The growth path of pet food in China

Raising pets is increasingly popular in China.

With the urbanization and change of lifestyle, raising pets has become increasingly popular in China. In developed cities such as Beijing and Shanghai, the number of families who raise pets, especially cats and dogs, is increasing rapidly. Kantar Worldpanel found that 11% of families raise dogs and 4% families raise cats in Beijing and Shanghai in the 12 months up to March 2015. In other words, the total number of pet dogs is over 1.5 million, and the number of pet cats is over 0.7 million in these two cities. Still, there is a gap between the number of pets in China and that in developed countries. For example, the proportion of pets in the United States has reached 70%.

In terms of pet feeding, around 80% of families buy special pet food and the other 20% of families feed homemade food. In Beijing and Shanghai, the average spending on pet food is approximately 300-400RMB among families buying pet food, while this number is 1400RMB in the U.S. The Pet Products Industry Report reveals that in 2013 China's pet food market size reached 19.32 billion RMB, and is expected to maintain a composite growth rate of around 30% in the next few years. Therefore, the pet food business will increase dramatically in the future.

Three drivers of pet market growth

Currently, pet food includes the following categories : dry pet food (dry cat food, dry dog food); pet snacks (canned, fresh sealed pack, meatloaf, jerky etc.); pet nutritional health products (calcium, vitamin, protein etc.). After ten years of evolution, pet owners’ consumption awareness is gradually strengthened in large and medium cities. Dry pet food has the largest consumption, followed by pet snacks. However, data shows that pet nutritional health products are being adopted by most pet owners at an amazing speed. These three parts are main consumption categories in Chinese pet food market. As for the growth model, pet food is mainly driven by recruiting new buyers, consumption upgrade and change of purchasing behaviours.

1. Recruiting new buyers. Increasingly, consumers are becoming aware that pet food and home-made food have different nutritional elements and start considering a more scientific approach to feeding. Kantar Worldpanel shows that penetration of dry food, wet food and snacks increased by 2-4% in 2014 and that puppy owners, who just entered the market, account for a higher proportion of pet food purchasing.

 

2. Category upgrade. In the total pet food market, we find that share of snacks and health products is increasing with a growth rate of 48%, far above that of total pet food (18%). This means that besides basic feeding needs, pet owners are thinking about their pets’ teeth, fur, psychology etc. and purchasing more functional and emotional categories.

3. Change of purchasing behaviour. Kantar worldpanel shows that volume per trip for pet foods is increasing while purchase frequency is slightly decreasing, as more and more consumers are choosing E-commerce channels to buy pet food. The research also shows that volume per trip in E-commerce is far higher than other channels.

Channel is the key to success

Currently, Supermarket/Hypermarkets, Pet specialist stores and E-commerce are the three main channels for pet food. Though these channels are in competition, they cannot replace each other, as they attract different types of households. Kantar Worldpanel research shows that while supermarkets and specialist stores offer old families more convenience, E-commerce channels attract more young families.

2/3 consumers purchase pet food in hypermarket, traditionally the main channel. But their purchasing frequency has decreased due to the competition from E-commerce. Mars, the leading pet food manufacturer, accounts for up 80% of hypermarket sales.

Though specialist stores only cover 16% of the market, it maintains rapid growth. As an exclusive channel, specialist stores always project a more professional image, making it fairly important. Royal Canin, Bridge and Whiskas are the top 3 brands in pet specialist stores. As an emerging channel, E-commerce has become the largest pet food channel due to its diversity and price advantage. In addition, home delivery of large packs facilitates the development of E-commerce.

In the era of Chinese E-commerce market, the creation of a star SKU online would bring a new opportunity for pet foods. Not surprisingly, the sales champion on TAOBAO is the ‘Adult golden retriever 10KG special food’ from Navarch. Furthermore, offline sales will benefit from O2O promotions and Weibo & Wechat marketing activities. For instance, Pedigree’s product placement in TV series ‘Twin flowers’ and in the movie ‘Dog Seven’ as well as online marketing is a new approach for a pet food brand in China. Currently, Royal Canin, Bridge and Navarch are the top 3 brands in E-commerce, taking up around 50% market share.

Positive branding also matters to sales

Product quality is a fundamental requirement to win any market. Pet owners have strict quality standards for their pets when choosing pet food. Therefore, it is especially important to create a high-end, professional brand image. Many brands focus on technical improvements and emotional care. Royal Canin for example, is dedicated to building strength by offering different pet food formulations for different functions and also focusing on innovation. After a re-launch in 2014, Pedigree added professional ingredients for all dog age groups, showing more care for pets. Many first-tier pet brands interact with pet owners on Weibo and talk about pets’ daily life and caring about pets’ health.

Many international well-known pet consuming manufacturers, such as Mars, P&G, Nestle, Pfizer, Unicharm, have firmly established themselves in China and are looking for greater achievements in this fast growing market. These brands do not only rely on quality guarantees from ‘imported products’, but also on strong advertisement and marketing input to increase brand influence, making consumers feel secure by using big brands.