China’s pet economy is expanding.
According to the 2018 White Paper on China’s Pet Industry, the scale of consumption of China’s pet (dog and cat) market reached 170.8 billion yuan in 2018, and is expected to reach 188.5 billion yuan by 2020. There were more than 168 million pets in China in 2018. In the past three years, the number of Chinese pet owners has increased steadily every year with an annual growth rate of more than 10%, which is much higher than that in previous years and other countries or regions.
But this may just be the beginning.
In fact, China’s population is four times that of the United States, but the ownership of pets is only three-quarters that of the United States’, and the market penetration rate is less than 10%. As a pioneer in the era of emotional consumption of pets, PetSmart, an industry giant, was born in the hundred-billion-yuan American pet market. Likewise, in the Chinese pet market, world-class enterprises comparable to PetSmart may emerge in the future.
Pet industry: young people leads
It has long been widely acknowledged that the development of the industry is closely related to the aging of population. In the United States, where the pet market is most developed, population aging and continued income growth are the main factors driving the prosperity of the pet market. Nearly 50% of pet owners are over 45 years old.
But in China, the main driver of pet consumption comes to younger people. According to data from goumin.com, among the 73 million pet consumers in China in 2018, 77% of consumers are of the generation born after the 80s and 90s. In terms of gender, female consumption dominates markedly. Among the owners of mainstream pets (cats and dogs), 88% are women.
Since it is dominated by young people, the consumption pattern of pet industry will inevitably bear the brand of young people.
According to the data from Euromonitor, e-commerce is the largest channel for pet food sales, accounting for 45.4% in 2018; pet stores are the second largest channel, accounting for 30.6% in 2018. The data from the 2017 White Paper on Pet Industry is even more exaggerated: In 2017, the online sales of pet products accounted for 73.6%, and the online channels are still growing rapidly.
In contrast, the offline channels for pet product consumption in Europe and the United States account for more than 90%.
This phenomenon is due to the fact that the rapid development stage of domestic pet industry basically coincides with the development stage of e-commerce. On the other hand, it is also related to consumption habits: The generation born after the 80s and 90s, as the dominated pet owners, are known as the Internet natives and they are very much used to online consumption.
Of course, like consumers of all ages, young people have a variety of consumption powers. Many young people born in the 1990s who have just started working are limited by their economic ability, so their pet consumption is sensitive to the cost performance of products.
Getting used to consumption online and focusing on cost performance, these two major consumption habits of young people determine the current status of China’s pet industry.
Due to early entry and deep cultivation of offline channels for many years, imported brands still occupy the dominant position in China’s pet market so far. But the situation is changing. Due to the relatively high price and the fact that they are not good at online expansion, large foreign brands are currently developing slowly in China’s pet market, which provides opportunities for up-rising domestic brands.
Founded in 2014, Crazy Doggy stands out by relying on its high cost performance and exploiting the social advantage of e-commerce. In just 4 years, its revenue has exceeded 600 million yuan.
For a long time, foreign investors controlled almost all of the channels of China’s pet market. These brands were known for their high-end positioning and the same products were even more expensive in China than abroad. Unfortunately, many domestic enterprises focus almost on primary and low-quality products due to having an insufficient understanding of the market. Therefore, many brands can only survive in the middle and low-end channels.
Based on this market characteristics, in the dog food market, Crazy Doggy sets a medium price for itself, which is lower than that of high-end dog food brands, and higher than that of low-end dog food brands, and there is no corresponding product in China in this price range.
Currently, the top five brands in the dog food market are Royal Canin, Crazy Doggy, Navarch, Nature Bridge, and Pure&Natural. Although Royal Canin is still the No. 1 brand in the staple food grain market, the competition is fierce.
Pets + pet products = social currency?
In addition to cost performance, young pet owners in China also have complex emotional needs.
The data shows that the number of single people in China is currently 200 million, of which about 80% are young people. According to the survey, 72.19% of young people live away from home, and 61.47% of them usually feel lonely. Many industries keep close watch on these people, which has given birth to the concept of the “lonely economy”.
The pet industry is a business against loneliness.
According to the 2017 White Paper on pets, more than half of pet owners regard their pets as children and nearly three in ten pet owners see their pets as friends. After pet owners anthropomorphize their pets, they feel that their pets can sense their emotions.
Moreover, for the urban youth, pets are not only intimate companions, but also a kind of “social currency”. They not only care about the images of their pets, but also their pet supplies.
The domestic brand pidan uses its “appearance level” to impress consumers. With only 2 snacks, 1 toy and 35 high-priced single items, their offline channels have passed the monthly revenue threshold of 1.5 million yuan.
The products that made the company famous include mixed litter, pidan studio, valley scratching board and spiral cat nest. To be fair, they are like IKEA furniture for cats, and don’t look rustic or shabby when you upload photos to your Circle of Friends. Naturally, the prices of these products are not cheap. The domestic price of pidan’s litter box is 365 yuan, which sells for $US79 and 69 euros.
“It doesn’t matter. ” For young people who are eager to distract themselves from loneliness and flaunt themselves on social media, they can rid themselves of their loneliness when they spend money.
A giant must handle online and offline
An interesting fact is that Crazy Doggy and pidan, two local start-ups that have opened the door to opportunities online, are now both aiming offline.
Crazy Doggy, which is trying to become the “Xiaomi of the pet industry”, is now setting up offline stores. They want to provide a one-stop experience for users, from buying dog food, to bathing, grooming, seeing a vet and even providing dogs with areas to go walking.
Ma Wenfei, founder of pidan, also admits that what is “in vogue” will not break the blockade on major platforms, because “by attaching yourself to a big sales brand, the sales brand will definitely make you too much specific and one-dimensional. Therefore, there are no offline sales, there is no future.”
Unlike Cui Jia, Ma Wenfei hopes pidan will become the Uniqlo of the pet industry.
Compared with the American giant PetSmart, Cui Jia and Ma Wenfei do have reasons to be anxious.
PetSmart was initially positioned as a “low-price wholesale model”. It cuts labor costs through the model of “having a store in front and a storehouse behind”, and it has expanded nationwide to become the largest pet chain in the United States. Since then, it has introduced services to further consolidate its position as a giant. However, in the early days of transformation, it was not involved in the business of personal care and board care. Instead, it cooperated with Banfield, a US chain and medical pet institution giant.
By contrast, China’s offline channels are scattered and still in the early stages of development. In 2018, there were more than 50,000 offline professional pet channels in China, including about 18,000 pet hospitals and more than 30,000 pet stores.
The market capacity and speed of development of pet hospitals are relatively good. By contrast, the development of pet stores is not quite optimistic. According to research conducted by Kaiheng Capital, in most cases, community pet stores only make a monthly net profit of several thousand to ten or twenty thousand yuan.
The unsatisfactory development of offline pet stores is related to the surplus of traditional pet stores on the one hand, and users’ consumption habits and brand awareness on the other hand. There is little correlation between brands of pet products that have high rates of repurchases online and offline pet store brands, as these are almost completely unrelated. The reason why most users choose to go to a certain pet store regularly is mainly due to the trust of the in-store service staff, rather than having brand trust of a certain store. In other words, China’s offline pet industry still depends on “person-to-person” trust, and has not established the strong brand stickiness of “person-to-enterprise” like PetSmart has.
For any company who has the ambition to become a “pet giant”, it must have been the capability to bridge together the online sales and offline market, so as to not only provide products that have high user-satisfaction, but also provide comprehensive offline service experience including cleaning and care, beauty service and medical treatment, instead of merely relying on the cost performance and appearance of the products. From this perspective, whether for local enterprises or overseas companies that have been deeply involved in China for a long time, there are still many things that need to be done to become a giant.