China Consumer

Animal spirits

China’s pet industry is enjoying boom times


Spot the pet

For the well being of her 13 year-old Schnauzer no expense is spared, Lu Yi told Forces Behind Brands, a news portal.

The dog, she admits, is like a son to her. So Lu is extremely picky about his diet, ordering imported, organic and low-sodium dog food, because he can’t take too much salt. Whenever Lu is shopping online, she also likes to grab an outfit or two for him. During the hot summer months, the dog frequently goes to a salon where he is pampered and groomed. And when he is sick, he is rushed to private clinics, which charge more than Rmb1,000 per treatment.

Even as China’s GDP growth rate slows, its pet economy is proving resilient. In 2016, the pet industry grossed Rmb122 billion ($18 billion), about a quarter the size of its US counterpart (all the more remarkable when you consider that only a few decades ago China was so poor that there were almost no pets). Between 2010 and 2016, the sector has enjoyed a compound annual growth rate of 49.1%, one of the largest increases across the economy, and it won’t be long before China replaces the US as the world’s biggest spender on pets.

One reason is that pet penetration is still relatively low. As of 2014, around 30 million urban households, or nearly 7% of the national total, owned a dog. Cat owners amounted to just 2%, according to the National Bureau of Statistics. At the moment, China is third in the world in absolute numbers of dog ownership, behind the US (55.3 million) and Brazil (35.7 million), with a total of 27.4 million pet dogs. It is second for cats, with 58.1 million cats (compared with 80.6 million in the US).

“As the population continues to age, old people want a pet to keep them company. Young people, too, want a pet to be their friend so they don’t feel lonely,” says Sina, a portal, noting that the number of ‘singletons’ in China has now breached 200 million. “Moreover, more and more people treat their pets like family and friends. In fact, a survey reveals that over half of the pet owners treat their pets like their children.”

Increased concern with animal welfare has also led to higher spending on pets. “For many people, the pet has become a part of their family. As their salaries go up, consumers have also increased their spending on pet products. They start to shop for imported pet food like they do with their skincare brands, studying the list of ingredients religiously to make sure they pick the best for their pets,” one dog owner told Forces Behind Brands.

For a country that is obsessed with food, it should hardly come as a surprise that pet owners are spending lavishly on their four legged friend’s nosh as well. Sales of food is the biggest segment – at 35% – in the pet care industry (followed by veterinary services at 22%).

Capitalising on the country’s growing demand for pet products, several food manufacturers have tapped the A-share market to raise funds. Wenzhou-based Peidi completed an initial public offering on the Shenzhen market in July, for instance, and it saw its shares soar 44% on the first day of trading. Wanpy, which also specialises in dog and cat food, has received approval to list its shares in Shenzhen too. Investors are taking heed. Boqii, an e-commerce platform that specialises in pet products, received $102 million in financial backing from Goldman Sachs and China Merchants Bank last year. Another integrated pet service platform, Leepet, similarly raised $29 million.

The prospects for the industry aren’t universally appealing, however. Forces Behind Brands reports that last year alone, over 6,000 bricks-and-mortar pet stores and service providers closed down. Low barriers to entry means that there is a lot of competition and another problem is that it is hard to scale up operations across a number of outlets. “It takes two hours just to bath a single golden retriever,” a pet shop worker told the blog. “That means even if a pet groomer works for eight hours straight, he can only groom four dogs”.

Similarly, while veterinary services have performed well – providers are forecast to earn Rmb60 billion a year by the end of 2020 – pet medical provision is still hugely fragmented, with only a tenth of the market controlled by large and medium-sized professional chains. The rest are all mom-and-pop neighbourhood animal clinics.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.