Nuggets Spawned By The Pet Economy

Nuggets Spawned By The Pet Economy

On the last day before The Chinese National Day, the pet platform- Boqii Pet was listed on the U.S. Exchange. This event makes the pet economy active in people’s sight again.

Chinese people have kept cats and dogs since ancient times, but before, people kept cats and dogs more for catching rats and keeping the house. As people pay more and more attention to spiritual life, people have begun to focus on cultivating life interest and pursuing personalized experience. Urban residents have started to raise cats and dogs to increase companionship and entertainment. The role of pets has changed from “care home” to “life companion “The “pet culture” therefore became popular in China.

With the trend of aging and declining birthrates, people’s demand for pet companionship and spirituality is continuously increasing, which has become an essential driving force for the development of the pet industry. Survey data from the U.S. Bureau of Labor Statistics show that, except for single-person households, pet expenses negatively correlate with the number of households.

It is worth noting that under the impact of the new crown epidemic, people in quarantine worldwide have a sharp increase in demand for pets, and the pet industry has become one of the few bright spots in the U.S. economy.

According to data from the Chinese Journal of Population Science, the number of only children family in china reached 145 million in 2010 and 176 million in 2015. It is predicted that it will reach 204 million by 2020, and China will have 300 million only children families in 2050. In other words, the trend of declining birthrates and the increase of singles in china will increase the raising pets quantities. It also means that household expenditure on a pet may increase.

  1. The blue ocean market of the pet economy

There is a positive correlation between the number of pets kept and the economic level. Generally speaking, as the per capita GDP increases, the corresponding number of pets per capita is also increasing. There is a positive correlation between the two. According to data from China Agricultural University, when the per capita GDP of a country reaches US$8,000, the pet industry will develop rapidly. In 2015, china’s per capita GDP exceeded US$8,000, and in 2019, the per capita GDP exceeded US$10,000, which means that China has entered a period of the rapid development of the pet industry.

According to statistics from the White Paper on China’s Pet Industry in 2019, my country currently has about 100 million dog and cat pets, of which 55.03 million are pet dogs and 44.12 million pet cats. The national household pet ownership rate is only 4.4%, and the highest in Shanghai is only 19.8%, while the pet ownership rate in the United States has reached 68%. At present, the average number of pets per household in China is about 0.2, and Japan is about 0.5 and 1.4 in the United States. There is still room for growth of more than two times in the number of pets in China.

From the perspective of classification, pet-related consumption includes food, medicine, supplies, medical treatment, beauty, and other aspects. Pet food (leading food, treats, and health products) is caused by demand rigidity and occupies a dominant position in the entire consumption structure. According to the data of the “2019 China Pet Industry White Paper”, pet food consumption accounted for more than 60% of the total expended in 2019. The pet food industry runs through the entire life cycle of pet keeping and has the characteristics of high repurchase, high stickiness, and relatively insensitive price. The high frequency of consumption, along with the entire process of consumption upgrades, has brought about a continuous increase in the per capita consumption of pet food and the amount of consumption. Therefore, pet food will create the largest gold nugget opportunity in the entire pet market.

China’s pet food industry has been popular as early as the 1990s. In 1993, Mars’ well-known dog food brand “Pedigree” and cat food brand “Whiskas” entered China and opened the Chinese professional pet food market. According to the data of the Foresight Research Institute, the scale of china’s pet food market from 2009 to 2018 has generally shown an increasing trend year by year. In 2009, the size of China’s pet food market was only 7.7 billion yuan, but by 2010, China’s pet food market reached 10 billion yuan. The scale of this market grew to 24 billion yuan in 2014, and by 2019, China’s pet food market has exceeded 70 billion yuan.

图表, 条形图

描述已自动生成

From the perspective of the competitive view, the domestic pet treats market presents a highly competitive landscape, in which foreign brands have advantages in terms of popularity and market share. These foreign giants entered earlier and have been working in the pet food field for a long time. They have high brand awareness, reputation, and loyalty. They occupy the mid-to-high-end pet food market and most of the offline sales channels. For example, “Pedigree” and “Whiskas” under Mars have entered the Chinese market in 1993 and have become common pet foods on the market. They are the first to establish consumer brand awareness and have first-mover advantages.

图表, 饼图

描述已自动生成

2, Local TWO GIANTS: China Pet with Peidi

.

Whether China Pet or Peidi, they depend much on overseas markets. In 2019, China Pet’s overseas sales revenue accounted for 80% of its primary business revenue. In developed countries and regions such as Europe and the United States, the development of the pet food market is relatively mature. Some large brands have established a solid brand image and occupy most of the market sales channels. The marketing costs and risks of new brands are relatively high. Therefore, China Pet and Peidi shares enter the US/EURO local market in OEM/ODM. The bulk of the profit is taken away by foreign companies and can be suppressed at any time to undertake trade. The cost caused by friction, the sharp decline in the profit of Peidi shares last year is a typical example

.

If you continue to follow this business path, there is no future. For example, the overseas gross profit margin of China Pet company is about 20% in 2019, while the domestic gross profit margin is about 40%. Independent brands in the Chinese domestic market have obvious premium capabilities. The hope of the two local companies in the future to rely on their brands to open the Chinese market, and this trend is confirmed, we also can verify this by the changes in the proportion of domestic and overseas revenue. The ratio of China Pet’s domestic income increased from 12% in 2015 to 20%, and the ratio of Peidi’s domestic revenue increased from 2% in 2015 to 14% in 2019.

图表, 条形图

描述已自动生成

图表, 条形图

描述已自动生成

We can understand this situation in two aspects. On the one hand, the increase in the proportion of domestic income affects the acceleration of the expansion of the domestic pet market itself. On the other hand, under international trade frictions, the setbacks of overseas markets are also indirect. Lead to passive changes in the company’s income structure.

The last point that the “Daily Financial Report” wants to emphasize is that this year’s reduction in raw material costs is a common benefit for the two companies. Among pet food raw materials, chicken breast and other chicken products are the most essential raw materials. Last year, under the influence of African Swine Fever, the price of pork rose sharply, and chicken has a substitute effect for pork, which has driven the price of chicken to increase simultaneously.

According to data from the China Poultry Industry Association, the total average price of white feather chicken products in 2019 was 12.17 yuan/kg, compared with 10.43 yuan/kg in 2018, a year-on-year increase of 16.68%. This year, poultry farming companies generally expand production, and the supply of white feather broilers in 2020 will increase year-on-year. Secondly, starting from the second half of this year 2020, with the gradual recovery of pig production capacity, the demand for chicken meat will weaken.

Compared with last year, the supply of chicken meat will increase, while demand will fall, and prices will naturally decrease. Experts confirmed under the influence of the new crown epidemic, chicken prices have continued to decline since this year, and this trend will continue in the second half of the year.

图表, 折线图

描述已自动生成

For the pet market in Japan and South Korea, Mars Group takes the first place with a market share of more than 20%, but the local companies of the two countries have been firmly occupying the second place, such as Unicharm in Japan and Dahan Feed-in Korea. One of the critical reasons is that national policies generally support domestic enterprises in establishing specialized offline channel outlets. As the review mechanism of pet food in the two countries is becoming more and more perfect, the qualifications and licenses of enterprises in the industry are controlled. There has been an increasingly stringent trend in the distribution.

Like Japan and South Korea, in recent years, China’s import pet food regulatory policies have become increasingly strict, providing a valuable window for domestic brands to expand their boundaries. In May 2018, the Ministry of Agriculture issued Announcement No. 20, which significantly increased the difficulty for companies to obtain pet compound feed certificates. Therefore, the number of companies that received certificates has dropped sharply after the policy was issued. Besides, china’s pet food import policy has continued to tighten, and supply-side reforms have benefited domestic leading companies that have deployed pet food production earlier, giving them a valuable window of time to catch up with overseas competitors.

 

Share this post