By Silke Koltrowitz
ZURICH (Reuters) - Nestle <NESN.S> bought London-based Lily's Kitchen that makes food for dogs and cats in the higher-priced segment, the Swiss group said on Wednesday, as it bulks up in pet food, its fastest-growing product category.
Purina PetCare had 7.0% organic growth and sales of 13.622 billion Swiss francs ($14.12 billion) in 2019, outpacing Nestle's other categories. Most of Lily's Kitchen's products are in the so-called premium segment that grew at a double-digit rate for Nestle last year.
Nestle, which has seen some pet owners stockpiling due to the coronavirus, wants to boost its Purina PetCare division's presence in the premium pet food market, saying it has lacked scale there, in particular in Great Britain.
"We undertrade in this segment," Bernard Meunier, head of Purina PetCare in Europe, Middle East and North Africa (EMENA), told Reuters. "In the UK we are not really present in premium natural pet food."
About 50% of the UK's 66 million people own a pet, with 10 million dogs and 11 million cats, or roughly one for every four adults, according to PDSA, a UK vet charity.
Meunier said the petcare portfolio in the EMENA region was now in good shape and the focus would be on growing it organically.
Nestle gave no purchase price.
Lily's Kitchen, founded in 2008 by a dog owner seeking food for her sick canine, has 85 million pounds ($105 million) in sales at 6,000 stores in 30 countries, the Swiss company said, adding it will be run as a stand-alone business from London.
Among other products, it sells grass-fed lamb dog food for 69 pounds for a 12-kilo bag, the Lily's Kitchen web site said, and a 19-pack of chicken-based kitten food for 16.24 pounds.
"Looks like an interesting piece of business and hits all of the right notes regarding consumer preferences for natural on top of fast pet-care category growth," Kepler Cheuvreux analyst Jon Cox said.
"Nestle is maintaining its dividend, there is a buyback and I expect guidance to be more or less maintained for the year," Cox added. "I can’t think of many other companies in which to ride out the corona storm."
Meunier said it was too early to assess the coronavirus's impact on pet food, but that all its factories were running.
"We see some stockpiling from consumers for their pets, as well," Meunier he said. "We don't expect this to have a lasting impact."
Nestle shares were down 1.6% at 1102 GMT, versus a 2.1% lower European food sector index <.SX3P>.
(Nestle corrected statement in para 4 to "premium natural pet food" from "premium pet food")
(Reporting by Silke Koltrowitz and Michael Shields, editing by John Miller)