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The Honolulu Advertiser
Posted on: Thursday, July 12, 2007

Pet food sales growth takes hit

By Julie Schmit
USA Today

Almost four months after the pet food industry's largest recall began, its sales growth is off, and many products still are missing from store shelves.

Only about 15 percent of the dog and cat foods recalled are back, says Petco, the nation's No. 2 pet food chain. It expects to stock half by July 31, says Dave Bolen, chief merchandising officer. He says dog and cat food sales are below pre-recall levels but ahead of last year.

PetSmart, the biggest pet food chain, also says few products have returned, but that the bulk are expected in the next few months.

Some products will take longer to return, and some have been discontinued, says Michelle Friedman, PetSmart spokeswoman. The recalled Iams products aren't expected back until next year, she says.

In June, Menu Foods, which made most of the recalled products, said it was dropped by a "significant" customer for future cuts-and-gravy orders. That customer is Iams, says Cormark Securities analyst Aleem Israel, who covers Menu. Menu and Iams refused comment. Iams' cuts-and-gravy products accounted for 11 percent of Menu's 2006 revenue.

The recall, announced mid-March, affected about 100 brands from Wal-Mart's Ol' Roy to higher-end Iams and Nutro. Most were canned products.

Pre-recall, pet food sales were growing about 5 percent, says Terry Block, president of Nestle Purina PetCare's North America division. For the 12 weeks from Feb. 25 through May 19, sales were up 4 percent year-over-year, he says. Nestle says it's gained share since the recall.

Friedman says Menu's products are taking time to return because Menu is crafting and applying new safeguards to prevent problems, including more testing of raw ingredients. Petco also says some brands reformulated products and packaging.

The recall occurred after contaminated ingredients from China were used in the foods, reportedly sickening thousands of dogs and cats nationwide. The Chinese government has said two firms illegally added melamine, an industrial chemical, to the ingredients to make them appear more protein-rich than they were. The Food and Drug Administration now restricts such ingredients from China until tests show they're safe.

The recall has spurred more people to buy premium, natural, organic and raw products, Bolen says.

That was happening before mid-March but likely gained momentum after the recall, says David Lummis of Packaged Facts, a market research firm. In a recent report, he said, "billions of dollars" in pet food brand sales are up for grabs as a result of the recall.

That's obvious to premium-brand Evanger's Dog and Cat Food. Its sales have quadrupled since the recall, says owner Holly Sher.