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Zhou Shuyue is a researcher at GF Securities in the field of agriculture, forestry, animal husbandry and fishery.

Hu Sen, Head of Sales for Nestlé Purina South China.

Wu Xinli, National Sales Director of PNC of Biostime Group.

Chen Ling, technical manager of the Agriculture and Food Department of SGS China.

Wu Jianbing, Channel Director of Guangzhou Maibao Biotechnology Co., Ltd. (WoWo pet food brand).

Since 2024, the consumer market has seen a surge in hot-selling products, and some companies have made remarkable attempts and explorations in high-quality consumption, such as green consumption and healthy consumption. Under the new consumption trend, whether a company can see through consumer demand, seize the trend, and create a new scene of distinctive consumption determines whether it can capture the hearts of consumers and become the industry's "top stream".

Nanduwan Finance's "2024 Consumer Awards" aims to explore the highlights of industry consumption, help improve the quality of residents' consumption, and add color to a better life. As a series of consumer awards activities, Nanduwan Finance will combine consumer hotspots and launch industry seminars one after another. This issue focuses on the pet economy.

The consumption power brought by “furry kids” cannot be underestimated.

In the just-concluded 618 promotion, the consumption chain involving pets is showing an increase of more than 200%; statistics show that in 2026, my country's pet-related consumption may exceed 360 billion yuan, and the compound growth rate is showing a double-digit increase.

Nanduwan Finance reporter noticed that the "pet economy" is becoming a new consumption point. As the number of pet owners increases, pet consumption is becoming a new incremental market. The pet food, pet supplies, pet medical and other industries driven by it are growing rapidly.

It is worth noting that the time it takes for pet breeding in my country to change from a "niche" to a "population-wide" one may not exceed 20 years. In some segments of the pet industry, various industries are moving from wholly-owned imports and OEM to independent property rights. Compared with the relatively mature pet industry system overseas, this industry in my country is in the "germination" stage of "thriving growth".

In such an industry that is almost entirely "blue ocean", which industries in pet consumption have great development potential? What will be the future development trend of the industry? Recently, at the "2024 Pet Economy Seminar", the third warm-up event of the "Consumer Awards Series" held by Nanduwan Finance, representatives of securities companies, testing agencies, pet food manufacturers and pet social practitioners attending the seminar all believed that pet food is still the mainstream of pet consumption in the rapid development of the industry, and "refined" may become the main direction of future industry development.

Pet consumption is growing rapidly, and food is a "blue ocean"

Private brands may receive higher valuations

In recent years, the pet economy has become one of the fastest-growing consumer sectors. According to the "White Paper on China's Pet Industry 2023-2024 (Consumption Report)", the scale of my country's urban pet consumption market reached 279.3 billion yuan last year, and is expected to jump to 361.3 billion yuan by 2026.

As a track that has been accelerated in recent years, the pet economy is considered to have huge consumption potential and market prospects. GF ​​Securities' related research report uses the development of the pet economy in the United States and Japan as a reference. According to the research report data, the rate of pet ownership in American households has reached 70%, and its pet consumption market has increased by about 5%; the rate of pet ownership in Japanese households has reached about 40%, and household investment in pet consumption has also continued to increase. The reasons for this are the increase in per capita income, the postponement of marriage age, the increase in the number of single people, and the aging of the population, which are important factors in the rapid development of pet consumption.

GF Securities' research report also pointed out that compared with the United States and Japan, my country's pet ownership rate (mainly cats and dogs) is about 20%. In the future, with the improvement of the domestic per capita income level, driven by many factors including emotional and consumption concept upgrades, there will be a very broad market space in this consumption field.

It is understood that food is still the "pillar industry" of pet consumption, and it is also a "blue ocean". According to a research report by GF Securities, from the perspective of consumption structure, pet food (mainly pet grain) accounts for more than 50% of the market share of pet consumption. Last year, the market size of urban dog and cat food was 146 billion yuan, with a year-on-year growth rate of 6.5%. This shows that pet food has strong consumption resilience.

Judging from the data of listed companies, pet food does have strong growth resilience. Nanduwan Finance reporter sorted out the first quarter reports of Guaibao Pet, China Pet Food, Tianyuan Pet, Pet Food and Lusi Food, and noticed that the revenue growth of these five listed companies was 21.33%, 24.42%, 1.4%, 142.37% and 7.34% respectively, the market scale continued to grow, and some companies increased by more than double digits; while the net profit growth was 74.49%, 259%, 148.44%, 209.56% and 5.06% respectively, which was also "excellent".

It is worth noting that Guaibao Pet, China Pet Foods and Luce all have their own pet food brands in China, and the performance of the first two increased significantly in the first quarter of this year, and their own brands have become a "weapon" to leverage the pet food market.

At the seminar, Zhou Shuyue, a researcher at GF Securities in the field of agriculture, forestry, animal husbandry and fishery, said that under the premise that the capital market generally pays attention to the pet economy, pet food targets with independent brands may be more popular in the market. Taking animal feed in the agricultural sector as a horizontal comparison, the general market valuation is about 15 times, but pet food may reach 30 to 40 times. The main investment basis for the high valuation is the scarcity of the target and its long-term growth potential.

Zhou Shuyue admitted that compared with the high investment enthusiasm in the primary market in 2021, capital and institutions have chosen equity participation, mergers and acquisitions, etc. as investment targets for pet food in the past two years. Listed companies are also paying attention to some relatively good pet food targets, especially some private brands with development potential. "But now, except for some listed companies, many private brands have not yet achieved profitability. However, based on the net profit margin of 20% or more of overseas leading companies, the market is still willing to give a higher valuation to private pet food brands."

Consumption is becoming more segmented. Which "tracks" have development opportunities?

Pet food is still the dominant market, and the demand for personalized nutrition is increasing

According to a reporter from Nanduwan Finance, the categories of the booming pet consumption are almost a replica of human consumption. In addition to the food categories mentioned above, they also include pharmaceuticals, medical care, daily necessities, electrical appliances, and education and training services. Although each track is in the early stages of development, they all show relatively good growth and development prospects.

So, in the eyes of industry insiders, what is the degree of segmentation of the pet economy industry? Which segments are considered to have development opportunities?

Hu Sen, the sales director of Nestlé Purina South China, introduced that in addition to the relatively mature development of pet food, many emerging formats have also been derived, such as pet medical care, pet sub-health, pet insurance, travel, pet consignment, pet funeral and cloning, etc., which are all emerging formats that have attracted much attention. However, in the current situation where pet food consumption occupies a dominant position, personalized pet food, pet nutrition products and pet snacks according to different life cycles, different body shapes, different nutritional needs and sub-health problems are currently more valued segments. He also introduced that based on the "China Pet Nutrition and Feeding Guidelines" issued by the Chinese Nutrition Society, Nestlé Purina uses high-standard raw materials + scientific evidence-based formulas + strict production processes to lay out a series of comprehensive and balanced dietary solutions, such as the common full life stage series, professional care series, prescription food, nutritional supplements, etc.

"In my opinion, the importance of pet food for the elderly may gradually become more prominent in the future. Currently, domestic elderly dog ​​and cat food is marked as suitable for seven years old or above, but overseas, related dog and cat food products have been developed for people over 12 years old. This shows that the aging level of pets overseas is significantly higher than that in China, which also provides a reference for our industry. In the future, staple foods and health products developed for elderly pets may be a better development track." Hu Sen said.

Wu Xinli, national sales director of PNC at Biostime Group, believes that the current segmentation of domestic pet consumption is concentrated in the segmentation of life cycle scenarios, pet food forms and product functions. He believes that the relatively promising segments in the future will focus on functionality and efficacy. For example, those targeting intestinal function, hair growth and pet immune function are all very promising tracks.

"Among them, we believe that the track of beautiful fur has relatively great potential. In recent years, there has been an upward trend in high-end and refined pet keeping in China. Healthy fur itself represents and reflects the health of the pet. At the same time, young people who keep pets now attach great importance to the image of the pets, especially whether the fur is shiny or not, whether they will shed, etc. These all have great development potential." In this regard, Wu Xinli also cited the example of Biostime's related products, saying that he is currently planning to develop nutritional products and pet food related to beautiful fur to open up this track.

What experiences can we learn from overseas pet consumption?

Improving the supply chain may help domestic industries break through

According to a reporter from Nanduwan Finance, although domestic pet consumption is booming, compared with overseas, the domestic pet economy and consumption are still in the "embryonic" stage. Taking mainstream pet food as an example, on the production side, OEM/ODM and other outsourcing models are still the main models; in terms of brands, there is still a "hundred flowers blooming", and truly leading companies are being formed.

Overseas, with more than 100 years of pet-raising history, the pet consumption industry has formed a relatively complete industrial chain, with well-known leading brands and relatively mature upstream, midstream and downstream. So for the domestic pet consumption industry, what lessons and reference significance will the development path of the overseas pet economy bring to the domestic industry?

Wu Xinli believes that the "core accumulation" of overseas pet food brands is in the control of product quality, which is also driven by the industry's accumulation over time and the upgrading of standards.

Wu Xinli introduced the pet nutrition and health business of Biostime as an example. He said that in the process of overseas production of pet food, the entire supply chain system has relatively high standards. For example, the scientific nature of the formula is required, that is, a large number of scientific experiments are conducted to verify the efficacy and safety of the product; the quality and safety of raw materials, that is, the production raw materials must come from high-quality products and be traceable; high standards of production, that is, the production factory must have high standards and high quality control capabilities. For example, Biostime's products are produced in a factory in North America that ranks among the largest in the industry.

As for the reference significance of overseas pet economic development to China, Hu Sen shared his views from three dimensions: upstream raw material supply chain, midstream brands and factories, and downstream stores.

On the upstream side, overseas brands have very strict control over raw materials, including the use of 100% traceable and 100% sustainable salmon, white krill and chicken. Therefore, if domestic brands can set higher standards for raw materials, it will be equivalent to establishing a "watershed", and disorderly competition may slowly disappear; on the midstream side, overseas brands all have scientific evidence-based formulas, strict production processes, etc. For example, Nestlé Purina can independently complete the entire process from research and development to production. For domestic brands, having core formulas, technologies, production processes and even production lines is an opportunity to "emerge"; on the downstream side, overseas pet downstream institutions include pet hospitals, pet stores, etc., which are mature in terms of "big and complete" and "small and beautiful", while domestic ones are still in the stage of exploration and diversified development, and will also face problems in terms of cost, business format, and internal circulation. Therefore, the overseas development direction can also provide reference for domestic industries.

Some pet products lack standards?

Experts suggest building trust through certification, and the industry should strengthen self-discipline and protection

Of course, as the industry develops rapidly, product quality control and quality have also attracted the attention of pet owners, the industry, and enterprises. For example, during the "315" period this year, the chaos in the pet food market was exposed, and the "mixing of stone powder" and "mixing of feather powder" in the raw materials seriously endangered the health of pets and cast a shadow on the industry.

Reporters from Nanduwan Finance also found that, at present, for pet food and supplies, apart from the national standards that guarantee basic requirements, there are relatively few industry-specific and targeted standards. Therefore, there is still much room for improvement in aspects such as standard setting and quality control.

Regarding the current status of pet consumption and the formulation of standards, Chen Ling, technical manager of the agricultural products and food department of SGS China, said that consumers first pursue quality products, followed by personalization and service needs. However, some quality problems currently existing in the market, such as the use of low-quality raw materials to produce high-priced products, may lead to a crisis of consumer confidence.

In order to maintain the healthy development of the pet industry, Chen Ling believes that third-party testing agencies can improve the safety of pet products, provide accurate test reports, and improve industry standards. "Standardization and normalization will play a role in improving the level of the entire industry, and an accurate data report can also win the trust of consumers."

In terms of product quality control, Chen Ling said it can be divided into four aspects: raw material quality control, production process control, finished product inspection and problem tracing. "Consumers now have a trust crisis in product quality, and it is crucial to promote consumer trust through certification. It not only improves our understanding of the product, but also improves the quality of our company's control over the product."

In addition to restoring consumer confidence, Chen Ling believes that enhancing product transparency and urging companies to improve are also key points. "Transparent information can help consumers make purchasing decisions, and we can also promote the standardization mechanism of the entire industry by urging improvements." Chen Ling said that from the above aspects, it can well promote the upgrading of the industrial chain, achieve resource sharing and win-win results, promote exchanges and cooperation between upstream and downstream companies, and then form a pattern of coordinated development.

Nanduwan Financial News reporter noticed that in terms of product quality control, some industry companies are further strengthening self-discipline and increasing relevant testing to ensure product quality.

Wu Jianbing, channel director of Guangzhou Maibao Biotechnology Co., Ltd. (WoWo pet food brand), said in his sharing that in addition to the front-end audits of factories and raw materials, the company also invests large sums of money every year to conduct third-party product testing. There are more than 900 testing items for staple food from raw materials to finished products. For some raw materials that may be adulterated, multi-dimensional analysis and testing will be added.

Zhang Ye, general manager of the Weishi brand, introduced in his sharing that, at present, there is a large gap in relevant standards in the pet industry, which can be said to be far behind the development needs of the industry. This is a major obstacle to the standardized development of the industry. In addition to the corresponding quality control management from raw materials to finished products, the company has also established a pet food testing and health evaluation center, and developed 200 methods for testing the function, safety and stability of pet food, as well as pet health indicators. Some indicators are even "unique" to pet food and pet health. "In addition, we have also undertaken the drafting of 15 group standards this year."

Produced by: Commercial and Consumer News Department of Nandu Bay Area Financial News Center

Coordinator: Chen Yangkai

Written by: Nandu.com reporter Beibei, Qiu Kangzheng, Zhan Danqing, Wang Jingjuan, Wang Lena, intern Xue Botong, Lin Tianxing

Photography/Video: Nandu Wancaishe Researcher Xiao Ziqi and Intern Cao Zhanxuan