General Mills is acquiring natural pet food maker Blue Buffalo for about $8 billion, making its first move into a category that has attracted other Big Food companies with its rapid growth.
The deal continues General Mills’ shift away from its legacy processed foods to natural products amid flagging consumer demand for sugary, preservative-filled items. It will pay $40 per share for Blue Buffalo, a premium of 17.2% to the Thursday closing price.
Blue Buffalo makes the popular BLUE brand of dog and pet food, whose net sales have grown at a compound annual rate of 12% over the past three years, reaching $1.275 billion in 2017.
“The addition of BLUE to our family of well-loved brands provides General Mills with the leading position in the large and growing wholesome natural pet food category and represents a significant milestone as we reshape our portfolio,” General Mills CEO Jeff Harmening said in a news release.
According to General Mills, the $30 billion U.S. pet food market is generating consistent 3-4% growth, with the wholesome natural market represents approximately 10% of the pet food market in volume and approximately 20% in value.
“With all its success, BLUE still feeds only 3% of pets in the U.S. and has significant opportunities to convert more pets to BLUE,” General Mills said.
As CNBC reports, “the booming business of pet care has attracted investment from traditional consumer companies, including those that want to fortify their pet business and those like General Mills that want to jump into it fresh.”
Among other deals, Mars, which makes Pedigree and Whiskas pet foods, bought animal hospital firm VCA for $7.7 billion last year, while agriculture company Cargill snapped up pet food maker Pro-Pet.
Sales of traditional packaged foods, meanwhile, have continued to slow, putting pressure on Big Food to diversify. According to research firm Euromonitor, the packaged food category grew only 1.2% last year.
General Mills acquired specialty foods maker Annie’s in 2014 for $820 million. “In pet food, as in human food, consumers are seeking more natural and premium products,” Harmening said.