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Practical Guide to the Pet Industry in China

China’s pet industry has grown rapidly over the last two decades. According to recent market research, the revenue in the pet industry will amount to US$ 66.1 billion in 2023, while the pet food segment will reach US$7.45 billion, with an expected annual growth of 10.96% (CAGR 2023-2027). In global comparison, most revenue in the food category is generated in the United States (US$57.63 billion in 2023).


The COVID-19 pandemic and a growing aging population accelerated many of the existing trends seen in the pet industry in China, including an explosive growth in the past few years. With an increased number of people working from home, caring for a pet has become much easier and popular.


The pandemic also pushed the shift to online purchases of pet products, likely to the detriment of brick-and-mortar pet stores.

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According to the 2021 White Paper on China’s Pet Consumption Trends published by consumer research firm iResearch, China’s pet industry was worth US$44.4 billion in 2020 and reached US$51.5 billion in 2021, a year-on-year growth rate of 16.7 percent. The report projects gains of US$ 66.1 billion in 2023.


China’s older population is turning to dogs and cats for companionship, while the younger generations, which prefer to remain single or have no kids, consider pets a better choice. Nearly half of Chinese households own pets such as dogs, cats, fish, birds, and others.


A large middle-class with higher disposable income and a rapidly growing urbanization, as well as a bigger portion of the population waiting longer to get married and have children, are the main factors turning China into a pet loving country.


Most pet owners hold a university degree, despite only 23.61% of the overall population receiving higher education. In addition, 46.3% of pet owners were born after 1990, and 22.9% were born after 1995. Pet owners are therefore, higher earners, with 46.7% earning between RMB 4,000 (US$593) and RMB 9,999 (US$1483), and 34.9% earning over RMB 10,000 (US$1,483).


The length of time that a person has been a pet owner is relatively short. 52% of pet owners in 2021 had kept a pet for less than three years, and 19% had kept one for less than one year. In addition, the average number of pets per person in China remained mostly unchanged from 2020, despite the overall increase in the number of pets.


Both statistics indicate that the growth in the market is driven in large part by new pet owners, rather than existing owners acquiring more pets, which combined with the fact that pet owners skew young suggests huge potential for market growth among younger generations.


Pet humanization is rising in China due to changes in people’s lifestyles. Social media and adopting a more western lifestyle are promoting pet ownership among younger people.


According to the National Bureau of Statistics of China (NBS China), more and more seniors are adopting a fury friend. Approximately 61% of the 65+ age group live with a pet and prefer small, easy-to-care-for pets instead of a bigger commitment. These factors are driving the pet industry in the country as well.


At the same time, the urbanization trend in China significantly influences sales of prepared pet foods, as these products are convenient and suitable for the lifestyles of urban dwellers. The Chinese market observed a rising awareness of feeding pets with prepared packaged food.


Pet food has gained enormous popularity in the country, particularly with the advent of different varieties available for pet animals. Chinese consumers are increasingly careful about the health of their pets, and the pet food market has followed this trend of pet humanization.


Additionally, the rise in consumers' per capita disposable income motivates them to spend on healthy and organic food products for pets to aid their health. Furthermore, the easy convenience of products with different price ranges is a growth-promoting factor for the pet food market in China. They offer consumers variable financial status and a range of dog food product options.


In 2021, the number of cats kept as pets overtook dogs for the first time. There was a total of 58 million cats and 54 million dogs in China at year-end, according to market research firm Intelligence Research Group. The popularity of cats is also rising faster than that of dogs, growing 19.4% year-on-year in 2021, compared to just 4% growth in the number of dogs.


However, dog owners tend to spend more on their pet’s needs than cat owners. According to a research paper published by the platform Pethadoop in 2021, the annual average spend per dog was RMB 2,634 (US$390.62), compared to RMB 1,826 (US$270.79) for cats.


The growth of the overall dog market also outpaced that of the cat market by a slim margin, reaching RMB 14.3 billion (US$2.1 billion) in 2021, up 21.2% from the previous year. The cat market was worth RMB 10 billion (US$1.5 billion) in 2021, growing 19.9% year-on-year.


The pet food market in China is segmented by product (dry pet food, wet pet food, treats/snacks, and other product types), animal type (dog, cat, bird, and other animals), and sales channel (specialized pet shops, internet sales, supermarkets/hypermarkets, and other sales channels).

Millennials' increasing adoption of dogs as an asset boosted pet food sales. The most popular dog breeds in China include Pekingese, Shih Tzu, Pug, Shar Pei, Chow Chow, and Tibetan Terrier.

Dog food is the largest segment, occupying a share of 53.3% of the market in 2021. The freeze-dried segment of dog food is also emerging with the rising awareness of its nutritional benefits and popularity with dogs.


In 2021, China’s pet food production reached 1.13 million tons, a year-on-year increase of 17.3 percent. The largest pet food producing regions in China were the northern provinces of Hebei and Shandong, which reached a production output of 429,847 tons and 268,064 tons, respectively, according to data from the China Feed Industry Association.


With improved consumer awareness about food for dogs' specific dietary and healthcare needs, the leading players are introducing new innovative products in China. For example, in 2021, Swiss food giant Nestle invested about US$ 35.11 million in pet food products to extend its product line in the country.


The Chinese pet food market is consolidated with the presence of multinational companies, such as Mars Incorporated, Nestle Purina Pet Food, Bridge PetCare, Yantai China Pet Food Co. Ltd, Royal Canin China Co. Ltd, Huaxing Pet Food Co. Ltd, and Chengdu Care Pet Food Co. Ltd.


These companies are actively adopting different strategies such as investments in e-marketing and e-commerce websites, mergers and acquisitions, and new product launches to expand their presence in the country and increase their market shares.


Many of these multinationals entered the market at a relatively early stage and therefore already enjoy strong brand recognition by Chinese consumers.


Domestic brands are catching up with multinationals. One of the largest domestic pet food companies is Yantai China Pet Foods Group, which owns several subsidiaries, including Wanpy, Dr Hao, and King Kitty.


Royal Canin, one of the biggest competitors of Mars Inc., released in 2019 its first sub-health pet nutrition products, which not only nourish the dog, but also improves their fur and health.


Another example of products which improve the life of our four-legged friends is represented by the major pet food manufacturer in Taiwan (China) Fwusow Industry Co. Ltd. In 2020, the company developed a line of dog food integrating OxC-beta, a vitamin that supports immune functions.


In April 2022, Nutro introduced a line of products for dogs, So Simple. This line, which includes treats and meals with high quality ingredients, was launched as an alternative to complicated dog food options.


In January 2022, ADM announced it completed the acquisition of the remaining 40% shareholding of Invivo Sanpo, a pet nutrition company located in Tianjin, China. The year before, US Mars opened Asia's largest pet food plant in China, which can produce 25 tons of pet foods annually.


Long gone are the days when animals mainly served a practical function; today, they have become an integral part of the family – especially for younger people who are increasingly shunning traditional family structures.


As demographic and cultural trends continue to shift, China’s pet market shows huge potential for growth, offering a treasure trove of opportunities for investors.


With new pet owners who are young, well-educated, and wealthier, the pet industry is set to see significant growth over the next decade.


Although the industry first began to emerge in the 1990s with the entrance of multinational pet brands, such as Mars Inc. and Nestle Purina Pet Food, as well as the launch of the first China International Pet Show in 1997, the trend of pet-keeping first began to take off in earnest in the 2000s.

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Cultural attitudes toward keeping animals as pets began to shift along with increasingly relaxed views on marriage and children, at least among the younger generations. The first domestic pet brands and animal hospitals began to open during this period, with a focus on cats and dogs.


Since 2010, the number of pets began to expand significantly, as millennials entered the workplace and increasingly formed so-called “dual income, no kids” (DINK) families, along with increased urbanization.


Interest in exotic animals, such as reptiles, rodents, and aquatic animals, rose and as China’s domestic e-commerce industry flourished, pet retail also began to move online, with platform companies, such as JD.com and Alibaba’s Taobao, offering pet products.


As seen in other retail sectors, the COVID-19 pandemic spurred a shift to more online consumption of pet products and services. Pet owners reported online platforms as their primary place to buy food products, with 74.5% buying pet food online, 73.1% buying snacks online, 64.2% buying nutritional products online, and 80.4% buying other pet supplies online.

Pet products were one of the categories that saw considerable growth during the otherwise underwhelming 618 shopping festival on June 18, 2022, with transactions volume on Jingdong Pets – the pet platform of e-commerce company JD.com – exceeding the total transaction volume in 2021 in the first four hours of the festival.


However, offline shopping remained relatively high, showing signs of recovery post-pandemic. As China managed to mostly contain the spread of COVID-19 in the latter half of 2020 and most of 2021, offline shopping recovered significantly. For pet nutritional products, 47.9% of pet owners said they purchased them from animal hospitals and 32% purchased them from pet stores.

The relaxing of COVID-19 restrictions in 2021 gave offline pet services a chance to recover - most commonly pet grooming, fostering, training, and pet recreational parks. Pet training saw a 116.7% year-on-year increase in 2021, while pet grooming grew by 31.7%.


The purchase of animals is still predominantly done offline, although online pet transactions are also increasing. According to iResearch, most people acquired a cat or a dog either from an offline store or from a friend, family member, or acquaintance. Only 19% acquired a cat online and 13% acquired a dog online in 2020, despite the impact of the pandemic on offline consumption.


Veterinary hospitals are taking advantage of the pet industry market trends as well, offering additional services such as grooming or pet sitting, while also acting as retailers for pet food/products and medicine.


Veterinary services are the second largest market segment after pet food. The sector has reached a penetration rate of 75.8%, making it the fourth highest segment by penetration rate. In addition, less than 50 percent of cats and dogs were inoculated in 2021, despite being required to receive inoculation at least once a year. This suggests that the veterinary market has significant room to grow as demand and awareness increase.


The number of pet hospitals has grown significantly over the past few years. China’s leading pet hospital company, Ruipeng Pet Hospital, now has over 800 locations across the country.

Veterinary hospitals are the preferred place to buy pet products, in particular food, snacks, and nutritional supplements, presumably due to the higher level of authority that they enjoy.


According to the research, over 90% of pet owners said they had purchased products from a veterinary hospital, with over 40% saying they had purchased pet food from a hospital.

More and more consumers are also choosing veterinary hospitals for non-medical services, mostly grooming and pet sitting. 30.7% of pet owners choose hospitals for grooming – a three-fold increase from 2020 – and 17.7% chose them for pet sitting.


On the medical side, veterinary hospitals offer an important potential for growth. Notwithstanding the growing number of pets in the country which will require veterinary services, the current penetration rate of veterinary medicines remains on the low side. Therefore, as awareness of pet health and regulations increases, so does the potential for growth in the veterinary industry.


Several foreign players have entered the Chinese pet medicine market, including Boehringer Ingelheim and Merck Animal Health. One of the largest pet medicine companies in the world, Zoetis, recently began work on a new manufacturing facility in Suzhou.


The pet medicine industry is relatively challenging and expensive to operate and is therefore dominated by large pharmaceutical companies. One of the main challenges of operating in China for foreign companies is the requirement for medicines to undergo additional rounds of testing and certification before they can be sold, a procedure that can take up to three years on top of the many years of R&D.


Foreign companies and multinationals can access several sectors of the pet industry that are open to foreign investment. The Catalogue of Encouraged Industries for Foreign Investment includes the following sectors:


Pet food and food development and manufacturing.

Veterinary and pet nutrition scientific research and technical services.

Production of new veterinary antibiotics, anthelmintics, insecticides, anticoccidial drugs, and new formulations.


Technology is also invading the pet industry, with tech-savvy millennials and Gen Zers eager to combine their passion for pets and gadgets. Products such as automatic food and water dispensers, electronic collars, and home camera setups that let owners check in on and even communicate with their pets when they are out of the house are becoming popular.


Many of these products also have “smart” features, enabling them to be connected to the internet and controlled and monitored via a user’s mobile phone.


Companies in this sector tend to be small start-ups with funding from venture capitalists and other institutional investors. The pet tech start-up Tortoise & Panda received seed investment from Hillhouse Capital and Daocin Capital.


Some larger tech companies have also created electronic pet products, such as the electronics giants Xiaomi and Midea, although their scope of products remains limited to a few items. Other companies in this field include Petkit and iKuddle.


In 2020, the scale of China’s pet product industry reached US$5.5 billion, according to an industry report from Chinese capital market company Industrial Securities. This is a year-on-year growth rate of 14.13%. The largest market segments were hygienic pet products and daily necessities, which accounted for approximately 77% of the market combined.


This was followed by accessories and travel products (such as crates and carrier bags), which accounted for 16.91%, and pet toys, 6.11%.


At present, pet products on the market are more sophisticated, diversified, and premium than in the past. Pet clothes and accessories are becoming more fashionable. Even luxury brands like Hermes, Gucci and Fendi have launched their branded pet products.

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Hygiene product manufacturers with good R&D, design, and production capabilities mainly sell products to domestic and foreign brand operators through the OEM/ODM models. Many of these companies do not exclusively make pet hygiene products, but also hygiene products for humans, such as Tianjin Yiyi Hygiene.


A large proportion of pet products, such as hygiene and other daily necessities, are high-frequency and high-volume purchases, with pet owners buying an average of 2.7 daily necessity items and 2.5 hygiene products per quarter. Pet toys and clothing, being more durable, were purchased an average of 2.4 and 2.2 times per quarter.


In addition to Tianjin Yiyi Hygiene, major companies that provide pet hygiene products include U-Play Corporation and Jiangsu Zhongheng Pet Articles. Major companies in the pet clothing and accessories segment include Epet.com, Vetreska, and Pidan.


The Ministry of Agriculture and Rural Affairs of China (MOA) recently issued new regulations to strengthen the administration of pet food, “Administrative Measures for Pet Feed.” The regulations apply to pet food products made both in China and abroad.


The United States is the largest exporter of pet food products to China, totalling more than US$304 million from January to November 2022, up nearly 200% year-over-year, according to China’s General Administration of Customs (GACC).


This amounted to more than 44,000 tons of pet food and accounted for nearly 50% of all China’s imports over the 11-month period. This growth is expected to continue as trade agreements further lift exportation restrictions for US pet food processors.


Pet food products must meet China’s domestic labeling regulations before exportation can even be a possibility. Labels must detail the product name, raw materials, product component analysis guaranteed value, net weight, storage instructions/conditions, usage instructions and cautions, production date, shelf-life, manufacturer’s name and address, country of origin, and licensing certificate number.


China also has specific labeling regulations regarding product claims, including those of ingredients, special features and functions.


As well as labeling restrictions, China has many ingredient restrictions for pet food. The country currently allows pet foods with animal-based ingredients derived from poultry, swine, ruminants, farmed terrestrial animals, farmed and wild-caught aquatic animals and bees, as well as US-originated cattle and bison.


However, sheep, lamb and goat-based ingredients must originate from Australia or New Zealand. Additionally, ingredients derived from wild terrestrial animals, reptiles, amphibians, and insects (other than bees) are prohibited.


Thanks to the current socio-economic and demographic trends, China’s pet industry will continue to grow in the coming years. Though the number of pets in China is large, the penetration rate of pets is still lower than in many other developed countries – just 20% to Japan’s 38% and the US’s 70%.


As unmarried millennials progress into middle age and Gen Zers enter the workforce, the core existing and potential consumer base of the pet industry will become wealthier and more willing to spend on their pets, especially in the absence of children.


 

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