Shortly after Swiss-based Nestle SA outlined a new strategy this summer to focus future capital investment on its high-growth businesses, the company announced plans for a $320 million new factory in Georgia to make pet food.
The factory — Purina’s 21st U.S. plant and its first new domestic manufacturing and distribution facility in 20 years — reflects the potential Nestle sees in the pet products business, whose brands include Beneful, Friskies and Fancy Feast.
“The investment is in line with Nestle’s strategy to increasingly focus capital spending on advancing the high-growth food and beverage categories of coffee, pet care, infant nutrition and bottled water,” Nestle said in a statement when Purina’s Georgia plant was announced late last month.
Nestle, maker of Nespresso coffee and Perrier water among other brands, last month raised its profit margin goal amid pressure from activist investor Daniel Loeb, CEO of New York-based hedge fund Third Point LLC. Nestle previously indicated it also plans to sell its U.S. confectionery unit with brands such as Butterfinger as a way to trim its broad portfolio and focus on its strongest businesses.
“Though small, this deal may be the first sign that new CEO Ulf Mark Schneider is willing to refocus the portfolio and shed low-growth businesses that do not add to the company’s nutritional credentials,” Morningstar director Philip Gorham wrote in a recent analyst’s note.
In the Americas, Purina’s sales totaled $8.7 billion in 2016, the company’s 13th consecutive year of improved sales growth and profit.
“We regard pet food as being somewhat removed from the hyper competitive broader packaged-food industry, as consumers tend to be slightly more brand-loyal and the category is ripe for the value-added nutritional innovation that Nestle’s cost advantage allows it to deliver,” Gorham wrote in his analyst’s note.
Purina’s growth coincides with an increase in spending by pet owners. U.S. pet industry expenditures are expected to total $69.36 billion this year, up from $66.75 billion in 2016, according to the American Pet Products Association, an industry trade group.