Tencent and Country Garden join the pet medical business gameWokeepet
Tencent and Country Garden have joined hands in the pet medical field, which Hillhouse already in for nearly five years.
At the end of last month, Xinruipeng Pet Medical Group (hereinafter referred to as “Xinruipeng”), the pet medical company with the most branches and the most massive scale in China, announced the completion of hundreds of millions of dollars in strategic financing. Investors in this round include Tencent and Country Garden Ventures, And many first-line institutions at home and abroad.
It is worth noting that during the financing process, the funds raised by Xinruipeng significantly exceeded the original plan, with a valuation of approximately RMB 30 billion. Soon after, Bloomberg reported that Xinruipeng planned to launch an overseas IPO listing plan.
As we all know, the pet economy is a star track that has attracted much attention in recent years. Zhiyan Consulting released the “Research on China’s Pet Industry Market Status and Investment Opportunity Forecast Report 2020-2026”, shows that the scale of the Chinese pet market in 2019 is about 202.4 billion yuan, and it is expected that by 2023, the market growth scale will stabilize at 13 % roughly.
Behind the hot market are the attempts and breakthroughs of countless entrepreneurs and investment institutions who have devoted themselves to the field, reconstructing the pet track from the dimensions of technology, business model, and capital.
According to Artery Orange database statistics, from 2015 to 2020-9-30, a total of 72 financing incidents occurred in my country’s pet medical track.
Although the number of financing events on the pet business has been declining year by year since 2018, from the perspective of the proportion of financing rounds, early projects are gradually decreasing. The project phase continues to move forward. In other words, as companies such as Xinruipeng, as the head of the track, slowly come to the eve of listing, the pet medical industry is maturing, and the competitive landscape seems to be about to settle.
Of course, what cannot be ignored is that there are currently insufficient professional talents and a lack of standardized management in the pet medical field in my country, and market supervision is not perfect. On the other hand, compared with developed countries such as the United States, china’s pet medical market still has a lot of room for growth, and there are still many market opportunities.
In the face of heavy capital and giants entering the game, under the mainline of opportunities and challenges, what kind of story does china’s pet medical track currently tell? How will the subsequent chapters be described?
Opportunity: Capital such as Hillhouse enters the game,
Pet medical treatment ushered in a period of rapid development
When it comes to the point where the pet market has begun to undergo significant changes, we have to mention 2014.
Before 2014, china’s pet medical market was still in a relatively “wild” state: pet hospitals in the middle reaches were characterized by “single,” “small,” and “scattered,” lack of branding, and extremely low level of informatization. The upstream medical device research and development and downstream payment models are still in their infancy.
The entry of capital changed this state in advance. At that time (2014), the capital was more inclined to engage in fierce “fighting” in areas such as e-commerce, O2O, and community group buying. At this time, Hillhouse, who was holding a lot of money, took a different approach and began to study the pet market that no one paid attention to. Then Hillhouse gradually invested in pet hospitals, pet stores, industry SaaS systems, supply chain finance, and other fields
Among them, in the field of pet medical care, Hillhouse has integrated more than ten pet hospital brands in major cities in China through the method of “incubation + integration,” with an expansion rate of “300 stores a year” in three years.
“Hillhouse’s entry has directly prompted the pet medical industry to enter a period of rapid development.” An investor said, “Thanks to the huge amount of funds and Hillhouse’s strong ability to control the industry, the pattern of the pet medical market is being redefined.”
Faced with this trend, a large amount of capital began to enter. In 2017 and 2018, investment and mergers and acquisitions in the pet medical industry reached a peak. There were 42 financing incidents in the primary market alone, accounting for 58% of the number of financing incidents since 2015.
The data proves the change. According to statistics from pet industry experts, there were more than 17,000 pet hospitals in china in 2018. Hillhouse, Ruipeng, and Ruipai (established in 2012) rank the top three in market share, with more than 700 pet hospitals, more than 400 pet hospitals, and more than 300 pet hospitals, a large chain pet hospital Gradually increasing becomes a trend.
Another visible trend is that the strong are always healthy. With the help of capital, in January 2019, New Ruipeng Group (the pet hospital invested by Ruipeng and Hillhouse) completed the integration, which marked the emergence of China’s largest pet medical platform with the strongest capital. Up to now, Xinruipeng has more than 1,400 referral centers, central hospitals, specialist hospitals, and community hospitals, and Ruipai Pets ranks first in the industry. The combined market share of the two accounts for roughly 10% of the entire industry. %about.
The number of stores of other pet hospital brands mostly ranges from 10 to 50, including Pet International, Wholeheartedly, Pemate, and Meng Veterinary Hall. Unlike Xinruipeng and Ruipai Pets following the national chain, these brands have apparent differentiation in market positioning. For example, Chongai International is positioned in the mid-to-high-end pet medical market, while Pemate is deeply involved in regional markets such as the three provinces.
In addition to these chain brands, the rest are non-chain pet hospitals represented by mom-and-pop street shops. According to the data of the “2019 China Pet Hospital Development Report”, among the 10,000 to 15,000 pet hospitals nationwide, there are less than ten single-store operations. Chain-operated pet hospitals roughly occupy 80%-90% of the market share.
Besides, from geographical distribution, nearly 80% of pet hospitals are concentrated in first- and second-tier cities. This is due to the high economic level of the region, the large number of pet owners, and the strong awareness of pet owners’ medical consumption.
“After the financing of Xinruipeng this time, it has been nearly a year or two to be listed on the stock exchange. Therefore, the list of top players in the pet medical industry is roughly established. For players in the second echelon, it has become the preferred business model to take deep plowing in various provinces and cities and gain a firm foothold through regional operations. ” The above investors said.
From the beginning of Hillhouse’s entry into pet medical care and to the end of the new Ruipeng participating in the market, the latest pattern of the pet medical track will be finalized.
Behind the rapid growth of the market, the profit growth of pet medical companies is not optimistic.
Take Ruipeng before the integration as an example. As the top pet hospitals, Ruipeng’s net profit from 2014 to 2017 was 6,226,400, 20,279,300, 21,054,100, and 22,960,600 RMB, respectively, showing weak growth.
Other small and scattered pet medical machines are also challenging. According to a report by Yiming.com, in July 2019, there were over 23,000 Chinese pet hospitals, and over half are on the verge of loss and profit or failed into a loss.
Why is there such a huge contrast between the prospect and the “money scene”? First, look at the cost to run pet hospitals. According to the data of the “2019 Pet Hospital Development Report”, rent accounts for roughly 20% of the total cost of a pet hospital, and other expenses are mainly spent on labor costs, medical equipment and drugs, and daily operation and maintenance expenses. According to calculations, the rent for 200 square meters in Beijing is more than 200,000 yuan a year, and the total cost of a hospital will be at least 1 million yuan a year.
It is worth noting that labor costs, the bulk of the cost, are rising. This is due to the insufficient supply of professional veterinarians in the rapid increase in the number of pet hospitals. Because the base number of people willing to study veterinary medicine is not large, and the training cycle is long, the number of professionals on the supply side has grown slowly.
Also, the rapid increase in the number of hospitals has made the competition more fierce. The cost of acquiring customers has risen accordingly, causing various institutions to fight price wars. Not only that, but the cost of medical equipment and medicines required for pet medical treatment is gradually increasing, which makes pet hospitals fall into a vicious circle of profit squeeze and more difficult survival.
Costs are gradually rising; what is the income situation? The “2019 Pet Hospital Development Report” shows that 58.9% of pet hospitals have an average daily ten receptions less, 85.2% of pet hospitals have annual revenue of less than 3 million, 39.1% of which have annual less than 1million yuan turnover, after subtracting costs, the profits of these pet hospitals are hovering above and below the breakeven line. With high expenses and unsatisfactory revenues, most pet hospitals have fallen into a state of “prospect but no money.”
With capital and giants entering the game and leading companies successively landing on the secondary market, the pet medical track will accelerate to become more centralized and standardized. Therefore, making the prospect of the pet medical way more “money scene” has become the critical direction for industry players to explore in the next stage.
The investment window has passed; what opportunities are there for the pet medical track?
When the industry matures, it means that there are fewer and fewer investment opportunities for high returns. Therefore, by reorganizing the upstream and downstream of the industrial chain and observing the small trends in various segments, we may discover the opportunities for the next five to ten years.
First, look at the distribution of the industrial chain. The upstream of the pet medical track is the medical equipment supplier, the midstream is the service provider, and the downstream is the consumer.
At the upstream end, the research and development of related pet medicines in my country are relatively weak, and the market share is low. According to the data of the “2019 China Pet Medical Industry Research Report”, import manufacturers account for nearly 70% of the domestic pet medicine market. In terms of medical equipment and consumables, imports are still the mainstay. Still, with domestic companies such as Mindray and United Imaging in this field, the process of domestic production is accelerating.
At the midstream end, pet hospitals are the core body of medical services and are currently the most focused area of the capital. On the other hand, because pet hospitals often compete with the third-party inspection market in equipment configuration, the third-party inspection market has not formed a misaligned and complementary relationship with the pet hospital. Its development is greatly restricted. In addition to offline service systems, Internet pet medical service platforms and companies that provide information for pet medical service companies have also gradually increased in recent years.
At the downstream end, in addition to the pet owners’ payers, pet finance (including pet medical installment and pet medical insurance) has also become a small trend in recent years. Of course, compared with traditional financial services, the pet financial market is still too niche, so there are fewer types of insurance and limited cooperative hospitals.
From this perspective, there are still many opportunities for the pet medical track at present. However, limited to the current stage of market maturity, all kinds of options still need to pass the test of market education and time. Of course, the capital side, with a keen sense of smell, has already taken action.
In the past three years, a total of 19 pet medical-related companies have obtained financing. One pet insurance company, one software developer, two pet drug development companies, two pet product companies, three pet medical inspection companies, and two pet Internet platforms.
Although, from the perspective of the financing scale, the financing amount in the sub-sectors mentioned above is not large, it is not difficult to see that to compete for the next opportunity; the capital has already begun to enter, to learn the pet industry.
Next, we will take a glimpse of the current progress in the pet niche market from two aspects: pet insurance and pet medicine.
Pet insurance: a breakthrough in pet identification technology, which is about to usher in a period of rapid development
Pet insurance is nothing new. As early as 2004, Huatai Insurance launched third party liability insurance for pets for the first time. In 2014, PICC and Ping An successively launched pet medical insurance, and the categories of pet insurance began to increase. But at the time, pet insurance could not obtain stable profits for insurance companies, and it mainly served as a customer acquisition tool.
Behind this, because pet products are difficult to standardize, coupled with opaque information and low informatization in the pet medical market, insurance companies are prone to omissions in the design of insurance products. According to a report from China Securities Journal, the comprehensive insurance liability, insured amount, compensation limit, reimbursement ratio, and other factors have been calculated. The actual cost savings of pet insurance for users is less than 50%. This also makes pet owners’ do not accept pet insurance products well.
The situation is changing. For pet insurance companies, the most significant pain point is the difficulty of pet identification. After some pet owners have bought insurance for their pets, they will defraud the insurance with a similar-looking pet, which brings many losses to the insurance company. Based on this, electronic identification technology has been applied to the field of pet insurance.
For example, at the end of July this year, the Alipay insurance platform announced the opening of “pet nose print recognition technology,” and combined with China Earth Insurance and ZhongAn Insurance to apply this technology to pet insurance first time. This pet insurance accepts two categories of pets, cats, and dogs. When using for insurance, the Alipay insurance platform creates an exclusive electronic file for the pet based on the information of the nose print. When making a claim, brush the nose print to verify the pet’s identity and complete the claim with one click. It is reported that the recognition success rate of pet nose print recognition technology exceeds 99%.
In addition to the technical side, the model side is also changing.
Pet drugs: new preventive pet drugs such as regular deworming will become a trend
Pet drugs occupy half of the pet medicine market. According to the 2019 statistics of the Huajing Industrial Research Institute, the pet medicine market accounts for 52% of the pet medicine market. However, china’s current pet drug research and development are still in its early stage, reflected in the following two aspects.
First, in prescription medicine, china has a small number of companies with independent research and development of pet medicine, and the few companies with pet medicine patents mostly produce generic medicines by obtaining expired patents. Also, in terms of medication specifications, the Ministry of Agriculture currently stipulates that 183 drugs can be used for pet treatment, which cannot meet the daily needs of pets for diagnosis and treatment.
Second, in functional products, the development of pet functional consumer products in China is still chaotic, and some products lack reliable scientific research teams. On the other hand, in developed countries such as Europe and the United States, since the local preventive nutrition has become popular, American veterinarians generally recommend pet owners to use functional nutrition or supplies for pets’ daily health care and disease prevention.
Also, compared with foreign pet medicines that are relatively more professional and standardized, domestic pet medicines are often mixed by humans and pets, which has become one reason for the high prices of pet medicines.
The lack of pet medical experts is the current obstacle to the development of pet medicine in china. Under normal situations, it takes at least ten years to train a senior animal medicine researcher. Still, the rapid growth of the pet industry in recent years has led to a shortage of pet medicine talents. The contradiction between supply and demand has brought opportunities for the rise of innovative companies, and mastering the core R&D talents will give companies first-mover advantages.
In addition to cooperating with academic institutions with professional talents, how should domestic pet pharmaceutical companies make efforts? Let’s take a close look at the market structure. Immunization and deworming currently occupy the largest market for pet drugs. Still, most of china’s market share is occupied by leading multinational companies, and the demand for localization of such medications is high. Also, take the situation of the pet medicine industry in the United States, where the pet economy is more developed as a reference. U.S. pharmaceutical companies have developed many new drugs for pets, such as anti-motion sickness, anti-depression, and disease prevention drugs for pet dogs. The market has received good feedback.
It is easy to see that the demand for new preventive pet drugs such as regular deworming will grow rapidly since the pet economy grows, and the pet owner’s consumption willing becomes stronger, , and sub-scenarios such as anti-collision and anti-depression. The pet medicines under the market will also have sufficient market space.
to sum up:
As a branch of the medical industry, the pet medical track is relatively niche. However, based on the development experience of the mature pet medical market in the United States, the pet medical track will indeed have industry-leading companies with a market value of tens of billions or even hundreds of billions in the development of pharmaceutical equipment, medical services, and payment in the future.
Although the pattern of the pet medical service track is gradually taking shape, there are still significant variables in the future. For the head of, pet hospital group, how to expand in the future and to what extent it can be integrated is still unpredictable. Looking at other areas such as pet medicine and pet insurance, new players will continue to enter the market in the future, and more capital will be placed. However, what needs to be solved more is the scarcity of experts in the pet medical field and market education.
Of course, if you want to get a pet business bonus, you need to pay enough perseverance and patience in addition to funds and talents for those who ride the waves in the pet medical field. Only in this way, the pet medical business will become broader and broader.