Pets Are People, Too, You Know

At least, P&G's Iams treats them that way, fitting human products to Fido's needs

In 2000, A. G. Lafley came to the top job at Procter & Gamble Co. (PG ) with dog food on his plate. P&G had paid $2.3 billion the year before to buy Iams Co., with its Iams and Eukanuba lines of pet food, and quickly took Iams from specialty shops and veterinarian offices into 25,000 retail outlets. Such distribution muscle has helped the unit double sales to $1.7 billion last year from $800 million in 1999.

But Iams' growth is about more than just distribution. It also illustrates how the innovation machine at P&G, which has tapped different divisions to jazz up Iams with technology designed for humans, can rev up sales. Soon after the acquisition, P&G created a tartar-control coating for all of its adult pet food, adapted from the polyphosphate technology used in its Crest toothpaste line. The company is extending that formula to treats early next year. And down the road, it is considering pet-oriented extensions for everything from the Swiffer sweeper to Febreze odor remover. P&G also is thinking about introducing a pet shampoo. The goal: to profit from a global trend toward treating pets as family members, with all the pampering and products required by that higher status. "There are great similarities between the mother-baby bond and the owner-pet bond," says Iams' President Jeffrey P. Ansell, who previously worked in P&G's Pampers division.

More important, perhaps, is the way in which P&G sparked a cultural revolution within the pet food division. Iams, which was founded in 1946, has morphed from a somewhat inward-looking animal nutrition company into one aimed at, as Lafley likes to say, delighting the customer. That means more emphasis on satisfying owners' demand for such pet treats as savory sauces in Sizzlin' Bacon and Country Style Chicken flavors to sprinkle on dog food, much like a cheese sauce a mother would use to spice up broccoli. "Before joining P&G, we were pretty arrogant," says Diane Hirakawa, Iams' senior vice-president for research and development. Nutrition was all that mattered. Nobody really cared if people wanted a little something to spoil their pet. "We would never ask the consumer anything."

P&G's innovations draw from the company's practice of conducting extensive consumer research through everything from focus groups to home visits. Among the findings were consumers' persistent concerns about dealing with cats of different weights in the same household. The fat ones would simply eat from the skinny ones' bowls if owners tried to cut back. That led to Multi-Cat, a dry food with Vitamin A and L-Carnitine to reduce fat in heavier cats -- and high protein to help lean cats maintain muscle mass.

P&G, meanwhile, has found that creativity flows both ways. Iams' work in areas such as hairball control formulas sparked the interest of Metamucil executives, for example. They're using the research to better understand fiber's impact on everything from intestinal health to kidney disease. Iams' research in fatty acids helped staffers who developed a line of vitamins under the Olay skin-care brand.

Iams still faces tough rivals such as Nestlé's Purina and Wal-Mart's Ol' Roy private label brand. But it's now the nation's top pet food brand, by dollar sales, according to ACNielsen (VNUVY ) and Roper ASW, accounting for 9.9% of retail sales as of September, 2005, up from 5.7% in 1999. While insiders say Lafley remains more smitten with the potential of face peels than pet food, he clearly craves constant innovation at all brands. That has helped Iams move beyond its niche of nutritious kibbles.

By Diane Brady, with Robert Berner in Chicago

— With assistance by Robert Berner

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