RN 113 - BP 4
Royal Canin's mission: The true nutritional requirements of dogs and cats, while respecting their specific characteristics and their animality, by refusing any anthropomorphism, so as to offer them good health and ensure them a maximum lifespan. The owners' expectations in terms of quality, dietary safety and services. To carry out its mission in optimal conditions, Royal Canin develops, manufactures and promotes dry foods, in the form of custom dietary programs of a high technical nature and high nutritional value, that constantly rely on scientific and veterinary research.
Royal Canin S.A. pampers your pet--and its bottom line. The Gard, France-region company is the European leader and one of the world's largest manufacturers of premium pet food products. Royal Canin specializes in dry food products for dogs and cats. The company produces more than 40 types of dry dog food and 20 types of dry cat food, developed for a variety of ages, weights, sizes, and other factors. Focusing on the high-end range of pet foods has enabled the company to achieve strong margins while capturing nearly 20 percent of its core European market. Royal Canin's distribution effort focuses on sales through pet store specialists and veterinarians, avoiding competition with lower-priced pet foods found at supermarkets. Nearly 80 percent of its sales come from Europe, including 40 percent outside of France. In 2000, the company boosted its European position with the acquisition of James Wellbeloved, boosting its position to number three in the U.K. market. The United States represents a fast-growing market for the company, which generates more than 12 percent of the company's sales; another major focus market for the company is South America. Royal Canin has three manufacturing facilities in France, a plant in Rolla, Missouri, and a factory each in Brazil and Argentina, giving the company a total production capacity of more than 500,000 tons per year. Royal Canin also invests heavily in its research and development, with research centers in France, the United States, and Brazil--the company has its own 'focus group' of some 250 dogs and 80 cats to market test its products. Royal Canin is led by Henri Lagarde, chairman, and Alain Guillemin, managing director. The company, which trades on the Euronext Paris stock exchange, posted more than EUR 450 million in 2000, of which its nutritional products category represented EUR 240.0 million.
Vet to Pet Food in the 1960s
The pet food market was more or less underdeveloped in the 1960s. Pet ownership remained a fairly recent phenomenon, especially in Europe, and the perception of dogs and cats as full-fledged members of a family had only begun to become common since the 1950s. New technologies were introducing more leisure time. At the same time, birth rates were declining and, as families in the industrialized Western countries became smaller, dogs and cats came to take up more prominent positions in the family. This trend was especially evident in France, where the number of domestic animals rose dramatically in the years following World War II.
In the 1960s, veterinarian Jean Cathary, operating a practice in Aimargues, near Montpellier, in France's Gard region, saw rising numbers of patients with skin and fur problems. Cathary recognized that these problems and other pet health conditions were the result of improper nutrition--stemming from the habit of feeding table scraps to animals. The pet foods then available were scarcely more appropriate, tending in large part toward so-called 'wet' canned foods. In the mid-1960s, Cathary decided to treat the cause of his patients' skin problems by developing his own pet food recipe, based on cereals. Far from any industrialized production method, Cathary cooked up his pet food himself, using an oven installed in his garage. Cathary's recipe successfully cured his patients' skin problems--and launched Cathary into a new business.
By 1967, Cathary had given a name to his recipe--Royal Canin--and the following year Cathary closed his practice to concentrate entirely on producing pet foods. After importing cereal-making equipment from the United States, Cathary began distributing his foods through breeders and other veterinarians. A number of his former clients--the owners, not the dogs--also became Royal Canin salespeople. By 1970, Cathary was ready to begin production on a larger scale. The company incorporated as Royal Canin S.A. and opened its first manufacturing facility in Aimargues. European distribution began almost immediately, and the company quickly set up its Royal Canin Iberica subsidiary in Spain.
Yet the company remained too small and lacked the capital to invest in true industrial production facilities. In 1972, Cathary sold the company to animal feed giant Guyomarc'h; Royal Canin complemented Guyomarc'h's concentration on livestock. With this financial backing, Royal Canin was able to transform its production facilities. The company also established its first research center, in Brittany in 1973, which was to enable it to develop new pet food products with a real scientific basis. Royal Canin's staff included noted animal specialists such as Dr. Daniel Cloche, who became director of the company's research facility and who was one of the pioneers in researching bone-related disorders and diseases among dogs.
In the mid-1970s, Royal Canin bought a second production facility, in Cambrai, in the north of France. The company also developed a product geared specifically toward the market for professional dog breeders. This brand, CLUB, helped to firmly establish the company in this growing and important distribution channel, since people who bought pedigreed dogs tended to stick to the same foods and brands as the breeders and also tended to buy higher-end pet foods. Breeders and veterinarians, but also the dog owners, appreciated Royal Canin's focus on dry food formulas--which were lighter weight, easier to store, and less expensive than wet foods.
The pet food market built rapidly through the 1970s. Despite its relatively small size--compared with giants such as Ralston Purina, Colgate (selling the Hills brand), and Nestlé (Friskies and Fido)--Royal Canin successfully imposed itself on the market, building up a European market share that was to reach ten percent by the end of the 1980s. The company's European expansion was helped by the establishment of subsidiaries in Belgium and Germany in the 1970s and in Italy and Sweden in the 1980s. The company also added subsidiaries in The Netherlands and Denmark, before looking farther abroad.
By the end of the 1970s, Royal Canin's research had pinpointed the cause of a major problem among large-breed dogs, which were prone to a number of bone diseases and disorders. Making the connection between the diet of large-breed puppies--which tended to have longer growth periods than smaller dogs--and the development of their bone structure, Royal Canin began developing a breakthrough dog food formula designed especially for the crucial growth period of large-breed dogs. In 1980, Royal Canin introduced its new food, called AGR, the world's first large-breed-specific puppy food. The company also began developing dietary cat foods as well. New product lines, developed in conjunction with Rhone-Menieux and noted veterinary professor Dr. Grandjean, were launched under the Canistar and Felistar brand names.
High-End Focus for the Turn of the Century
The company's marketing helped reinforce its position as the dog food of professionals. The company's distribution remained wholly focused on a circuit of professional breeders and veterinarians. At the same time, Royal Canin began working with other dog professionals, including competitor dog sled racers and others, creating high-energy food formulas and developing dietary and other research programs to identify and address issues and illnesses specific to competitive dogs. Another successful Royal Canin product introduction came with its line of Cynotechnical foods, marketed exclusively to breeders. The company also developed new lines of products for specific size, weight, age, and other categories.
Toward the end of the 1980s, Royal Canin began to step up its expansion. Growth came from several fronts. The most important was its entry into the U.S. market, the world's largest single domestic pet food market representing some 50 million dogs and 60 million cats. Rather than build its U.S. business from scratch, Royal Canin looked to acquire an established manufacturer. The company found this partner with the acquisition of Pet Foods Plus, based in Missouri.
Pet Foods Plus had started business at the beginning of the 1980s as Farmer's Energy, originally to develop ethanol-based fuels when that market seemed to hold promise. A side product of its corn-based fuel production was the launch of an animal foods business using the leftover, protein-rich cereal byproducts. After the ethanol-based fuel market failed to materialize, the company switched to its pet foods business, selling at first to the private label market. Farmer's Energy then acquired Con Agra's pet food operations, including brand names Bow Wow and Kasco, changing its name to Piasa. Its acquisition by Royal Canin in 1987 marked the French company's entry into the French market. Royal Canin quickly strengthened its U.S. presence with another acquisition, Wayne Pet Foods, the following year, then forming the Pet Foods Plus Inc. subsidiary. The new subsidiary gave the company a second research center as well as a manufacturing presence in its new market, enabling it to avoid costly overseas shipping.
After entering the North American market, Royal Canin turned south, opening a subsidiary and manufacturing operation in Brazil in 1990. The South American market represented a potential client base of more than 80 million pets--most of which continued to be fed table scraps. Sensing the possibility of building up a brand-loyal customer base, Royal Canin continued to reinforce its presence, adding a research facility and, in 1997, a second factory in Argentina. The company also added to its European presence, opening a subsidiary in Nugat, Germany. These moves coincided with the launch of a new range of dietary programs featuring high-nutrition products. Marketed directly to the consumer market, the Royal Canin Cynotechnique International (RCCI) and Royal Canin Felinotechnique International (RCFI) brands marked a turning point in the company's strategy, as it began to emphasize its high-margin premium products.
At the same time, however, the company found itself under new ownership, when giant French bank Paribas acquired Royal Canin's parent Guyomarc'h. Yet, under its new parent, the company quickly landed in trouble. In the early 1990s, Royal Canin had attempted a diversification drive, starting up wholesale and retail activities, while also turning to the supermarket circuit to distribute its products. Royal Canin briefly attempted to enter other product categories as well. But the company's earnings began to drain away as it propped up its newly diversified operations. At the same time, it was confronted with difficulties in the supermarket distribution channel where the company's products were lost among an array of competitor products--many of which featured prices many times lower than Royal Canin's brands.
Facing shrinking profits, Royal Canin shed its noncore operations and returned its focus to its pet foods. Leading the company's turnaround was newly appointed chairman Henri Lagarde, former head of French appliance leader Thomson Electromenager. Lagarde changed the company's marketing and product development strategy. Whereas high-end, high-margin products represented only a tiny portion of the company's revenues--just one percent in 1991--Royal Canin placed its bets on gradual changes in the consumer market. More and more consumers were turning toward--and sticking with--high-end products. The company, which remained one of the only pet food manufacturers to produce solely dry foods, also was being aided by increasing consumer awareness of the health benefits of dry foods over wet foods and industrial foods over table scraps.
The company also shifted its marketing and distribution focus away from the supermarket circuit to appeal to the specialist retail pet store circuit and garden and hardware centers, many of which featured large pet departments, while also continuing to target breeders and veterinarians. As Lagarde told Capital, 'The secret of our growth? Client fidelity. A master who starts with our dry foods for puppies moves onto the adult range and then the senior.' Meanwhile, the company turned resolutely to the high-end range of pet food products, upgrading its factories to convert their output to the company's premium quality lines. Royal Canin once again was building market share, capturing 18 percent of the total European market and 36 percent of the French market by the end of the decade. The company was also a thoroughly international company, generating more than 60 percent of its sales outside of France.
Paribas nearly sold off Royal Canin, for FFr 1 billion, in 1995. Lagarde convinced the parent company to hold onto its struggling subsidiary, even when, the following year, Nestlé made an offer of up to FFr 2 billion. Instead, Lagarde convinced its parent to take Royal Canin, listing on the Paris Bourse's secondary market in 1997. With 43 percent of the company placed on the market, Royal Canin's value shot up to more than FFr 4.5 billion. With the money raised from the offering, the company went on a shopping spree, buying up Argentina's Lawler in 1997, then boosting its presence in the United Kingdom--Europe's leading market--with the purchases of Crown Pet Foods Ltd. in 1999 and James Wellbeloved in 2000. These acquisitions gave the company the number three position in the United Kingdom market for high-end cat and dog foods.
Meanwhile, the company was investing heavily in its production capacity, modernizing all of its European facilities, including a FFr 100 million upgrade of its Cambrai facility, while doubling the size of its Brazilian operation. The company also launched a well-received line of nutritional products that took into account factors such as pet size, age, weight, activity levels, and medical status. In 2000, Royal Canin also officially arrived in the United States. After trading under the Pet Products Plus name and brand names since the late 1980s, the company's subsidiary formally adopted the Royal Canin USA Inc. name and the company rolled out its Royal Canin brand name for the first time. Royal Canin turned toward the future with a solid position as a global leader in the fast-growing premium pet food segment.
Principal Subsidiaries: Royal Canin Argentina; Royal Canin Benelux (Belgium); Royal Canin Do Brasil; Royal Canin Denmark; Royal Canin Iberica SA (Spain); Royal Canin Italy; Royal Canin Nederland; Royal Canin Sverige AB (Sweden); Royal Canin USA Inc.; Tiernahrung Gmbh & Co. KG (Germany).
Principal Competitors: Ralston Purina Company; Doane Pet Care Company; H.J. Heinz Co.; Nestlé S.A.; Procter & Gamble Company; Colgate-Palmolive Inc.