General Mills released preliminary fiscal 2019 results for its pet food segment showing net sales up 38% for the fourth quarter, and up 11% for the full year.
General Mills made a big move into this market in 2018 with its $8 billion purchase of Blue Buffalo Pet Products, making the company the leader in the U.S. natural pet food category. Blue Buffalo, which went public in 2015, makes dry and canned pet food and treats that are either grain-free or made from human-grade meat and produce.
At the time of the acquisition, the company said it hoped sales and profits would increase within two years — a welcome boost since the RTE cereal category continues to slide. General Mills also said at the time that millennials, the largest and increasingly influential demographic in the U.S., make up a large chunk of Blue Buffalo's consumer base.
That expensive gamble seems to be paying off so far. While General Mills' second-quarter net earnings showed a 20% drop from the previous year, the pet category posted net sales of $678 million, for a 2% increase on a pro-forma basis. The company also noted it was planning to double distribution for Blue Buffalo products and expand its offerings.
Pet food has been paying off for other big CPG companies. Smucker's net sales increased in two consecutive quarters last year because of the Ainsworth acquisition. Nestlé saw similar growth as the company posted a 3% gain in organic sales for 2018, thanks in part to its Purina brands.
CPG companies with pet sector investments are likely to continue leaning on them to help their bottom lines, which could prompt others to move into the sector. Consumers spent $1 billion for pet products on Amazon last year — a 20% jump from 2017. And, with 68% of U.S. households owning a pet, the demand for more specialized and functional food products — plus toys and treats — is only going to go up.