NSRGY Nestle SA (PK)

By Saabira Chaudhuri 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 14, 2020).

Pet food sales are soaring, boosting revenue at packaged-food giants that have struggled in recent years selling staples like frozen food, cereal and bottled water.

Nestlé SA, the maker of Nescafe coffee and KitKat chocolate, said its North America volume growth for the year was the best in a decade, buoyed by strong sales of its Purina brand. The boost comes amid a yearslong fight by packaged-goods companies to keep up with fast-changing tastes. Pet food has been a bright spot.

Nestlé's strong pet food showing, disclosed as part of its annual earnings, comes after General Mills Inc. said in December that pet food sales helped it outweigh weaker snack bar and yogurt sales in its latest quarter.

In developed markets, later marriages and smaller families are propelling consumers to focus on their pets. Petfood sales globally have climbed 61% since 2010, according to research firm Euromonitor.

But some of the headwinds that have buffeted big consumer-goods makers in selling food for humans are creeping into the pet food business. Nestlé, Kraft Heinz Co., Unilever PLC and other packaged food makers have fought to keep up with smaller, nimbler brands offering healthier or more locally sourced packaged-food options.

As pet owners increase their spending, brands are rushing to sell organic, customized, grain-free and other kinds of pricey pet food. In 2018, General Mills bought premium pet-food maker Blue Buffalo and Nestlé that year bought a majority stake in British tailor-made dog food company Tails.com.

Nontraditional players are moving in as well. Amazon.com Inc. rolled out premium pet-food brand Wag in 2018. Actor Will Smith and musician Nas invested in dog food startup Jinx Inc., which blends meats with so-called superfoods like avocados and sweet potatoes.

In November, J.M. Smucker Co. blamed intense competition for a drop in premium pet food sales, lowering its overall outlook.

Nestlé and Mars Inc. -- which between them control 43% of the global pet food market -- have been trying to defend share by investing in emerging pet foods and snacks. Nestlé last year held a pet-care summit to hear pitches from startups in the field. It funded a U.S. startup, Basepaws, that sequences the DNA of cats to provide health and dietary recommendations to customers and a dating app called Dig that connects like-minded dog owners. Mars is running similar events and offering to help startups that use cricket protein and hemp to make pet food and supplements.

Underscoring the pressure on consumer giants to find new growth avenues, Nestlé lowered Thursday its sales guidance for 2020, saying it no longer sought to achieve mid-single-digit growth in organic sales. It delayed that target to 2021. Shares in Nestlé fell more than 2% after it released its earnings and guidance.

Nestlé's overall organic sales growth -- a key measure that strips out currency changes, acquisitions and divestments -- rose 3.5% last year.

Its North America volumes were driven by online sales of its Purina PetCare brand. Upscale brands like Purina Pro Plan -- marketed as a "scientifically-formulated" food made from high-quality ingredients -- and Purina One performed well in the U.S., while its Tidy Cats litter reported double-digit growth. Purina also sold strongly in Europe and Japan.

Nestlé's net profit for the year rose 24.4% to 12.6 billion Swiss Francs ($12.9 billion), boosted by a one-time gain from the sale of its skin-health arm. Total sales rose to 92.6 billion francs from 91.4 billion francs a year earlier.

Under Chief Executive Mark Schneider, Nestlé has sold off slow-growth products and invested in areas like coffee, plant-based foods and vitamins. That has contributed to its improving performance. On Thursday, Mr. Schneider said Nestlé would continue to review its portfolio and pivot toward high-growth businesses.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

February 14, 2020 02:47 ET (07:47 GMT)

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