Candy giant Mars Inc. agreed to buy animal-hospital chain VCA Inc. for about US$9.1 billion on Monday, marking the biggest ever deal in the pet care industry.
Mars has been suffering from slowing demand for packaged candy.
Mars was founded in Washington in 1911 and has now been passed on to the fourth-generation Victoria B. Mars.
The company had sales revenue of US$33 billion in 2015, making it the seventh largest private company in the US. The company owns Mars chocolate bars, M&M, Snickers, Twix, Skittles and Extra.
However, chocolate and candy sales growth has continued to slow in recent years as consumers switch to a healthier diet.
It’s estimated that the top 10 chocolate brands’ unit sales dropped by 2.3 percent to 6.6 billion for the 52 weeks to August 7, 2016 from the previous year.
US chocolate sales value increased by a marginal 1.6 percent to US$13.6 billion in the same period.
Unit sales of M&M, Snickers and Twix, three brands owned by Mars, fell 0.7 percent, 1.1 percent and 4.4 percent, respectively.
Mars ventured into pet care industry in 2000 and has been growing its pet-related business since then.
The company bought pet food maker Canin in 2001 and then acquired dog food brand Nutro in 2007.
In 2014, it acquired pet-food brands from Procter & Gamble Co. for US$2.9 billion and became the world’s largest pet food company with a 26 percent market share.
The pet food industry generated up to US$17.2 billion in revenue for Mars in 2015, representing 52 percent of its total revenue. That means pet food has replaced candy and chocolate as its major source of revenue.
VCA operates almost 800 animal hospitals in the US and Canada. It would enable Mars to expand its presence into the pet care industry in its deeper push into the pet sector. And the veterinary hospital chains would also help boost sales of its pet food products.
The pet food, supplements and care markets grew 4.2 percent, 4.9 percent and 3.2 percent, respectively, last year, according to data from the Pet Food Institute.
That exceeded the average growth of 3 percent in the overall consumption market.
And it shows consumers are willing to spend more on their pets, buying quality, tasty and organic pet food, as well as taking their pets to pet beauty salons.
As it’s increasingly difficult to convince consumers to spend more, the pet industry might be where real opportunities lie.
This article appeared in the Hong Kong Economic Journal on Jan. 18
Translation by Julie Zhu
[Chinese version 中文版]
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