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December 3, 2012

Chinese Pet Food Full of Potential, With Competition Set to Increase

Paula FloresAnalyst Insight by Paula Flores, Head of Pet Care Research at Euromonitor International

View Paula Flores' profile on LinkedIn

The Chinese pet care market is valued at US$1.3 billion in 2012. With pet food sales accounting for only some 37% of that provisional total, the latent potential remains significant. After all, this is a country with already one of the highest pet populations in the world.

With some 27.4 million dogs, China ranks third in the world in terms of population. Click to Tweet! Meanwhile, its cat population provisionally numbers more than 11 million animals in 2012. Click to Tweet! In terms of other pets – including birds, fish, reptiles and small mammals – China ranks first worldwide, at nearly 250 million animals. This is nearly double the number of such pets in the UK, which ranks third in the world.

Demographic and socioeconomic factors also favour continued growth for China’s pet food market. The percentage of Chinese households with a disposable income of over US$10,000 is 36%. Click to Tweet! This corresponds to a four-fold increase in the number between 2006 and 2011. Likewise, the number of households with a disposable income of over US$45,000 grew four-fold over the same period, although these account for just 3% of the households.

A very low prepared gap for both dogs and cats also makes China one of the most dynamic pet food markets in Asia. The percentage nutrition stemming from prepared food remains well below 10% for dogs and cats. This indicates just how much potential there is in the Chinese market, as most of the pet population is still eating table scraps rather than prepared pet food. As a means of comparison, Brazil has a prepared gap of 28% for cats and 50% for dogs, while the corresponding figures in neighbouring South Korea are 30% for cats and 25% for dogs.

Among affluent Chinese pet owners, international manufacturers have very strong brand equity. Domestic players are more commonly found in the economy segment, and compete by enticing new consumers from feeding pets scraps into the prepared food market. The top two companies, Mars and Nestlé alone, enjoy a 58% market share in dog and cat food. In comparison, the two leading local players, Tongwei Co Ltd and Nory Pet Co Ltd, each achieved a modest 2% retail value share in 2011.

Two main challenges remain for Nestlé and Mars, which are the leaders in mid price segment: bringing new consumers into the pet food market in the first place, typically at the economy end of the price spectrum, and driving more affluent consumers up the value chain towards premium positioned (and priced) products and brands. Indeed, both these dynamics are already impacting the competitive landscape for pet care in China. While retail sales in 2012 remain driven by mid priced products, via leading brands such as Whiskas, Friskies and Purina Dog Chow, the near future will see the premiumisation trend speed up, making China a premium – and thus value-led – pet care market.

Given these prospects, recent reports that Vitakraft has set up a new partnership with Wanpy, a local treat manufacturer, should come as no surprise. At the same time, Vitakraft has also set up a new distribution centre in Shandong Province. Globally, Vitakraft had a 1% retail value share in 2011, ranking it seventh amongst the top global pet care players. A bigger slice of the fast growing market that is Chinese pet care might just put it ahead of Sanofi.

While Vitakraft’s presence is strongest in other pet food, recent developments in more mature markets have seen Vitakraft looking to develop dog and cat food. Offering mid-price products in a market like China, and simultaneously pulling consumers up the value chain, might just be the right way for it to diversify its operations and reach.

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