Sunday, August 12, 2001

P&G sinks teeth into Iams

Latest pet food uses technology from Crest

By Cliff Peale
The Cincinnati Enquirer

        It was only weeks after Procter & Gamble Co. bought Iams Co. in September 1999 that research veterinarians at Iams first thought about using P&G to create tooth care for dogs and cats.

        Two years later, the results will hit store shelves across America when Iams' Eukanuba line introduces Dental Defense. The premium pet food uses technology from P&G's Crest toothpaste.

        “It's the first thing we thought of” after the acquisition, said Dan Carey, a veterinarian and director of technical communications at Iams' research center in Lewisburg, Ohio, west of Dayton. “Dental had been on our radar screen for a number of years.”

[photo] Jeff Ansell is president of Iams and owner of Zippy, a Kerry Blue terrier.
(Steven M. Herppich photo)
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        Dental Defense is the latest product innovation for Iams and is a blueprint for how P&G can use its own research and marketing strength to make an acquisition work.

        That plan has made Iams one of the stars of P&G, with U.S. market share growing by half to 12.8 percent and expansions into mass retailers in Japan, Italy and England just starting.

        And it comes as the number of U.S. pet owners skyrockets, with more than half of American households owning at least one dog or cat, according to the Pet Food Institute.

        As Cincinnati-based P&G struggles to increase its sales and profits, Iams clearly is a model for P&G expansion. The company will use many of the same techniques to absorb the Clairol hair-coloring business after buying it for $4.95 billion.

        “It really seems like Iams has been a home run for them,” said Dan Popowics, an equity analyst at Fifth Third Bank, which holds P&G shares.

        Dental Defense isn't the only innovation that P&G has pushed through Iams. This month, the company is rolling out more than half a dozen new products and line extensions, many using new technology.

        Jeff Ansell, the Procter veteran who took over the pet-food maker, calls the dozen new products and line extensions introduced since 1999 “an avalanche of innovation.”

        To Iams executives in sales meetings, the innovation has another name: “The Big Bang.”

Expanding Iams' reach

        Iams immediately became one of Procter's high-flying divisions after the $2.3 billion acquisition closed Sept. 1, 1999. Put in the health-care group, Iams was the top new brand in 1999-2000 with $468 million in first-year sales at mass retailers, according to industry tracker Information Resources Inc.

        Procter had six of the top 12 new brands in that survey. But unlike the new Swiffer mops and Dryel dry cleaning packs, Iams already was a familiar name when P&G introduced it at mass retailers.

        The company's founder, Paul Iams, had worked as a P&G soap salesman before starting Iams in 1946. It focused from the the start on premium products.

        The secret to the acquisition, then-P&G chairman Durk Jager said at the time of the purchase, was to use Procter's technology and global distribution system to expand Iams' reach.

        The first step was relatively easy, putting Iams into mass retail stores such as Wal-Mart and Kroger. Previously, it was sold only in pet specialty stores such as Complete Petmart.

        Mr. Lafley, who replaced Mr. Jager in June 2000, called the expansion a model example of a P&G acquisition, giving it the moniker, “Plug in and Play.”

        March 6, 2000, more than 3,000 trucks rolled from Iams distribution centers to more than 25,000 mass retail outlets throughout the country.

        The strategy has given Iams an 8.8 percent share in mass retailers — compared with zero before the acquisition — and a 12.8 percent share overall. And it has grown sales by half to about $1.2 billion.

        “As soon as Iams was available, we wanted to carry it,” said Randy Miller, a buyer/merchandiser at Bigg's. “We didn't really have a specialty line before. Now we can appeal to all customers.”

        Bigg's sells the basic Iams product for $16.99 for a 20-pound bag, more than twice the price of its best seller, Purina Dog Chow.

        Mr. Ansell, who made his name in P&G's food and diaper businesses, has ratcheted up those growth plans.

        In typical P&G-speak, he describes how Iams is not pet food, it's “nutritional health care.”

        “Said simply, it's P&G's kind of business,” he said. “There's a broad and growing segment of people who think of their pets as family. The DNA of Iams is enhancing the value of dogs and cats.”

        The new brands include Eukanuba Healthy Extra Biscuits, Eukanuba Adult Reduced Fat Large Breed Formula and Iams Weight Control Hairball Care for cats.

        Television ads starting this month say new Iams products can actually reverse the effects of aging on a pet's immune system. Previously, Iams advertised only on specialized cable television channels such as Animal Planet. The new ads run on nationwide network TV.

        “People don't realize what a pet food can do,” Mr. Ansell said.

Satisfying the customer

        That's where Mr. Carey and his colleagues come in. The Iams Technical Center, adjacent to the company's plant in Lewisburg, includes an animal-care center that includes about 140 dogs and 250 cats.

        They are there for life, except some who are given up for adoption. The center includes touches like thermostats placed 18 inches above the floor to record the correct temperatures.

        In the research center, Mr. Carey and his colleagues conduct studies with almost three dozen universities. Machines there can simulate the inside of a dog's large intestine, analyze an animal's feces or detect the pressure required to fracture a kibble — the nuggets of dog or cat food — in an Iams product.

        “We want to make certain that what we say the food will do, it will do,” Mr. Carey said.

        For example, Iams' Weight Control product uses L-Carnitine, available to humans in health-food stores. It helps animals maintain muscle mass while losing weight, Mr. Carey said.

        Much of the research on Eukanuba Dental Defense was done at the technical center, in partnership with researchers from Crest. Iams said the product uses micro-cleansing crystals to prevent tooth decay during and after a pet's meal.

        Studies show the product will reduce tartar buildup by 55 percent in dogs and 45 percent in cats. Iams has applied for a patent on the technology.

        The product is an advance over existing formulas because the cleansing crystals from P&G keep working after the meal, Mr. Carey said.

        “By putting the compound into the surface of the food, it continues that interference with tartar after the meal,” he said.

        Kevin Ketring, owner of the College Hill Pet Clinic in Finneytown, said Dental Defense is a new weapon to attack the No. 1 serious health problem in dogs.

        Iams sales reps visited the clinic earlier this year to pitch the product. The fact that P&G helped bring the technology means a lot, he said.

        “I think it sounds fantastic,” Dr. Ketring said. “I haven't had any experience with this new technology. I obviously give a lot of credibility knowing the type of research P&G puts into toothpaste.”

        Mr. Carey said it was possible the technology could be used in food for humans, although he would not say P&G was working on such a product.

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