Menu Pet Boasted It Did Not Expect Customer Defections Due to Recalls

Granted this article came out in March before things got really bad but look at the Menu managers attitude even then. They refused to answer...

Granted this article came out in March before things got really bad but look at the Menu managers attitude even then. They refused to answer media questions and went on as if nothing was wrong.. All the time they KNEW dogs and cats were dying due to their greed. If the managers were to get bigger bonueses, they had to have heftier corporate profits.

Thanks to the International Herald Tribune for this article.

Despite recall, pet food maker is still a large supplier
By Ian Austen
Published: March 22, 2007

OTTAWA: Like many retail chains, PetSmart quickly pulled several varieties of wet dog and cat foods made by Menu Foods, a Canadian manufacturer, that were recalled and have since been linked by the U.S. Food and Drug Administration to the deaths of 14 animals.

But while the recall left empty spaces on the shelves of PetSmart’s 908 outlets, the stores still carry cans and pouches of food made by the same company.

“We are continuing to receive some products not affected by the recall from Menu Foods,” said a spokesman for PetSmart, Bruce Richardson. “They’re a significant supplier for everybody who does wet pet food. Unfortunately for consumers, there were only three or four retailers named. But virtually any major retailer that sells pet food relies on Menu.”

PetSmart is not alone in buying from Menu, whose plants in Canada and the United States are still operating while investigators try to determine what went wrong with the recalled products.

Menu executives told financial analysts this week that the company was still shipping products to Procter & Gamble, which has contracts with Menu to produce some Iams and Eukanuba wet foods. Procter & Gamble did not respond to requests for comment.

Most of Menu’s customers do not have long-term supply contracts tying them to the company, but they have nowhere else to take their business.

Menu’s name is little known because it lacks its own brands. But over the past few years, it has come to dominate the business of making wet pet food for retailers, and it is a widely used contract producer for brand-name marketers like Procter & Gamble.

Other major makers of wet pet food, like Nestl, avoid contract work for other companies; some, like Del Monte, are fully booked by Wal-Mart Stores. There are other companies in the industry, including American Nutrition, but they lack the production capacity to replace Menu.

The recall affects only wet dog and cat foods that are chopped up and mixed with a sauce, known in the industry as “cuts and gravy.” It is not possible to determine how many retailers and manufacturers continue to buy other types of wet food from Menu.

This week a spokeswoman for Menu, Sarah Tuite, forwarded a written list of questions to the company’s executives. No response came from Menu beyond an e-mail message in which Tuite wrote: “I know all of our executives are extremely focused on the recall right now, and working around the clock to exhaustively test finished product and determine where the problem lies.”

Karen Burk, a spokeswoman for Wal- Mart, said its stores had removed all Menu products. She added that Menu had produced only selected sizes of house-brand products for Wal-Mart. Citing company policy, she declined to say whether Wal-Mart would continue to use Menu as a supplier.

Several other Menu customers, including Safeway, Kroger and Pet Valu, did not respond to interview requests.

Menu expects the recall will cost as much as 40 million Canadian dollars, or $35 million, and many analysts are cautious about its future.

Menu was founded in 1971 when Donald Green, its former chairman, bought a pet-food plant in the Toronto suburb of Mississauga, Ontario, from Quaker Oats. But it was not until this decade that the company developed its broad reach in the North American market.

In 2001, Menu bought the wet food operations of Doane Pet Care, a major contract producer of dry foods in the United States, for $15 million. Menu became a publicly held company the next year.

Like many Canadian corporations at the time, Menu did not become a traditional equity-based company. Instead, it was listed on the Toronto Stock Exchange as an income trust, a structure that avoids most corporate taxation because most of the company’s income is paid directly to unit holders, the equivalent of shareholders.

In 2003, the company acquired a Procter & Gamble plant in North Sioux City, South Dakota. With that came a five-year supply agreement that accounted for about 11 percent of Menu’s 356.1 million dollars in sales last year.

On Tuesday, CIBC World Markets downgraded Menu to a “sector underperform” rating and set a 12- to 18- month unit price target of 3.50 dollars. At the time of the initial offering, the units were priced at 10 dollars.

But at least one analyst, Aleem Israel of Sprott Securities in Toronto, is confident that the company’s market dominance will be its salvation and has upgraded the fund to “buy.”

“We do not expect major fallout from customer defections,” Israel wrote in a note to investors Wednesday. “Menu remains the largest wet pet-food manufacturer in North America, and its track record of safety and quality assurance has been strong.”

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