ASSIGNMENT SUBMISSION FORM

Course Name: Corporate Development: Mergers & Acquisitions

Assignment Title: Cat Fight in the Pet Food Industry

Submitted by: Anil Kumar

1) What are the key success factors in the pet food industry in 1986? Why?

In 1986, the pet food industry is quite competitive. Some of the key factors that drive the success of any firm
are the breadth of product offered by the firm, the marketing budget and sales and distribution network.
Furthermore, the state of economy impacts the entire market as bottom rung of the customers are price
sensitive and growing economy drives the number of pets and demand for premium products.

There are three important factors that drive the purchase of a brand of pet food. These factors are, namely,
perceived quality, convenience and price.

Perceived Quality:

 The pet owners considered their pets to be part of their family and gave plentiful attention to the welfare
of the pet. Feeding premium quality food was one of the ways of showing affection and lessening the guilt
of spending less time with them. Many pet owners believed that dogs enjoyed variety in their diet, so the
owners regularly altered their diets.
 There was a general perception that crunchy or dry food was good for dog’s teeth and supplied roughage
to help in the digestion process. Food containing more meat than fillers was considered to be of higher
quality. Furthermore, good packaging added to the quality perception. Smooth consistency in food was
perceived to because of low quality. Additionally, exotic cuisine such as dish from Thailand added to the
perception of quality.
 Consumers preferred pet food that looked and smelled like human food as it made them comfortable about
feeding it to their pet.

Convenience:

 Dry food was easier to serve and did not create a mess and hence was preferred over moist and canned
food. Since pet owners tried to provide variety to their pets, they preferred companies with multiple product
in the same category. Smaller cans were preferred over larger ones, especially with pop-up tops.

Price:

 In tough economic times, the price sensitive people preferred cheap products for their pets. Alternatively,
in economic boom, the demand for gourmet-based pet food increased.

These qualities were heavily backed by advertisement, particularly via television and coupons. The companies
provided coupons and merchandising aids to the grocers and spent heavily on promotions and media.

Most of the sales was done through regional offices and regional warehouses and food is shipped to its demand
location. Dry food is easier to ship than moist food. In terms of manufacturing capacity, higher utilization of
existing facilities is an important factor that drives the success of a firm in the industry.
2) Which players (top 3) are best positioned for competitive advantage and long-term profitability in
this industry? Why?

The following firms are best positioned for competitive advantage and can strong long-term profitability
prospects in the industry:

 Ralston Purina: Purina holds the highest market share (28%) in the industry and is the leading producer of
dry dog, dry and semi moist cat food. The company already has many established brands, with strong profit
margins supported by a wide sales and distribution network with quick turnaround time. The company has
a history of defending its market lead by offering products with similar names as to its competitors and
offering price discount as compared to its competitors.
 Carnation: Nestle’s subsidiary Carnation had a strong gourmet and cat food presence in the market, due to
its well-established brands in these segments. The company was focusing on upscale and niche segment,
which could sustain a premium over other food categories.
 H. J. Heinz: The company has primarily focused on the cat food market and leads the canned cat food
category. Now, the company is focusing on the dry and moist cast food segment, by increasing the
marketing budget for these segments. If Heinz succeeds in acquiring Anderson Clayton, it could gain a
significant market share and gain an edge over its competitors.

3) Which player(s) do you predict will bid for Anderson-Clayton? Why? What potential strategic
benefits can this bring to the player(s)?

In my opinion, Ralston Purina and H. J. Heinz will bid for Anderson Clayton. We used better off test and the
ownership test to figure out the relative value that these companies will derive from acquiring Anderson
Clayton.

The following reasons will drive the Purina and Heinz’s decision to bid:

 Purina is the market leader in overall pet food category. However, Gaines leads the moist dog food category
and strong presence in canned dog food category. Purina does not have any significant presence in these
categories. Hence, by acquiring Gaines, Purina will be gain market share and strengthen its lead over its
competitors.
 Purina would want to make sure that any of its competitor does not get a major stronghold in one or more
categories of pet food industry.
 Heinz does not have any presence in dog food market, except treats segment. By acquiring Gaines, Heinz
will be able to diversify its business and can expand its footprint in the dog food market. Gaines already
have some established products in moist and canned dog food category.
 Both the companies have the financial clout to buy Anderson Clayton.