Author: Xie Zheqiang Source: FBIF Food & Beverage Innovation (ID: FoodInnovation) __ China's pet population grows at 12% annually, becoming the world's third-largest market Over the past decade, the scale of China's pet industry has grown more than 12-fold, with the annual increase in pet numbers far outpacing population growth, rising at about 12% per year. According to data from the National Bureau of Statistics, from 2010 to 2016, the compound annual growth rate of China's pet industry reached 49.1%, the highest among all industries. In 2016, the market size for pet dogs and cats alone reached 172 billion yuan. Over the past three years, sales revenue for pet products ranked among the top three on Taobao (including Tmall), with average annual sales exceeding 100 billion yuan. China has become the world's third-largest pet market, after the United States and Japan. It is predicted that by 2020, the market will exceed 200 billion yuan, and the entire pet industry will enter a 'blowout era'.
China's pet industry will continue to develop rapidly Image source: China Industry Information Network
The rise of the pet industry first depends on the rapid increase in pet numbers. With the improvement of people's living standards, pets have gradually entered households as close companions since the late 1990s. For example, in Beijing, the number of pets in 2009 was 9 times that of 2001. According to statistics from the China Feed Industry Association, in 2015, the number of pet dogs and cats in China was 61.9 million (limited to urban areas, excluding rural), including about 42.7 million dogs and 19.2 million cats. The proportion of households with pets is still low: for urban households, dogs account for 18% and cats for 9%. The proportion of pets fed with pet food is low: about 4.3% for dogs and 7.9% for cats.
From international experience, at similar economic levels, pet ownership rates are related to a country's land area and residential space. Therefore, the U.S. household pet ownership rate is about 68%, far exceeding Japan's 28%. Although China has a large land area, considering its dense population and smaller per capita living space, the upper limit of pet ownership should exceed Japan but be lower than the U.S. Assuming a 40% urban household pet ownership rate and 70% urbanization rate, China's pet population could reach up to 100 million in the future, leaving room for a 2-fold increase.
Looking at domestic pet owners, they are mainly middle-aged and elderly people over 45 and young people under 30. The primary reason for keeping pets is affection, followed by companionship and relaxation, which aligns with these two groups. Domestic pet owners spend an average of about 400 yuan per month on their pets. Based on the current 30 million pets in China, the pet industry market size has exceeded 100 billion yuan.
From the pet industry chain, the development of pet breeding and pet daily necessities keeps pace with the number of pets, while pet hospitals and pet cemeteries lag behind. This is because the demand for daily necessities for dogs and cats lasts throughout their lives without obvious cyclical or seasonal characteristics, while major diseases in dogs and cats often occur in old age, with a time lag of about 8-13 years. Currently, pet cemeteries have appeared in Beijing, Shanghai, and other places. Buyers are mostly pet owners with deep affection for their pets. Prices range from 2,000 to 5,000 yuan, with a validity period of 30 years and an annual management fee of 50 yuan. Assuming the current 30 million pets in China, with an average lifespan of 10 years, and 10% of deceased pets needing pet cemeteries, the market size would exceed 1 billion yuan.
Beef-flavored pet food Image source: Boqi Mall
The pet food industry, which accounts for half of the entire pet sector, has undergone a qualitative change as market demand has grown geometrically. More and more owners are paying attention to the quality of pet food, and professional pet food is becoming the first choice. Data shows that in 2015, China's pet food sales reached 12 billion yuan. According to statistics from the China Feed Industry Association, there are about 250 enterprises producing complete pet food in China, with production capacities ranging from 3,000 to 30,000 tons. Production is mainly concentrated in Hebei, Shanghai, Shandong, Tianjin, Beijing, Anhui, Guangdong, and other provinces. Hebei ranks first, with 12 pet food production enterprises in Nanhe County alone, producing over 100,000 tons, making it the most densely populated area for pet food production in China. A common problem among domestic enterprises is that product R&D is mostly in the learning and imitation stage, with few independent innovations and severe homogenization. According to Mintel GNPO (Global New Products Database), in 2014, China's new pet food products accounted for only 1.2% of global new product launches, while the U.S. and Japan reached 20% and 10%, respectively. Due to the underdeveloped industry and standard issues, domestic pet food is difficult to compete with international giants, but this will also force domestic pet food enterprises to continuously improve their capabilities.
Bile cat and dog food Image source: hc360.com
Currently, per capita pet food consumption in China is low, ranking last among 20 global markets, at less than 1 kilogram, compared to 25 kilograms in the U.S., indicating huge growth potential. According to the 2016-2020 China Pet Food Market Deep Investigation and Development Prospect Research Report released by China Industry Research Network, China's pet consumption will show a very positive development trend, and China's pet food has enormous market potential. With its large population and pet numbers, the growth of China's pet food market will last at least 20 years. It is expected that in the next few years, the average annual growth rate of China's pet economy will exceed 20%, forming an economic scale of hundreds of billions.
Intense market competition is also forcing Chinese enterprises to transform and upgrade. According to predictions, in the next five years, the five fastest-growing new pet food markets globally will be China, Vietnam, Indonesia, Malaysia, and Thailand. China's pet food production growth rate will remain the world's first, and output value growth will be second globally.
Current Status and Development Trends of Foreign Pet Markets
Taking the U.S. as an example, the U.S. currently has the world's largest pet industry, with a household pet ownership rate of 68%. In terms of output value, data from Europe Economics shows that North America accounts for 37% of global pet economy output, while Europe and Asia account for about 23% each. In terms of household pet ownership, the U.S. rate is 65%, far higher than Germany's 36% and Japan's 28% among developed countries. According to the 2017-2018 APPA National Pet Owners Survey, 68% of U.S. households own a pet, meaning 84.6 million households have pets. When the survey first began in 1988, 56% of U.S. households owned pets. According to the American Pet Products Association, spending on pets in the U.S. is expected to reach $69.36 billion in 2017, compared to $66.75 billion in 2016.
In 2016, U.S. pet market spending was $66.75 billion. Breakdown (in billions of USD): Pet food | 28.23 Supplies/OTC medicines | 14.71 Veterinary care | 15.95 Live animal purchases | 2.1 Veterinary services: grooming and boarding | 5.76
The U.S. pet industry has maintained relatively high growth for a long time, with a growth rate over the past 20 years that is double the per capita GDP growth rate. According to APPA data, in 2015, the U.S. pet industry output value increased by 254.59% compared to 1994, while per capita GDP grew by 100.83% over the same period. Over a longer time frame, from 1970 to 2012, the share of personal consumption expenditures on pets and other entertainment items rose from 0.38% in 1970 to 2.27% in 2012. Additionally, the pet industry has rigid characteristics; even during the 2008 financial crisis, its output did not decline.
Cats and dogs are the most commonly owned mammalian pets in U.S. households. In 2015, there were 85 million cats and 78 million dogs, totaling 163 million, with a per capita pet ownership rate of 51.10%. Historically, in 1988, the number of cats and dogs in the U.S. was about 120 million, growing to 160 million by 2004, after which it remained stable. However, since 2004, U.S. pet industry spending has continued to grow, mainly due to increased average spending per pet.
Pet food is one of the most important links in the pet industry chain. The largest consumption category is staple food, i.e., cat/dog food, followed by prescription food, pet snacks, and pet health products. Mars, Inc. (MARS) holds nearly a quarter of the U.S. pet food market share, with brands including PEDIGREE, ROYAL CANIN, WHISKAS, KITEKAT, and the Waltham pet nutrition center.
Handun pet food Image source: Gaopeng Design official website
Dry food holds the largest market share at 60.8%, while wet food accounts for 23.3%.
Compared to dry and wet food, high-end food, including natural organic food and unique freeze-dried technology, is becoming popular among pet owners due to its high protein and low carbohydrate health attributes. According to the 2017-2018 APPA National Pet Owners Survey, the average annual basic expenses per pet owner (individual) for dogs and cats are as follows (in USD):
| Dog | Cat | |
|---|---|---|
| Surgical | 474 | 245 |
| Routine check-ups | 257 | 182 |
| Pet food | 235 | 235 |
| Pet treats | 72 | 56 |
| Boarding | 322 | 164 |
| Vitamins | 58 | 46 |
| Grooming | 84 | 30 |
| Toys | 47 | 30 |
Other services, such as pet grooming, boarding, walking, training, and pet sitting, have grown significantly since 2015, with growth rates second only to the pet food industry. Although spending on other services is nearly $9 billion less than veterinary care, this growth is noteworthy. It is expected that spending on other services will grow another 6% in 2017, higher than the expected growth rate for any other spending category.
Bottlenecks and Breakthrough Points for Domestic Pet Food Enterprises
Since pet food is an imported product, foreign brands have inherent brand heritage and trust advantages. However, due to the lack of unified mandatory national standards in China, the domestic pet food industry is a mix of good and bad. Occasional product incidents by unscrupulous enterprises have exacerbated consumer distrust of domestic brands, accelerating the shift toward foreign brands. Additionally, due to the price advantages of bulk agricultural products and meat in foreign countries, imported products can maintain low prices in the market even after shipping and tariffs, severely impacting domestic brands.
Pet food packaging design is rich and varied Image source: Blogarama
Although the general trade import of pet feed is strictly regulated, it is gradually being liberalized. China has strict regulatory procedures for importing animal feed such as cat and dog food. According to the "Measures for the Administration of Import Registration of Feed and Feed Additives," overseas enterprises are not allowed to directly sell imported feed and feed additives in China. Overseas enterprises exporting feed and feed additives to China for the first time must apply for import registration with the Ministry of Agriculture. The Ministry reviews the application materials; only those that pass the review can obtain the "Feed and Feed Additive Import Registration Certificate." Without this certificate, they cannot sell or use the products in China.
With the opening of imports from some countries and regions in 2016-17, foreign pet food brands are rapidly increasing through cross-border trade and legal imports. Belgium and Brazil are major importers of pet food.
Although domestic brands have developed later than foreign brands, they have enjoyed certain late-mover advantages, mainly reflected in leading equipment and technology, and under the current national strategy to strongly support domestic brands, they have the opportunity to export products to more countries. At the same time, with the help of domestic internet platforms, some rapidly rising new domestic pet brands have emerged. However, it should be noted that some of them still market themselves under the guise of foreign brands. Meanwhile, with the rise of the post-90s and post-00s as new consumer forces, their individuality and higher education levels make them more rational, and this younger group is more likely to accept domestic brands with quality and high cost-performance. Before foreign pet brands form an oligopoly in the market, this can be seen as an opportunity for domestic pet food enterprises.
-END-