Produced by One View Commercial
Author/Meng Jiayi
Edit/Wooden Fish
The field of pet health is becoming a new outlet.
With the continuous improvement of national income, the scale of the domestic pet consumption market is also growing rapidly. According to the data released by iResearch, the size of China's pet consumption market will be about 311.7 billion yuan in 2022, and the market size is expected to be about 392.4 billion yuan in 2023, with a compound growth rate of 33% from 2019 to 2023.
For pet owners, pet health management issues are a higher priority. According to iResearch data, pet owners spend about 5,200 yuan per year on a single pet, of which pet health and medical expenses account for more than 90%. The pet health market is slowly unleashing its potential, and the rapidly expanding market scale and continuous segmentation of the category track also provide opportunities for more brands, and Cature, which focuses on pet health, is one of them.
Founded in 2017, Xiaoke already has a group of loyal fans, and has received 4 rounds of financing approval before 2022. With such a question, Yilan Business chatted with Cui Yongkun, the founder of Xiaoke, and tried to dismantle the business logic of Xiaoke.
Do not make staple food
In fact, Cui Yongkun is not from the pet industry. In 2009, Cui Yongkun and his partner Zhang Nan founded Shanghai Assimilation New Material Technology Co., Ltd., which is mainly responsible for the production and marketing sector. The establishment of Xiaoke largely depends on the accumulation of early entrepreneurship.
In the process of market research, Cui Yongkun found a trend, that is, people's social radius is expanding, social circles are shrinking, and social costs are increasing, which has given rise to a huge demand for companionship, and pet raising is one of the ways to solve this kind of demand. As a result, Cui Yongkun established the Pet Division in 2015 to apply material technology to cat litter supplies. After a few years of precipitation, he decided to bet on the pet market.
In front of Cui Yongkun is the phenomenon that pet staple food occupies "most of the country". At that time, the largest sub-category of the pet market was pet food, and the staple food with the highest market share was the main food. In 2018, the data released by the white paper on the pet industry showed that in the pet food industry, pet staple food accounted for more than 50% of the share for ten consecutive years, and it was the absolute main force.
Therefore, for many brands, the first step to enter the pet market is to be a staple food - just needed and have a relatively mature operating system, which can not only ensure income, but also reduce the cost of entering the industry. Founded in 2014, Crazy Puppy started as a pet staple food, and now, the dog food it produces is the first best-selling dog food on Tmall.
But, "we rejected the staple food programme from the start. "In 2017, Shell Cature was established, which was different from the mainstream choice at that time, Shell aimed at the field of pet care and pet functional food, and focused on the care sector.
In Cui Yongkun's view, there were two major problems with staple food in the past. First, the competitive advantage of domestic soybean protein is not prominent, the quality of meat is not as good as that of foreign countries, and the cost is not low enough. Second, the formula of domestic pet staple food has not been verified by the life cycle, that is, the domestic pet staple food has not completely sent away a generation of pets, but only through data calculation, which cannot be guaranteed in science. Therefore, he abandoned the staple food market.
At the same time, Cui Yongkun found that the domestic pet care and pet functional food market was almost blank at that time. According to the company's data, the number of pet care-related companies before 2015 was less than 3,000.
When entering the blank market, the first thing we face is the problem of no enterprise benchmarking. In this regard, Cui Yongkun chose to focus on overseas, "not to verify demand, but to innovate methods." In other words, it is to select the products that small shells focus on developing according to the situation of mature pet markets abroad, and innovate on this basis.
The product types are the same, but the implementation is different. For example, in the face of pet oral problems, American products will use a lot of starch to achieve cleaning purposes, but small shells will choose freeze-drying as a carrier to reduce the burden on pets.
Although it is difficult to get off the ground in a blank market, there are also broad prospects lurking. Starting from the economic level, in 2017, the per capita disposable income of residents in the country reached 25,900 yuan, the urbanization rate reached 58.5%, and the number of empty-nest youth, empty-nest elderly and other groups increased. There is both consumption power and emotional demand, and there is a large room for growth in the market.
From the perspective of consumer mentality, people's attitudes towards pets have also changed, and they are willing to pay for them as family members, which has also opened up space in the field of pet care and functional foods. Taking cat and dog health products as an example, the sales of related products on the Taotian platform in August 2022 were 166 million yuan, and increased to 190 million yuan in August 2023, with a growth rate of more than 14%.
As it turned out, there was nothing wrong with the choice of the small shell. In 2021, "618", Xiaoke ranked first in the Tmall pet oral cleaning category, an increase of about 250% year-on-year over the same period in 2020, and a year-on-year increase of about 3.3 times in omni-channel. The compound growth rate from 2018 to 2023 is as high as 75%, and the overall scale is more than 200 million.
As the prospect of the pet care market emerges, more and more companies are entering this track. In 2020, Bloomage Biotech launched the pet care brand Hyperthermia, in 2021, Unilever launched the pet care sub-brand Dollis Planet in the Chinese market, and in 2021, H&H Group opened up the pet care business unit.
In 2023, Cui Yongkun realized that the development of the industry has come to a node, market resources have become limited, and competition has become increasingly fierce, so enterprises must make strategic adjustments to adapt to this change. In this regard, Xiaoke chose to shift the focus of development and focus on the functional food track.
It was undoubtedly a big gamble, but it was not hopeless.
Specializing in functional foods
The approach of the small shell seems crazy, but it contains logic and reasonableness.
On the one hand, in 2023, the natural growth rate of the Chinese population will be -1.48‰, the total fertility rate will be about 1.0, and the per capita disposable income will be 39,000 yuan, a year-on-year increase of 6.3%. The three major trends of aging, declining birthrate, and unmarried are accelerating, and raising pets has become the mainstream choice of contemporary young people. At the same time, out of emotional needs, pet owners want to improve the quality of life and the length of life of their pets as much as possible. Therefore, there is a lot to be done in the field of pet functional food.
On the other hand, after several years of development, the nursing market is gradually becoming saturated. According to Qichacha data, the number of registered pet care companies from 2017 to 2023 will exceed 60,000, with a growth rate of up to 58%. If you want to stand out, you either rely on low prices to acquire customers or rely on marketing, but neither is a long-term solution. For a company, if it wants to go further, it needs to challenge more difficult tracks and create a wider moat. Obviously, for small shells, functional pet food is the moat.
In order to capture this "hard bone", the small shell did two things.
The first is personnel arrangement. Xiaoke has introduced a lot of cross-industry R&D personnel, most of whom have never worked in the pet industry. "We have an internal saying that we work hard to learn in the fifth grade and take the exam seriously in the first grade. In our eyes, the beauty, nutrition, pharmaceuticals and other industries belong to the category of the fifth grade, and I hope that they will apply the knowledge of other industries to the pet industry and use interdisciplinary thinking to develop new products. ”
The second is to increase R&D investment. Taking the data for the third quarter of 2023 released by listed companies as an example, Ganbao Pet's R&D investment accounted for 1.79% of revenue and sales investment accounted for 15.91% of revenue, Zhongpet's R&D investment accounted for 1.34% and sales investment accounted for 9.28%, and Petty's R&D investment accounted for 2.35% and sales investment accounted for 7.14%. Judging from the above data, the overall R&D investment in the pet industry should account for about 2%, and it shows a trend of emphasizing marketing and light investment.
In Cui Yongkun's view, this thinking is completely wrong. If you want to win the trust of consumers, you need to focus on research and development in the product rather than in advertising, especially in the field of functional food. At present, the R&D expenses of Xiaoke account for more than 6% of sales revenue, in addition, Xiaoke has built the first pet health management laboratory in China, with more than 40 independent research and development patents.
The pet industry needs a bottom line
Cui Yongkun told Yilan Business, "We are often thinking about a question, if the small shell falls, what kind of loss will China's pet industry have?" From the current point of view, although the small shell has created a lot of "firsts", there are also many companies on the basis of the small shell for category research and development. However, in the eyes of One View Business, this is not enough.
In fact, the pet industry in the mainland is still in the stage of "savage growth": first, there is no systematic pet-related laws and regulations, some management links are missing, and a complete management chain cannot be formed.
In 2019, the Shanghai Consumer Protection Committee tested 48 domestic and foreign dog foods, of which 4 exceeded the toxin standard, 5 bacteria exceeded the standard, 7 protein were false, and 3 calcium and phosphorus were false. In March this year, the Voice of China pointed out that there was a pet food chaos in Xingtai City, Hebei Province, and the ingredient list was written arbitrarily, except for the net content, there was almost no real information about other information.
In this regard, Xiaohu is also constantly changing: improving production standards, strictly controlling the price of the distribution end, and adhering to the bottom line. Cui Yongkun said that the small shell no longer specializes in the nursing line, partly because there is a phenomenon of bad money driving out good money in the market. There are many products on the market that replace natural ingredients with hormones to achieve better results at a lower cost.
However, in the view of Yilan Business, there are still some flaws in the small shell. First of all, although Xiaohu currently focuses on functional foods, the category is still not rich enough and is easy to be copied by other companies. Secondly, the brand recognition of Xiaoke is still not high enough, and the number of fans of Tmall's flagship store is 418,000, which is already at the middle and waist level in the pet food track, but compared with the head company, there is still a big gap. At the same time, due to the limited dissemination, non-small shell consumers have insufficient trust in small shell products.
In Cui Yongkun's view, this is the goal of Xiaoke: to solidify trust and function into brand labels, so that consumers can completely dispel their worries about maintaining pet health, and this is also the original intention of Xiaoke's establishment.