Petco Axes Artificial Pet Food Ingredients in $100 Million Wager

(Bloomberg) -- As humans devote increasing attention -- and cash -- to their cats and dogs, Petco is betting that shoppers will shell out for pet food that’s free of artificial flavorings, colors and preservatives.

The San Diego-based chain will pull the items with those additives from shelves by May, and it says it’s the first major retailer to do this. There’s some risk, however, since the food and treats it’ll stop selling currently represent about $100 million of annual sales.

The reasoning behind the move is simple: Pets’ parents, as Petco refers to them, are already showing a marked preference for food and personal-care products that are free of synthetic ingredients, so why wouldn’t they look for the same thing for their beloved companions?

“Humanization is one of the biggest trends in the pet industry today,” chief executive officer Ron Coughlin said in an interview.

Petco, which has about $4 billion in annual sales and 1,500 stores, is looking for a leg up in an increasingly competitive sector. The chain also wants to set itself apart from its rival PetSmart Inc., while also contending with discount chains and major retail outlets. E-commerce is also a battleground: PetSmart’s Chewy.com unit has a loyal following, and Amazon.com Inc. has introduced its own brand of dog food.

New Services

Coughlin, a former HP Inc. executive who took over as CEO in June, said conversations about removing the artificial ingredients began a couple months later. He also wants to improve services, like pet grooming, and test others. Its upscale Petcoach pilot -- which began operating in San Marcos, California, four months ago -- includes an in-store veterinarian.

Coughlin has a powerful incentive to expand the company’s in-store services. Doing so is key for retailers in fending off online rivals, according to Mickey Chadha, an analyst at Moody’s Investors Service.

“A lot of the pet companies are concentrating on expanding their services because it’s a steady stream, and it also has a higher margin,” Chadha said in an interview. “It also brings customers into the store as opposed to a pure e-commerce line.”

At the same time, spending on pets is growing because people are buying more premium products and services like pet hotels with observation cameras for anxious owners. Chadha said they’re doing so “because pets are really now important members of the family.”

To contact the reporters on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net;Gerald Porter Jr. in New York at gporter30@bloomberg.net

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Jonathan Roeder

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