Will Wall Street welcome 'pet parents'?

by Erica Shaffer
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Blue Buffalo cat food
The owners of Blue Buffalo Pet Products believe they are in the perfect position to capitalize on the humanization of family pets.

WILTON, Conn. – Blue Buffalo Pet Products hopes an initial public offering will enable the company to take a bigger bite out of the $26 billion pet food market. The company filed forms with the Securities and Exchange Commission seeking an IPO valued at $500 million.

Blue Buffalo differentiates its pet products as belonging to the “wholesome and natural” category of the pet food segment. The company says its pet food is made only with whole meats, fruits and vegetables.

In its SEC filing, the company reported net sales growth of $190 million in 2010 to $918 million in 2014. During the period, Blue Buffalo’s operating income jumped from $15 million to $179 million, while net income climbed from $23 million to $102 million, according to SEC documents. The company positions its BLUE brand as “the #1 brand in the Wholesome Natural market segment.”

“We currently have approximately 6 percent share of the overall pet food industry and feed only 2-3 percent of the 164 million pets in the United States,” the company said. “With a proven new user acquisition strategy, we are committed to converting more pet parents into True Blue Believers and continuing to increase our share of the attractive $26 billion US pet food market.”

Bill Bishop, founder and chairman of the company, started the business in 2002 with his sons, Billy and Chris. Inspiration for the company's pet food came from the family dog, Blue, who became sick from cancer.

Blue
Blue, the Bishop's family dog, fell ill with cancer.

“In the process of learning all they could about pet food ingredients, they discovered what they believed was a major disconnect between what pet parents wanted to feed their dogs and cats and what they were actually feeding them,” the documents stated.

The growth in the pet products segment has been fueled by pet owners who increasingly view their pets as family members. It's because of this “humanization” of pets that Blue Buffalo believes pet owners are willing to pay premium prices for natural pet products. The company added that there is minimal cost increases for pet owners who switch to Blue Buffalo pet foods from what the company calls “engineered” brands — pet food brands that don’t contain whole meat or meat meal as their principal ingredients; use lower-cost proteins such as chicken by-product meal, corn gluten meal or wheat gluten; lower-cost starches such as corn, wheat or fractionated grains; and perhaps contain artificial ingredients or preservatives.

“Our price premium compared to engineered brands varies,” the company said in its filing. “For example, virtually all pet parents feeding their medium-sized dog an engineered brand can switch to BLUE for anywhere from no extra cost to 70 cents more per day. For a cat, they can switch to BLUE for anywhere from no extra cost to 30 cents more per day.

“As we have grown, we have successfully switched pet parents from feeding their pets various brands across the full range of price points to feeding their pets BLUE, demonstrating our broad appeal and affordability to a large population of pet parents.”

In a letter to prospective shareholders, Bill Bishop said, “We’ve come a long way from our humble beginnings in the back of a barn, but have never forgotten our roots and why we started Blue Buffalo in the first place. We see this initial public offering, or IPO, as an opportunity to welcome new members to our growing family, so just like we tell our story to each new team member who joins the Buff, we think it’s only fitting for you to learn about our history and what we stand for.”

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