Frost & Sullivan: Pet consumption upgrade drives local brand substitution and globalization breakthrough

There are several reasons:

1. Economic level improvement and consumption upgrade: With the growth of per capita disposable income, pet owners' demands for pet quality of life have increased, leading to a surge in demand for high-end products such as pet clothing, smart gadgets, and customized services;

    

2. Emotional consumption demand is strong: with the acceleration of urbanization, single-person economy, and aging society, pets have become an important emotional support. Single young people and empty-nest elderly regard pets as 'family members', driving 'personification consumption';

    

3. The awareness of scientific pet care has increased: New-generation consumers (born in the 90s and Generation Z) place greater emphasis on pet welfare, enhancing their scientific pet care awareness. From an industry perspective, in recent years, the proportion of health-related expenditures such as pet medical care and nutritional products has significantly increased, reflecting the importance placed on long-term pet health management.

Firstly, domestic brands will gradually break the monopoly of imported brands by leveraging cost-effectiveness and localization advantages. Through e-commerce channels and targeted marketing, they will rapidly penetrate the lower-tier market with a strategy of 'high cost-effectiveness + catering to the dietary habits of Chinese pets'.

Secondly, the concentration in the pet industry has increased, with leading companies improving their industrial chain layout through mergers and acquisitions (such as food companies acquiring medical brands), forming an 'food + medical + service' ecological closed-loop. At the same time, cross-border integration has intensified, with traditional industries such as home appliances and pharmaceuticals leveraging their existing business advantages to enter the pet market. For example, Midea and Gree have launched new products to layout pet smart products.

Finally, domestic enterprises have further expanded overseas markets, accelerating their expansion into Southeast Asia, Europe, and America by leveraging supply chain cost advantages and cultural output.

In terms of opportunities, firstly, it helps domestic brands seize the high-end market. Currently, the market share of domestic pet food has exceeded 60%, while the share of imported brands has been continuously shrinking in recent years.

Secondly, it helps to force the improvement and development of the domestic supply chain. Import tariffs drive up the cost of overseas raw materials, prompting enterprises to turn to the domestic supply chain, which to some extent promotes the optimization of the supply chain in China's domestic pet industry. It may also encourage domestic enterprises to explore new markets, turning to emerging markets such as Southeast Asia and the Middle East.

Regarding challenges, the increase in tariffs will bring a significant cost shock to enterprises that rely heavily on imported raw materials. At the same time, it is also not conducive to the export of pet products from our country. According to Chinese customs statistics, in 2023, China's exports of pet food to the US decreased by 12% year-on-year. In addition, it may also exacerbate brand homogenization and trigger price wars.

In the face of the adverse effects on exports brought about by 'equivalent tariffs', enterprises can choose to transfer their production capacity globally, such as building factories in low-tariff countries like Cambodia and Thailand, or actively exploring emerging markets, focusing on developing RCEP member states and 'Belt and Road' countries. By 2024, China's exports of pet food to ASEAN had increased to account for 25% of its total exports, becoming the second-largest export market.

For factories built in regions such as the southeast, which are considered to bring short-term cost advantages through red profits due to relatively lower tariffs and labor costs, long-term development may be hindered by changes in U.S. tariff policies or insufficient local industrial chain support. Therefore, it is necessary to approach this with caution and actively seek other sustainable solutions.