recent years, the pet products association estimates.
"Why double down on food when it's not growing that fast?" Ken Shea, an analyst at Bloomberg Intelligence, told Ad Age.
It’s no surprise then that packaged-food companies including Mars, which also makes Uncle Ben’s rice and Dolmio pasta sauce, Nestlé (the company behind Nescafé and KitKat), and jellymaker J.M. Smucker are vying for a share of the lucrative pet market. Mars already owned about one-fifth of the global pet food and care industry before Monday’s acquisition announcement, according to Bloomberg.
Meanwhile, packaged-food sales have been on the decline amid growing awareness and concerns about the sodium and sugar content of processed foods. “Over the last several decades, really since the Second World War, heavily processed or packaged foods – more convenient foods – were embraced by moms-at-home and women wanting to get into the workforce,” Alexia Howard, a food analyst at business research firm Bernstein, told Marketplace in March 2015. But these days working parents have a world of nutrition information at their fingertips, so sales of such quick-to-prepare products as Jell-O and TV dinners have been declining, she says.
As increasing consumer awareness about food ingredients and nutrition has steered food companies toward a market of less picky, four-legged eaters, it has also motivated fast-food brands, and candy and soda manufacturers, to turn their attention to the profitable business of making more healthful foods for humans. Nestlé's nutrition and health revenue grew 25 percent from 2013 to 2015, for example, while its confectionery revenue dropped 14 percent, reports Business Insider.
These kinds of numbers have helped push companies such as Nestlé, and also Mars, to promise to cut sodium from their foods. Mars, Pepsi, and Kellogg’s have committed publicly to limit sugar in their products in order to maintain international nutritional guidelines. Taco Bell already has cut sodium levels in its food by 15 percent, according to USA Today. And fast-food chains such as Papa John’s, Pizza Hut, and Subway have said they will cut artificial ingredients from their food, reports Business Insider.