“As consumers shift online, we have to get our fair share,” says Mark Smucker, CEO of J.M. Smucker Co.
Consumer packaged goods manufacturer J.M. Smucker—the company behind Smucker jams, Jif peanut butter and Folgers coffee—gets most of its sales through stores, but e-commerce is growing. Smucker says online sales currently account for about 3% of Smucker’s business.
The online sale of pet products—Smucker’s got into the product category when it bought Big Heart Pet Brands in 2015 for $5.8 billion—is propelling Smucker’s growth online. In the first three quarters of the current fiscal year, pet sales through e-commerce have surged 70%, according to the retailer. Big Heart Pet Brands include Meow Mix, Milk-Bone, 9Lives, Natural Balance and Pup-Peroni. Pet products give packaged-food companies a way to access the growth of e-commerce, a key initiative in the industry as Walmart Inc. (No. 3 in the Internet Retailer 2017 Top 500) and Kroger Co. (No. 88) ramp up the delivery of groceries in the aftermath of Amazon.com Inc.’s (No.1) acquisition of Whole Foods Market.
The pet products category is thriving as Americans increasingly treat their animals like family members. High-end pet food has surged 33% industrywide over the past five years and now accounts for more than 50% of the market.
Smucker is coping with a consumer shift away from longstanding supermarket staples, a trend that contributed to a sales decline last year and has it exploring a sale of its U.S. baking unit, which generates roughly $370 million in annual sales. In this environment, it is looking to capitalize further on American consumers’ willingness to splurge on their pets.
Smucker is buying Ainsworth Pet Nutrition in a deal valued at $1.9 billion. The transaction, which gives Smucker a brand of premium dog and cat food backed by celebrity chef Rachael Ray, will amount to about $1.7 billion when excluding a $200 million tax benefit. Ainsworth Pet Nutrition also owns the Dad’s brand of pet food and the Better Than! brand of pet treats. Ainsworth generates about two-thirds of its sales from its Rachel Ray Nutrish brand.
“This brand fits exactly where we need it to—it’s very important to continue to gain scale where it’s relevant,” Smucker says.
Smucker generates about 85% of its revenue in the U.S., and the acquisition of Ainsworth will make pet food its largest business unit, accounting for about $3 billion in sales.
Smucker is the latest food company to tap into the upscale pet market. General Mills Inc., mired in a three-year sales slump, agreed in February to buy Blue Buffalo Pet Products Inc. for about $8 billion.Favorite