Hill’s Pet Nutrition, Inc.

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Hill’s Pet Nutrition, Inc.

400 S.W. 8th Street
Topeka, Kansas 66601-0148
U.S.A.
(785) 354-8523
(800) 445-5777
Fax: (785) 368-5915
Web site: http://www.hillspet.com

Wholly Owned Subsidiary of Colgate-Palmolive Company
Incorporated: 1935 as Hill’s Packing Co.
Employees: 2,500
Sales: $965.3 million (1997)
SICs: 2047 Dog and Cat Food; 5047 Medical and Hospital Equipment

Hill’s Pet Nutrition, Inc. pioneered and developed the concept of clinical nutrition—the idea that pets with diseases could be treated nutritionally. A subsidiary of conglomerate Colgate-Palmolive, Hill’s is the leader in the premium pet food industry. Although Hill’s does make food for such zoo animals as lions and orangutans, as well as special diets for police and military canines, the company focuses on products for companion dogs and cats. Hill’s flagship product is Science Diet, which is available in many different varieties designed to meet an individual dog or cat’s needs based on its size, age, and lifestyle. Sold in veterinary offices and pet stores, Science Diet costs about 50 percent more than pet food sold in supermarkets. Hill’s also produces Prescription Diet, a line of dog and cat food that helps manage allergies and such medical conditions as heart and kidney disease. Prescription Diet is available only through veterinarians, and customers pay a premium of 200 to 300 percent for its benefits. More recent additions to Hill’s lineup include HealthBlend, a food for large-breed puppies, Science Diet Savory Recipes, which contain real meat, and Science Diet Canine Maintenance Treats. In the research and development of its products, Hill’s employs over 100 veterinarians. Hill’s products are sold in the United States, Europe, Japan, Australia, and South America.

A Slow Start

Hill’s Packing Company began producing canned dog and cat food in 1935. However, Hill’s Pet Nutrition, Inc. actually began in 1943 when veterinarian Mark Morris put Buddy, one of the first guide dogs for the blind, on a special diet to treat her kidney problems. By reducing the levels of protein and minerals in Buddy’s diet, Dr. Morris improved her health considerably. “For years, animals have been used for medical research into human ills, and now it’s time that something was done for animals themselves,” Dr. Morris later recalled. Soon thereafter, Hill’s Pet Nutrition, Inc. was founded.

Hill’s began slowly, selling the premium dog and cat food in specialty pet stores. While the company eventually branched out into other pet-care products, such as flea bath products and aquarium supplies, it remained a small, relatively unknown company. In the 1960s, Hill’s was acquired by a string of larger concerns, all of whom failed to capitalize on the pet food brand.

The 1970s—Acquisition

As part of a diversification strategy that included food products, Colgate-Palmolive, the toothpaste and personal care product conglomerate, purchased Hill’s in 1976. A few years later, as Colgate-Palmolive again restructured, management considered selling off Hill’s. In fact, if it weren’t for Reuben Mark, an executive vice-president in charge of Hill’s who would later become CEO of Colgate-Palmolive, the company would have been sold. Mark persuaded Colgate executives that Hill’s had great potential and could find a profitable “niche” in premium pet foods and clinical nutrition. Mark’s pleas were heard, and Colgate executives gave him a chance to turn the company around.

Mark promptly recruited Robert Wheeler from another Colgate subsidiary, and together they refocused Hill’s business away from sidelines in which the company had little expertise and into the therapeutic qualities of the Science Diet line of pet food. Mark and Wheeler agreed that the secret to making Hill’s reputation was to distinguish it from the lower-priced commercial dog and cat foods sold in supermarkets. Thus they began building up a network of relationships with veterinarians, whom they encouraged to sell their products exclusively. Packaging of the Science Diet and Prescription Diet products was designed to appeal to the veterinary community; the food was marketed in plain bags and cans with plain labels to emphasis its role as a prescriptive diet. Hill’s sales rose dramatically, and Wheeler was eventually made CEO of Hill’s.

By 1984, Hill’s Pet Nutrition, Inc. had risen to prominence in domestic markets, with sales reaching $110 million. During this time, to reach its retailers, Hill’s relied on independent distributors, who furnished medical supplies and drugs in addition to food to more than 21,000 small-animal veterinarians in the United States. While this system worked well, Hill’s worried that a competitor would purchase some of these independent distribution centers and it would lose access to some of its key markets. To keep this from happening, in 1987 Hill’s purchased the Veterinary Companies of America (VCA), a group of seven wholesalers in the western United States.

Logistics expert Jim Keebler was hired in 1989 to run VCA as a distributor of Hill’s pet food. In order to integrate VCA with Hill’s remaining independent distributors, Keebler reconfigured the channels of distribution to minimize overlap, which ultimately resulted in three geographical sales territories across the United States.

Keebler also installed an information system using a network of IBM computers, which he linked to other wholesale and retail computers. With this new computer system, Hill’s could more efficiently manage the 6,000 order transactions it received each day from veterinarians and wholesalers. The computer system also allowed Hill’s to attune its production and distribution to customer demand in different geographical locations.

At this time, Hill’s operated under a two-stage system for filling orders and distributing them. Four factories manufactured Hill’s products for warehouse orders. Then, the warehouses took orders from wholesalers and shipped the product to wholesale-level service centers. Production then had to replenish depleted inventory. Keebler replaced this system with a continuous-flow production system that eliminated the warehouses at each plant location, so that the product could be shipped directly from the plants to the wholesale-level service centers. Production was thereby changed from a push system, in which the product was manufactured first and then “pushed” on wholesalers and retailers, to a pull system, in which the product was manufactured according to customer orders.

With this new continuous-flow production system, Keebler cut the time between order and shipment from two months to about two weeks, which reportedly saved the company over $7 million. By 1990, Hill’s commanded 95 percent of the prescription diet pet food market in the United States.

International Expansion in the Early 1990s

While Hill’s domestic sales were healthy, its international sales were low. Although the company had established a presence in Europe in the 1970s, its market share there was very small, and parent company Colgate-Palmolive, which made two-thirds of its profits abroad, encouraged Hill’s to adopt a much more aggressive global marketing strategy.

Hill’s management realized that in order to succeed in overseas markets, it first had to educate veterinarians and pet owners abroad about the benefits of a better diet for dogs and cats, as people had to be convinced of the benefits of Hill’s before they would pay the high premium for Hill’s products. The company also had to be sensitive to consumer needs in different geographical locations. The typical 40-pound bag of Hill’s pet food, for example, was not suited to every international market. A November 1996 article in Pet Product News explained, “Petite Japanese women shoppers, who generally shop on foot, have trouble carrying such a heavy package any distance. So, for the Japanese market, Hill’s developed small glossy pouches of puppy food and other products.”

Richard Hawkins, vice-president of operations, was promoted to president of Hill’s International and charged with building the brands’ reputation abroad. He was enormously successful, even though he had no prior global sales experience. Hawkins used the domestic formula of selling the product through veterinarians to sell $50 million worth of pet food in 16 countries. In just two years, international sales rose to $215 million in 50 countries, with a staff of just 265. Hill’s established its European headquarters in Hatfield, Hertfordshire, England.

Hill’s rapid global success attracted the attention of such pet-food industry giants as Carnation and Ralston, the latter of whom unveiled its own line of specialty pet foods, Purina O.N.E., in 1990. However, that company spent millions to capture only a few points of market share. A more serious competitive threat came from lams, a manufacturer of premium dog and cat food whose products were also only available in pet stores and veterinary offices.

Company Perspectives:

The mission of Hill’s Pet Nutrition is to help enrich and lengthen the special relationships between owners and their pets. We will do this by providing the best leading-edge pet nutrition technology, products, and expertise to pet owners, veterinary professionals, and other key pet nutrition influencers worldwide.

A Changing Marketplace in the Late 1990s

The emergence of large pet superstores in the late 1990s forced Hill’s to alter its marketing strategies. These pet superstores purchased large quantities of Science Diet and sold it for less than veterinarians had to pay for it. Some of these superstores also offered their own veterinary services, so they were in direct competition with the veterinarians who originally marketed Hill’s. Hill’s welcomed the pet superstores’ business, much to the chagrin of the veterinarians who had been reaping profits from selling Hill’s. To placate the veterinarians, Hill’s gave them the exclusive right to sell its Prescription Diet and HealthBlend lines.

To improve its service to veterinarians and other customers, Hill’s stepped up its efforts in telemarketing. In 1996, Hill’s hired an outside agency, FDS, to contact its 1,400 customers on a regular basis. FDS hired only telemarketers with previous veterinary experience to offer veterinarians information about special offers and to field technical questions. The operators then took orders, which they transferred to the vet’s chosen wholesaler. Hill’s contacted vets every six weeks to identify opportunities for sales and training requirements.

In the late 1990s, Hill’s unveiled several new products to increase sales and maintain its position as market leader. For example, Hill’s introduced HealthBlend, a premium dog food for large-breed puppies—puppies that will rapidly grow to be 55 or more pounds—which are prone to common skeletal problems such as hip dysplasia and osteochondrosis. As researchers found that overfeeding puppies the wrong kinds of food increased the risk of such skeletal problems, HealthBlend was aimed at controlling levels of fat, calories, and calcium, promoting a slow and steady growth, which in turn reduced the risk of skeletal problems.

The company also unveiled its Prescription Diet Canine n/d. Developed by veterinarian David Ogilby of the Colorado State University Comparative Oncology Unit, Prescription Diet Canine n/d provided the nutritional requirements needed for dogs suffering from cancer. The high fat and low carbohydrate dog food formula was meant to “starve” cancer cells, and early results were encouraging, as the survival rates of dogs given the food and a program of chemotherapy increased to 354 days, as compared to 130 for dogs given the chemotherapy and regular dog food.

Hill’s also ventured into the “treat market,” introducing its first line of upscale dog treats, Science Diet Canine Maintenance Treats, available in four varieties and designed to prevent weight gain. “Our goal was to establish this product as the first premium pet treat that provides the right nutrients for every life stage and tastes better than the leading dog biscuit,” explained Jim Humphrey, vice-president for marketing, in Packaging magazine. Hill’s put a great deal of thought into what kind of container it would use for its Treats. Instead of using traditional boxes, which were not reclosable and tended to crush easily, Hill’s selected an environmentally safe canister that proved more sturdy and easier for customers to handle.

As it moved closer to a new century, Hill’s believed that research and goodwill were paramount to its continued success. The company spent millions of dollars each year on research at its high-tech 179-acre facility in Topeka and donated over $250,000 a year for university research, books on small animal nutrition, and world lecture tours by prestigious veterinarians. In fact, Hill’s scientists authored the most widely used textbook about small animal nutrition, Small Animal Clinical Nutrition, the fourth edition of which was published in 1998. Hill’s also held an annual pet diet contest—the Hill’s Nutrition Pet Slimmer of the Year—in the United Kingdom.

Moreover, when contacted by the World Society for the Protection of Animals (WSPA) to aid starving dogs left homeless after Hurricane Mitch devastated Honduras in 1998, Hill’s stepped forward and donated five tons of dog food, which fed more than 20,000 dogs. “At Hill’s, we are deeply committed to the health and well-being of companion animals,” said Dr. Albert Ahn, Director of Professional Affairs for Hill’s in an interview for PR Newswire in December 1998. “When we received the call from WSPA asking for help, we jumped into action immediately,” he added.

Hill’s commitment to new product development and the continued improvement of the health and care of companion dogs and cats has paid off greatly. According to Fortune magazine, Hill’s was the top-ranked premium pet food and third in overall customer satisfaction in 1998 among 190 companies rated by the National Quality Center at the University of Michigan Business School.