Over the years, the role of pets has changed. It is no more like a ‘functional’ or unremarkable part of a household, instead, the companionship of a pet is like having a family member. To improve the quality of life their pets enjoy, owners are naturally spending more and more on them.
Dog / Pet
China's pet industry is part of the renaissance. The sector has been undergoing significant growth in recent years. As Chinese consumers' disposable incomes and consumption levels continue to rise, the number of pet owners also shows an upward trend – it reached 68.44 million in 2021, according to a Chinese Pet Industry White Paper. The trend towards living alone – partly due to the younger generations marrying later and later – and an ageing population are further boosting the growth of this furry bonanza. Plus – more consumers are increasingly willing to spend on their pets. So we find the term the 'pet economy' has been coined in this context.
Ping An Securities expects the market size to continuously increase, reaching CNY 649.1 billion in 2025 with a CAGR of approximately 11.1% from 2021 to 2025. However, China’s pet industry is still highly underdeveloped compared to those in more developed economies, which suggests unprecedented opportunities for the pet track. According to Frost&Sullivan, the percentage of pet-owning households out of all households, or the pet-ownership penetration rate in China, is expected to increase by over 7% in the five years starting from 2019, demonstrating a relatively swift robust growth potential, as compared to the United States, whose penetration rate is expected to increase from 68.9% to 72.9% during the same period.
With such a soaring demand, the venture capitalists have also set their sights on the market – which is dominated by dogs and cats. According to EqualOcean, a total of 29 financing events occurred in the domestic pet track throughout 2021. Among these, pet healthcare products provider RedDog (Chinese: 红狗) bagged CNY 200 million in a Series A financing round in January 2021, while PETKIT (Chinese: 小佩宠物), a technology-engaged pet products manufacturer has secured USD 500 million in the Series D round of funding from a set of well-known investors. They included Qiming Venture Partners, GGV Capital and Atalas Capital. Shanghai-based company CHOWSING (Chinese: 宠幸) along with its sub-brand Nourse (Chinese: 卫侍) was another A-level player.
Examining the sub-market of pet food in depth, the report covers three main areas of staple foods, snacks and nutritional products. Due to the relatively inelastic demand for these goods, this sub-market has a high consumer penetration rate compared to accessories or healthcare. Besides, it has been experiencing rapid expansion in the past decade. According to Consumer Sector, the cumulative annual growth rate of China's pet food sub-market between 2016 to 2020 is 29%, which is 6.4% higher than the global average.
A major characteristic of the pet food sub-market is its ability to resist economic shocks or even downturns, as Donald said. Euromonitor's data showed that the market size of China's pet food market increased by 23.9% to reach CNY 122 billion in 2020 despite the COVID-19 pandemic. Among them, the staple food is a must-need for pets. Consumers of staple food, no matter their age group, prefer to stockpile them when there the merchant offers a discount. Therefore, they do not purchase staple food on a regular basis. In terms of distribution channels for staple food, e-commerce platforms remain the dominant one. Around 70% of consumers buy all or most of their pet food online, while another 20% of users split their purchase between online and offline. On JD.com, staple food accounts for 50% of the overall sales in the pet category.
In terms of competition, international brands including ACANA, Orijen and Solid Gold consolidated experience and expertise through years of practice and are thus more recognized by consumers. However, domestic players are on the rise. Among the top 15 companies in terms of sales, Chinese brands accounted for 10 seats in the pet dog food market, 8 seats for cat food, 11 seats for dog snacks, 10 seats for cat snacks, per Kaiyuan Securities' research.
A notable domestic brand is MYFOODIE (Chinese: 麦富迪). Its sales volume reached CNY 30.38 million in 2021, higher than that of international competitors. A reason that Chinese brands are now being favored by consumers in the market is that an increasing number of them meet international standards. Besides, pet food from domestic firms is cost-effective and more convenient in terms of use and purchase, both of which are important to consumers.
The market for pet supplies is currently smaller than that of pet food, however, it is quickly gaining momentum. It refers to products developed, produced and used specifically for pets, including toys, cleaning equipment, electric devices and even clothes.
With technology changing all aspects of our lives, pet owners are also seeking a smarter connection with their beloved pets too, with the aims of added safety, convenience and fun. Data from JD.com shows that from January to May of 2022, sales of smart pet toys increased by 80% year-on-year, smart water dispensers surged by 84% year-on-year, while smart cat litter box search volume jumped by 267% year-on-year. To put it differently, pets are going digital and this segment is further poised for even faster growth in the future.
From non-alcoholic dog beers to post-modern pet furniture, pet humanization – also known as anthropomorphization – is another emerging trend in the pet industry. It is reasonable, as human owners are actually the ones who pay for these products, and many pet owners want the best for their animals and are seeking out products that have a higher purpose than just utility.
VETRESKA (Chinese: 未卡), a pet lifestyle brand with products ranging from cat litter boxes to soil-free ryegrass, has put this phenom well into practice. The firm applied trendy symbols such as cactus and watermelon that young female pet owners – the major consumption group – like to its brand and products. Its founder and CEO, Donald Kng, told EqualOcean that "we have a high chance of creating viral products because we know our consumers well”. This people-pet brand creates a psychological feeling that pet owners are sharing their preferences with their pets, and thereby help to strengthen the bond between each other.
At present, the firm has successfully entered international markets in North America and Southeast Asia. Donald mentioned that they have more than seven agents across the North American continent and also their own retail networks. In the future, the firm also plans to open offline experience stores overseas.
Looking forward, China's pet economy will continue to boom and develop into a mature market. It is no surprise that it may come to exhibit traits similar to fully-grown markets, such as those among the developed markets.
For instance, a reasonable assumption is that more pet owners will begin to focus on new aspects of care, including strengthening the immune system, gastrointestinal conditioning, calcium and skin care. Keywords like multi-functional, natural and organic may be at the top of consumers’ consideration, with a variety of staple food, snacks and nutritional products emerging to satisfy the needs of different pets experiencing different circumstances. Even further, customized pet food may become welcomed by pet owners, who will tailor their pet's diet to their health, life stage, breed and size, acting as their pet's personal nutritionist.
Another notable highlight is proposed by DogCare, a seven-year-old pet-focused startup with the slogan of Human&Animal Bond. "Experience is the key. Compared to the innovation of new products, we pay more attention to the updates of the existed products." According to DogCare, only through further excavation of consumer needs and upgrade of product experience can make a pet supplies provider stand out from this fragmented market.
Although the pet industry is generally recession-resistant as a whole, given the huge shock of the pandemic and months of lockdown, "it is still experiencing a consumption downgrade," said Donald. Under such a context, cost-effective while innovative would be a highlight for pet supplies, and VERTRASKA also disclosed that they would adopt a multi-brand development strategy to complete such tasks while maintaining a consistent brand image.
The founder of Hongzuimao, a kitten food supplier said “30 years ago, people named their children after 'dogs'; and nowadays, people call their pets 'son'.” It is an interesting statement, with infinite business opportunities conjured up by it.
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