Iams Company

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Iams Company

7250 Poe Avenue
Dayton, Ohio 45414
U.S.A.
(937) 898-7387
Fax: (937) 264-7160
Web site: http://www.iams.com

Private Company
Incorporated: 1946
Employees: 1,200
Sales: $300 million (1996 est.)
SICs: 2047 Dog & Cat Food

Iams Company is a manufacturer of premium dog and cat foods which are distributed only through veterinarians, animal breeders, and specialty pet stores. It is the number two company in the high-end pet food niche, and the seventh largest pet food enterprise overall in the United States. The company sells two brands, Iams dog and cat foods, and Eukanuba. Iams has manufacturing facilities in Lewisburg, Ohio; Aurora, Nebraska; Henderson, North Carolina; and a plant for its international division in Coevorden, the Netherlands. The company distributes its pet foods in more than 70 countries worldwide. Iams also maintains a pet research center in Lewisburg, Ohio, where veterinarians, chemists, and nutritionists study dog and cat diets on laboratory animals raised as pets. Occupying a booming segment of the pet food market, Iams in the late 1990s was one of the fastest growing pet food companies in the world.

Early History

The Iams Company was named for its founder, Paul Iams, the son of a Dayton animal feed store owner. Iams graduated from The Ohio State University in 1938, and with few job prospects because of the Great Depression, he returned from college and went to work for his father. He peddled his father’s inexpensive dog food to area kennels and veterinary clinics, but Iams became convinced that dog owners would pay more for a better product. Iams left his father’s business to work selling soap for Procter & Gamble, then served four years in the Navy. After the war, Iams made plans to manufacture a high quality dog food. He founded the Iams Company in 1946, and came out with its first premium dog food, Iams 999, in 1950.

Paul Iams was convinced that dogs needed a higher protein, higher fat food than was commercially available. This insight stemmed from a visit to a mink ranch in 1946. Iams noticed that the dogs who worked on the mink ranch seemed exceptionally healthy, with beautiful, shiny coats. It turned out the dogs were eating the same food the minks got. Iams reproduced something like the minks’ diet in his dog food. A self-taught nutritionist, he continued to research pet diet and methods of processing protein, Iams came out with an improved brand, Iams Plus, in 1961. This was called the pet food industry’s first complete diet, because it did not require any additives. And because of a process Paul Iams developed, the new food was both high in protein and low in harmful minerals, in stark contrast to other dog foods available at the time.

Iams distributed Iams Plus through dog breeders, kennels, and veterinarians. Sales grew as word got around about the high quality of the product. The company did not advertise, and through the 1960s only sold in five Midwestern states. The business might have continued on this small scale were it not for the vision of a new manager, Clay Mathile, who joined the company in 1970.

Strategic Changes in the 1970s

Mathile was an Ohio native who had worked as an assistant purchasing agent for the Campbell Soup Company. He bought meat for Campbell’s, and so knew something of that industry. Paul Iams was looking for a partner to help run his business, and in 1970 a mutual friend introduced him to Mathile. Mathile was not sure he wanted the job, but he quickly became convinced of the quality of the Iams brand. Paul Iams gave him a bag of dog food after their first interview, and Mathile passed it on to his father, who owned what he described as a “scruffy-looking” mixed breed dog. Several weeks later, Mathile visited his father and found a beautiful, bouncy animal in place of the disheveled Queenie. It turned out it was the same dog, but looking quite different as a result of the Iams food. Mathile agreed to become the manager of the Iams Company for a five percent share of the profits. Sales stood at something under $1 million a year, but Mathile was convinced that he could make the company grow.

Unfortunately, it was a bad time for the pet food industry. While costs were increasing, national wage and price controls kept the company from passing on its costs to consumers. Other companies kept up by switching to lower-cost ingredients, but Iams and Mathile realized that that would destroy what made the Iams brand unique. They continued to use the same high-cost ingredients, and by 1973 they were selling the dog food at a loss. The following year was another one in the red, and Paul Iams wanted to sell the company and get out. Mathile convinced him to sell only half—to him—and he and his wife bought a 50 percent share for $100,000.

Mathile worked on a more effective marketing campaign for Iams. Previously, word-of-mouth had been the only advertising. Mathile bought a quarter-page ad in Dog World magazine, and began visiting dog shows to promote the product. Soon the company’s distribution was nationwide, and by 1975, Iams was back in the black.

Besides working on marketing and distribution, Mathile made some alterations in the product itself. At that time, the dog food looked, according to company literature, like * ‘potting soil mixed with corn flakes.” Iams’ careful protein rendering process made the food come out in this unique form. But it was apparently a little offensive to some new consumers. In an interview in the July 1988 Nation’s Business, Mathile described the trouble dogs had with Iams Plus: “They’d sniff it up their noses, and they’d spit it out, and they’d cough.” Mathile got advice from a pet-food equipment manufacturer, and by 1976, Iams was putting out more traditional pellet-shaped dog food

With the new, improved product, sales doubled in two years, and doubled again in 1979. Mathile had also shepherded a new brand onto the market, called Eukanuba. The name was taken from a favorite expression of Paul Iams, who heard it from the jazz star Hoagie Carmichael, and it means “the best.” Eukanuba was a high-protein, high-fat dog food like Iams Plus, but was supposed to be more palatable. It sold well from the start. The Iams company soon outgrew its Dayton headquarters and built a new plant in Lewisburg, Ohio.

National and International Growth in the 1980s

With a new brand, national distribution, growing facilities, and skyrocketing sales, the company was doing very well. At this time, founder Paul Iams decided to retire. In 1981, he sold his half of the company to Clay Mathile and his wife. With the company’s direction entirely in his hands, Mathile worked to make Iams more efficient. He hired new top managers and put together a board of directors. The directors he first chose were friends, but Mathile soon decided he needed a more professional team. So he brought together a new board, this time taking talent from large national businesses such as Tupperware and Dayton Hudson.

The company’s sales by 1982 had grown to at least $10 million, and the whole pet food market was experiencing remarkable vigor. There were 48 million dogs in American households in 1982, and 44 million cats. The dog and cat food category was second only to the cereal category in the prepared foods market. As big manufacturers like Ralston-Purina and Gaines competed for supermarket space, Iams continued to sell through veterinarians and breeders. Sales of all brands through these outlets grew quickly in the 1980s, and Iams sales growth sometimes topped 25 percent a year. Perhaps fueled by a rising general interest in health food, more consumers were turning to better quality food for their pets.

The Iams Company increased its advertising in the 1980s and continued to market its brands with educational pamphlets distributed through breeders and veterinarians. The company brought out its first cat food in 1981, and soon followed with foods tailored to life stages, such as kitten and puppy food, and food for less active older animals. Following Clay Mathile’s growth strategy, the company expanded its manufacturing capacity, updating its plants and building a new factory in Aurora, Nebraska, in the mid-1980s. The company’s annual production capacity doubled between 1985 and 1989. Iams began to sell its brands overseas as well. Exports were five percent of sales in the late 1980s, and growing. In 1988 the company launched its first mass-market advertising, spending an estimated $8 million on its campaign.

By 1990, the company’s annual sales were estimated at $210 million. Profits were high as well, with estimated pre-tax margins of 25 percent. Because the Iams and Eukanuba brands were premium quality, consumers paid far more for them than for the supermarket variety of pet food. In 1991, for example, a 40-pound bag of Eukanuba dog food sold for between $36 and $40 retail, more than twice the price of Purina. But the Iams Company’s manufacturing cost was still only around $10 for the 40-pound bag, so the mark-up was handsome. Manufacturers of supermarket pet foods saw profit margins far lower, even as their sales grew too in the 1980s.

Competition in the 1990s

Dozens of new premium brands of dog and cat food entered the market in the late 1980s, and Iams had to try harder to maintain its place. The company got a new president in 1990, Tom McLeod, formerly president of the bakery division of Sara Lee. McLeod understood that the 1990s might be a more competitive period for the company, as its success was copied. Yet he refrained from changing the company’s marketing strategy by, for example, trying to sell in supermarkets. Nonetheless, to increase its presence, the company began to contact consumers through direct mail, and to reach them with public service ads.

Company Perspectives:

The Iams Company was built on a simple mission: to enhance the well-being of dogs and cats by providing world-class quality foods.

In 1993 Iams advertised in newspapers, advising consumers, “If you’re in the market for the best pet food, get out of the supermarket!” The ads listed area pet stores where Iams brand pet foods were sold, and offered a free bag of Iams or Eukanuba in exchange for an empty bag of a supermarket brand cat or dog food. But competing directly with supermarket brands was a difficult game, and Iams customers by and large were a very discriminating group who could be reached other ways. The next year the company launched a direct-mail campaign as a way to build brand loyalty. Iams contacted new pet owners with an educational letter about cat or dog nutrition. The letters were addressed to the pet itself, and treated the animal as a new family member, its owners as parents. The approach generated enthusiastic response, and garnered the company a valuable database of concerned and loving pet owners.

In 1996 the company changed its target slightly. Iams buyers were typically high income families, often with purebred animals. The new campaign tried to reach the millions of pet owners that adopted animals from shelters. Iams sponsored a Pet Adoptathon, with some 700 participating animal shelters in the United States and Canada, and aired public service ads that concentrated simply on the joy of having a pet. The company hoped to reach new pet owners with flyers and samples. But the ads themselves did not try to sell pet food. The message was more a celebration of pet ownership. The potential market for Iams was huge, as an estimated 15 percent of the almost 64 million pet-owning households adopted their pets from shelters, and a full 25 percent of all pet owners claimed that they would adopt their next pets.

By 1996, Iams’s sales were estimated to stand at more than $300 million, so the company’s sales growth in the 1990s was still momentous. Iams was second to Colgate-Palmolive’s Hill’s Science Diet, which marketed vigorously through veterinarian endorsements. Though other major pet food makers vied to cut into the premium market, Hill’s and Iams remained the solid leaders in that niche, and there still seemed to be room for growth.

Iams made a big move in 1997, starting construction on its first overseas plant. Since its first European sales in 1984, Iams had increased its international sales to the point where it needed a self-sufficient overseas operation. The plant, located near the German border in Coevorden, the Netherlands, was to manufacture Iams and Eukanuba from raw materials gathered in Europe. This would cut the company’s import costs, and speed up delivery of European orders. And Iams gambled that having a European plant would shield the company from potential future import delays or restrictions. In addition, Iams increased its domestic capacity by building a new plant in Leipsic, Ohio.

The company remained privately held, financing its growth through its profits. Iams sales had been expanding rapidly since the early 1980s, but by the end of the 1990s there still seemed to be no end in sight. Competition from lower-priced brands had not so far hurt the company. With exceptionally loyal customers, an expanding base of U.S. pet owners, and potential markets abroad, Iams seemed to have a formula for continued success.