How did the Chinese pet food market fare in 2020, and what are the
prospects for domestic producers in 2021?
As China counted down to of the year of the ox in February 2021, the year 2020officially came to an end. Against the overall market downturn from the globalpandemic, China’s pet food industry bucked the trend with notable growth. Thisarticle offers five observations that sum up the Chinese pet food industry in2020 and how local pet food businesses and experts view 2021.
**1. Competitive landscape is fragmented, with low market
The Chinese pet food market has low concentration and is highly competitive.Imported brands dominate the market but are facing growing challenges fromdomestic pet food producers. The latter show a superior ability to verticallyintegrate the supply chain and apply an indirect strategy to penetrate themarket, but to date lack the strength to overtake the market as recognizedbrands.
Unlike the global top 10 pet food brands mainly controlled by conglomeratessuch as Mars Petcare, Nestlé Purina PetCare and Colgate-Palmolive (Hill’s PetNutrition), China’s major domestic brands belong to various manufacturers. Thetop three-ranking brands of the Chinese dog food market comprised only 15% ofsales, and those of the cat food market sat at 16.2%, according toEuromonitor. In comparison, for a mature market like the U.S., the top threebrands had a 53% share and 35.8% share, respectively, in the same period.
2. Domestic pet food brands are rising
2020 witnessed the rise of domestic pet food brands in China on all fronts,including supply chain integration, global strategical planning and movementinto the high-end pet food market. For example, Yantai China Pet Foodspartially put into operation Asia’s highest-end wet pet food factory with anannual full production capacity of 30,000 tons. The Shandong-based companyalso kicked off the construction of a 5.0 intelligent dry food factory projectand acquired PFNZ, the largest pet canning factory in New Zealand.
The domestic companies also invested heavily in setting up novel retailchannels, especially online. In contrast to foreign brands such as Royal Caninand Whiskas, which enjoyed strong offline distribution channels backed by highpenetration into retail groups, the domestic players leveraged e-commerce toreach consumers directly. Taking the pet sales of the four major e-commerceplatforms—Taobao, Tmall, JD and Pinduoduo—as a sample, the six pet food brandswith the highest sales were Royal Canin, Myfoodie, Crazy Doggy, Pure Natural,Bridge and Pedigree. Four of those are domestic brands.
In addition, domestic pet food companies shifted their focus to building brandawareness and loyalty with end consumers. Myfoodie, a brand ranked third inthe market, applied a pan-entertainment marketing strategy and sponsored aseries of high-profile TV programs, successfully reaching middle-classconsumers and conveying brand value.
Crazy Doggy, which follows Myfoodie in market share, aimed at winning overnovice pet owners and the market of the third- to fourth-tier cities. With thebest value-for-money position, the brand recorded high sales growth ine-commerce channels across the major platforms.
Pure Natural, on the other hand, directed its focus to ultra-high-end naturalpet food segmentation, working closely with pet shops and pet clinics to setits brand image. The brand now ranks among the top 10 in the Chinese pet foodmarket.
**3. Favorable import policies led to significant increase in number of
As of December 31, 2020, the Ministry of Agriculture and Rural Developmentapproved and registered 715 foreign pet products, including 289 SKUs of catfood, 389 SKUs of dog food and 30 SKUs of other general products for dogs andcats. A total of 21 countries/regions applied for registration of pet compoundfeeds, with Canada having the highest number of applications at 115 SKUs,followed by New Zealand with 104 SKUs, accounting for 11.8% and 10.6%,respectively.
In 2020, 27 pet food production facilities from the U.S. were newly registeredon the list of Chinese government-approved facilities, according to theGeneral Administration of Customs People’s Republic of China. There wereanother 12 Dutch companies and 10 Italian companies completing theregistration and ready to enter the market.
The growing interests of foreign brands were further enhanced by the order ofthe Tariff Commission of the State Council, which reduced the tax rate onretail packaged and canned dog or cat food from 15% to 4%. The order enteredinto effect on January 1, 2021.
4. Pet population continued to grow in 2020, fueling market growth
According to data released by the Chinese Pet Industry White Paper 2020, thenumber of dogs and cats in urban areas nationwide increased by 1.7%,surpassing 100 million for the first time. The number of cats grew to 48.62million, up 10.2% from 2019, and 52.22 million dogs were recorded, down 5.1%.
In 2020, there were 1.74 million new pet owners in China, bringing the totalnumber to 63 million. Among them, 35.93 million are dog owners, with 1.5 petdogs per household, and 27.01 million are cat owners, with 1.8 pet cats perhousehold.
In tandem, the market size of the pet industry continued to grow, reachingUS$32 billion, according to the white paper, up 2% from 2019. Of that markettotal, pet food accounted for 55.7% as of 2020, down from 61.4% in 2019. Thecat food market showed the strongest growth at 13.3%, while the dog foodmarket declined by 5.1%.
Compared to countries such as the U.S. and Japan, the average number of petsper household in China is still low, but the percentage of pet-owninghouseholds is growing rapidly. The domestic 2020 pet penetration rate of 19%is lower than Japan and Korea at 26-27%, and the U.K. and U.S. at 44% and 67%,respectively.
5. Consumption of pet food is diversified
While pet food continued to account for the majority of the Chinese petindustry, the fastest-growing sectors were veterinary care and petaccessories, which increased by 6.2% and 0.9% respectively, said the ChinesePet Industry White Paper 2020.
Due to the impact of the pandemic, there was a 2% decline in sales in thehigh-end pet food market compared to 2019. Dog owners were more pricesensitive and recorded a larger decrease, while the change among cat ownersremained insignificant.
Yet the humanization of pets in China drove pet food consumption upgrades,with the retail unit price of pet food increasing to US$5.1/kg in 2019, whichwas a 24% increase compared to US$4.15/kg in 2015, according to a Kaiyuansecurities report.
Source: Yu Tang Petfood Industry
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