A number of the U.S. food companies have followed the current fad to purchase dog and cat chow companies with the aim of making them the products that save their sagging sales.
J.M. Smucker is simply the latest to prove that the strategy isn't working as a future growth driver. In addition to the fact that, while pet food supplies are big sellers, if all the big food companies are jumping in with their own brands, then the strategy's edge is automatically diminished. It's been curious to observe that, rather than trying to upmarket their legacy brands - in Smucker's case, their jams, Jif Peanut Butter and Folgrs coffee - the firm's leaders somehow became convinced that pet chow would be the wave of the future. To prove how wrong that thinking was, Smucker has reported that sales fell 6% percent from a year prior (ref. WSJ). The company also lowered the guidance for its full fiscal year through April, reporting that it expected net sales to be flat or fall 1%. Reasons given for the unanticipated drops were that coffee and peanut butter prices deflated and that increased competition in premium pet food didn't result in a pay-off for their $1.7 billion purchase of a pet food company during the year previous. CEO Mark Smucker stated that the competitive intensity in the pet food segment was transitory and would soon pass, which seems questionable. Food companies have embraced the purchase of pet food companies because of the pet food products' high margins, strong brand loyalty and the belief that people are spending much more on their pets these days. Certainly, those things are true. But the first loyalty of all the big food companies needs to be to their legacy brands. These companies, for the most part, consistently have the belief that their legacy brands will sell themselves - which should have been proven by now to be an inaccurate assumption. As I've stated previously in these posts, the legacy brands are the most important assets that these companies have. And, needless to say, I agree with Aaron Back, writing in the Journal, that "ensuring that a company's core brands appeal to contemporary, human consumers remains the most important thing."