Freshpet Inc. (NASDAQ:FRPT) experienced a 9% decline in its share price on Tuesday after the National Advertising Division (NAD) of BBB National Programs advised the company to stop using certain advertising claims suggesting its dog food is "human grade."
The NAD recommendation resulted from a Fast-Track SWIFT challenge filed by rival The Farmer's Dog. The competitor challenged three video advertisements, contending that statements and images in those ads conveyed that Freshpet's products met a "human grade" standard.
NAD's review singled out a social media advertisement in which a dog owner is shown saying, "We eat fresh, real food as much as possible at home, so of course, we want the same for Benji," and that Freshpet dog food is "made with the same level of quality I want in my own food." The division concluded that those lines transmitted a human grade message and recommended Freshpet discontinue those claims as used in the video.
During the proceeding, Freshpet made a permanent change to a commercial that had included the line, "How does Freshpet make healthy food for dogs? The same way you make healthy food for people." The company removed the second sentence from that spot. NAD determined the altered commercial no longer conveyed a human grade message.
Not all challenged advertising was found to be misleading. NAD determined one advertisement acceptable: a video showing food preparation in a home kitchen followed by Freshpet dog food being served to a dog. The division said that because the spot emphasized freshness and simple ingredients, it did not convey a human grade message.
In response to the NAD recommendation, Freshpet issued an advertiser statement saying it "will comply with the NAD’s recommendation."
Key points
- Freshpet shares fell 9% after NAD recommended discontinuing certain advertising claims implying the dog food is "human grade."
- The Farmer's Dog brought a Fast-Track SWIFT challenge alleging three video ads conveyed human-grade claims; NAD found at least one ad in violation and approved a modified commercial and one other ad as not conveying human grade.
- Marketing and consumer perceptions in the fresh pet food and broader consumer packaged goods sectors may be affected by the ruling.
Risks and uncertainties
- Regulatory and self-regulatory advertising reviews can force changes to marketing content, potentially affecting brand messaging and promotional strategies in the pet food and CPG sectors.
- Competitor challenges over advertising claims can lead to reputational risk and require corrective actions that may impact consumer trust and sales.
- The immediate stock reaction - a 9% drop - highlights market sensitivity to rulings that could alter communications and consumer perception for companies in the pet food and retail sectors.