A Growing Appetite for Healthy Pet Food

As pet owners react with alarm to the nationwide pet-food scare, small producers of premium brands are rushing to meet new demand

When the news broke last month that 16 cats and dogs across the country had died and many more had become seriously ill after eating pet food found to be contaminated with rat poison and a chemical found in plastics and pesticides, pet owners nationwide reacted with alarm. The hunt was on for safe and healthy alternatives to the usual name-brand food they had relied on to feed their animals for years.

Indeed, in the weeks since the scare began, the large companies that manufacture the affected products launched a full-scale recall. Canada's Menu Foods, a large manufacturer that produces pet food for such labels as Iams and Hills Pet Nutrition, pulled 60 million containers off store shelves. Nestle Purina PetCare said it was recalling all sizes and varieties of specifically dated Alpo Prime Cuts in Gravy wet dog food. And Del Monte Food (DLM) announced it would also recall a selection of its products.

Some pet owners, long accustomed to being able to buy a wide variety of food products and treats, began cooking up their own bowls of kibble. However a number of small specialty firms that make everything from organic to vegetarian to low-carb pet food reported a spike in inquiries and orders following the scare. "We've seen a huge surge in the last couple of weeks," says Lucy Postins, the founder of The Honest Kitchen, a San Diego (Calif.)-based company that makes dry, chemicals- and preservative-free cat and dog food. "Since the scare, we've received four times the number of orders online, and a 100% doubling of actual dollar amounts."

Giant, and Growing, Market

The recent pet-food debacle has drawn new attention to the kind of specialized pet menu that in the past many would have thought suitable only for pampered critters. But in reality, in the past few years, specialty pet food has been on the rise. This increase follows the overall trend in increased consumer spending on pets.

According to the American Pet Product Manufacturers Assn., when it comes to pets in the U.S. all numbers are up. For starters, 69.1 million homes, or 63% of all U.S. households, have a pet, up from 56% in 1988 when the organization first surveyed pet ownership. Moreover, spending on domesticated creatures has soared to $40.8 billion, up from $38.5 billion last year. When it comes to feeding pets, Americans are expected to spend $16.1 billion this year, up from $15.4 billion last year. And that includes an increasingly expansive menu of niche meals.

KosherPets, based in Ft. Lauderdale, Fla., was founded six years ago, after Martine Lacombe and her husband Marc Michels searched in vain for something to treat their Dalmatian Lola's serious skin allergies. Drugs and other vet-recommended products did little to help Lola, so the couple decided to change her diet with home-cooked meals. Since they kept kosher, they began preparing their dog's meals following the same Talmudic requirements. "She instantly got better," recalls Lacombe.

Pet Food for Passover

Soon neighbors remarked how well Lola looked and asked where they could purchase kosher food for their own pets. But there was nothing on the market. Lacombe, who had a background in marketing, and her husband, who was in sales, took the numerous inquiries as a sign that they had a business on their hands.

From the outset, KosherPets has been a growth business. Sold online and in retail locations across the country, it earned $10,000 its first year, according to Lacombe. The following year, sales increased tenfold, to $100,000. By the end of 2007, the couple expects to pull in $500,000 in sales. And Lacombe says their specialty line of Passover pet food completely sold out this year. While they have received many requests to expand into other areas, such as rabbit and bird food, she says they plan to focus on what they do best—making high quality food for dogs and cats. In fact, business is so brisk that they're now starting to bring in investors in order to expand capacity.

And while Lacombe says orders jumped following the recent scare, she has noticed that her client base has migrated from strictly kosher consumers to a broader base of pet owners who are interested in having fresh and local ingredients used for their own animals. "We're endorsed by the Chicago Rabbinical Council and the FDA," says Lacombe. "There are no byproducts from other countries. It's all manufactured here, and all the ingredients are from here."

Riding the Organic Gravy Train

Indeed, one of the key factors driving the specialty pet food segment is that many owners who have become increasingly concerned about the origins of the ingredients in their own diets are looking for similar offerings for their pets.

One of the fastest growing areas is organic pet food. According to the Organic Trade Assn., in 2005 organic pet food sales reached $30 million, up 46% from the previous year. In 2004 the association predicted that the category would grow an average of 17.4% a year until 2008. Currently, it comprises 4% of the organic, non-human, foods category.

One of the first companies to recognize the rising organic trend was Spectrum Pet Care, based in Montgomery, Mo., which began manufacturing all-natural and organic dog and cat food in 1995. Considered a huge driver in the organic pet food segment, the company now offers an expansive list of eight specialty categories, including organic food for horses, fish, birds, and reptiles. Last year the company launched a holistic line of supplements for dogs, cats, and horses.

"Something Brown"

Another company, Castor & Pollux Pet Works, based in Clackamas, Ore., opened its doors in 2000, selling the first pet food made with certified organic, free-range chicken. Last year the business introduced six meat-based dog and cat foods combined with fruits, vegetables, and kibble.

"People's animals are like their babies," says The Honest Kitchen's Postins. "They enjoy participating in creating a meal for their cat or dog, rather than scooping something brown out of a can." Postin's dehydrated, raw products, which look like muesli, require the addition of warm water to prepare.

Postins, who previously worked for a large pet-food manufacturer, says she launched The Honest Kitchen in 2002 with a $7,000 loan from her husband because she wanted to create a raw diet for her own pets. "I started it in my own kitchen. I intended for it be a cottage industry, but gradually it snowballed into this huge thing."

Human-Grade Kibbles

According to Postins, the company has experienced about 100% growth since its inception. Last year the company earned $2.4 million in sales and Postins expects that number to reach $3.5 million this year.

The Honest Kitchen's products are sold online and at 800 retailers in the U.S., including Whole Foods (WFMI) and Pet Food Express, as well as being distributed in Canada, Japan, and Singapore. Postins says her company stands out among rival offerings because it's the only pet food certified by the FDA as human grade. The Honest Kitchen's product line is manufactured in a factory that makes cereal and other products for people. "Every ingredient in the plant is fit for humans to eat," she says. "That's important, especially in this day and age. With all of these scares, people are really searching out safe pet food."

Which means high-end manufacturers that have pushed their products' health benefits for years could soon be watching their healthy margins grow even fatter.

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