Mars Inc.'s Acquisition of VCA: More Fidos, Fewer Sugars

Where pets are to be found, so are profits. It’s a business strategy that has allowed Mars Inc. to multitask as one of three leading food companies (along with Nestlé and J.M. Smucker) that in combination control two-thirds of the U.S. pet food market.

Although primarily associated in the pet industry context with its mass-market pet food and treat brands, Mars is also a leader in veterinary channel pet food sales through its Royal Canin Veterinary Diet offerings, and well as in pet channel specialty pet food sales through the acquisition of high-end brands such as Nutro in 2007 and Natura in 2014. 

To further diversify its revenue streams, Mars has also steadily increased its presence in the veterinary services segment.  Mars Petcare for a decade has owned Banfield, which operates many of its 800+ primary care clinics inside PetSmart locations. In 2015, Mars acquired BluePearl, the nation’s largest chain of companion animal specialty and emergency care clinics. The company’s recently announced acquisition of pet health company VCA for $9.1 billion is the latest move to expand the Mars Petcare business portfolio, already the company’s largest and fastest-growing division.  The VCA deal adds nearly 800 animal hospitals to Mars’ veterinary services presence.

In U.S. Pet Market Outlook, 2016-2017, Packaged Facts identifies the veterinary services segment as the pet industry’s second largest, with $24 billion in revenue compared to $30 billion for pet food.  Despite ranking second in size, the veterinary channel’s year-to-year sales growth doubled that of pet food (at 6% vs. 2.7%) in 2015, and since 2013 has outpaced pet food, now that the pet “humanization” and corresponding pet food premiumization trends are yesterday’s news.

Veterinary clinics, moreover, are a niche but influential channel for specialty pet food sales:  Packaged Facts National Pet Owner Survey data show that 7% of dog owners and 5% of cat owners purchase veterinarian formula/prescription pet foods. When looking for guidance on which brands to feed their pets, especially given the central role that wellness positionings play in the highly competitive superpremium pet food segment, who better for consumers to trust than their vet?

The VCA deal “gives Mars further latitude for growth beyond the mass-market product arena,” observes David Sprinkle, research director for Packaged Facts. That’s especially important because it’s not just kibble sales that have flattened in the mass market; the same is true for candy. Even in the case of Mars, with its globally iconic portfolio of chocolate and non-chocolate (sugar) candy brands, confectionery manufacturers face considerable challenges to growth, as noted in Packaged Facts’ recent report on the Chocolate Candy Market in the U.S.

For candy, as for many of the top indulgence categories in packaged food retailing, a combination of market maturity, regulatory and public health pressures, epidemic-level weight and obesity concerns, heightened nutritional consciousness, and increasing adoption of healthier eating options all conspire against sales expansion.

 So it’s not purely a coincidence that Mars’ acquisition of VCA coincides with the FDA’s new rules on added sugar labeling, given that sugar is at the heart of the candy market (even if most would consider cacao its soul), and of candy’s ageless appeal. But “pets have become the new favorite pick-me-up,” comments David Sprinkle, “and are a healthy choice at that.”