Canada’s Menu Foods fights for its life

04-09-2007 | Feed processing | News

With the recall of 60 million cans and pouches of tainted petfood in March the crumpling of a dominating petfood company began. After that things got worse and it is to be seen if Menu Foods can withstand the strong forces that rule the market.

Mississauga, Ontario’s Menu Foods is now facing big losses, potential
lawsuits, and worst of all, lost clients, including its largest. Procter & Gamble, which accounted
for over 20% of Menu’s business, said last month that it would no longer buy
canned food from Menu Foods. P&G sells under the brands Iams and Eukanuba.

Another
petfood giant, Mars Inc., which
sells brands like Nutro
and Royal Canin, also
plans to cut ties with Menu and will buy the company’s production facility in
South Dakota.

Reputation damage
Share price for Menu Foods once
topped $7, but are now trading at just over $2 and second quarter sales dropped
44% from $84.3 million in 2006 to $47.2 million this year. But worse than the
devastating financial figures has been the blow to Menu Foods’ reputation.
Reputation buys business for the future.

Menu Foods in June had to put
in place a shareholders’ rights plan to ward off the threat of hostile
takeovers. P&G and Mars have used the recall as an opportunity to rein in an
outsourcing problem, and shift some blame to Menu Foods in the process. Some
other smaller companies that contract their production to Menu Foods could yet
follow suit.

Menu Foods cannot afford that; the company has already lost
an estimated 80% of its contract business, in which it supplied other brand-name
pet food makers, which represented about 45% of its total
volume.

Private labels not affected
So far, Menu
Foods’ troubles haven’t spread to the lucrative private label market (where
large supermarkets sell Menu Foods’ products under their in-house brands).

Although these supermarkets feel the same way about the situation they
do not have many options to go somewhere else. Prior to the recall, Menu Foods
controlled over 75% of that market in Canada, and 50% in the U.S.

It
could be many more months before a clearer picture emerges, but analysts are not
counting out Menu Foods yet. The company in the past has proven its
strength.

Related
website:
Menu
Foods