Giants increase pet nutrition track Diversified demand intensifies high-end market competition

Caijing New Media Shu Zhijuan/Wen Panxi/Editor

Pet nutrition is becoming the new blue ocean, attracting players from all walks of life to compete. Recently, Jianhe International (hk.1112) announced that it will acquire a 100% interest in US pet nutrition company Zesty Paws for US$610 million (about 3.959 billion yuan) through its subsidiary subsidiaries, and then expand its pet segment. In addition to Jianhe, emerging brands and some companies have also played a cross-border, Nestlé, Mars, Three Squirrels, New Hope, etc. are also laying out the pet food field.

Driven by the market, the upgrade trend is obvious. According to the "2021 China Pet Exquisite Consumption Atlas", in the past three years, domestic online pet consumption has been driven by the growth of the number of consumers and the unit price, and the consumption scale has increased by 1.5 times. From the product side, the consumption of pet dogs and cats in high-end food increased by 100.69% and 136.54% respectively, which was more than twice the increase in low-end food. This also means that high-quality, high-priced foods are being favored by more pet-feeding people, but at the same time, local pet companies are mainly focusing on the low-end market, resulting in the high-end market being almost cannibalized by imported brands.

In this regard, Zhu Hui, director of the public affairs department of Jianhe Group, said in an interview with the new media reporter of Caijing that compared with developed countries, China's pet consumer market is still in the early stage of development, and the market concentration is not high. However, with the change of concept of emerging consumer groups, diversified demand has promoted the transformation and acceleration of the market, and the growth rate of the high-end market is obvious. In addition to continuous research and development and innovation to enhance product strength, the factors that determine whether an enterprise can win in the future also include the comprehensive operation ability of online and offline channels and the ability of brands to interact with consumers.

Pet nutrition products into a subdivision of the blue ocean 100 billion market size to be tapped

From the "niche" market to the "public", and gradually become a just-needed pet nutrition market, this year is particularly lively.

Recently, Jianhe Group announced that it intends to acquire all the equity of the American cat and dog nutrition supplement company Zesty Paws for US$610 million (about 3.959 billion yuan) to increase the pet nutrition and care products business. It is worth mentioning that this is the second time that Jianhe has acquired a pet brand company in less than a year. In November 2020, Jianhe announced the acquisition of SOLID Gold, a U.S. pet nutrition company, for $161 million, expanding its business footprint from infant and adult nutrition to pet food.

Coincidentally, in April this year, Nestlé announced a capital increase of 230 million yuan to increase the business layout of high-end and ultra-high-end pet food production; not only dairy companies have joined the pet food industry, but also companies that were once foundries for giants have also begun to return, Petty shares were previously Mars' foundry enterprises, and in recent years, they have carried out dislocation competition with domestic traditional pet food companies; New Hope and Tongwei shares have also been laid out in the field of pet food.

The active performance of the market has also extended to the secondary market, and according to incomplete statistics, more than 10 brands related to pet nutrition have completed financing so far.

The reason why players have entered the game is that, on the one hand, the demographic structure has changed, giving birth to the companion economy; on the other hand, the overall pet industry has expanded to three times the original size from 2014 to 2019, reaching 93 billion yuan, and it is expected that the size of the pet market will triple in the next 5 years.

Zhu Hui said that whether it is the layout of infants, adults or pet tracks, it is within the scope of family nutrition and health. More importantly, dairy companies making pet food does not belong to a completely unfamiliar field. From the perspective of research and development, many pet nutrition foods are similar to human nutrition foods; in terms of channel resources, dairy companies have established a mature dealer network in the past development, which can quickly realize the promotion of pet products in the existing cooperative channels.

Independent dairy analyst Song Liang believes that in the case of overcapacity, pet food also provides a new port for dairy companies to digest production capacity. The pet industry has a lot of room for development in China, and it is not excluded that more dairy companies and food companies will join the pet industry in the future.

The industry has not yet formed an absolute leader "online + offline" integration to accelerate market expansion

What cannot be ignored is that although China's pet industry is currently in a stage of rapid development, the pet consumer market is monopolized by the giants of the AMERICAN pet industry, and the domestic pet market is still relatively scattered, and no giant enterprises have been formed.

According to Nielsen's China pet food market share, the top ten companies account for 31.1% of the industry's share, except for Mars' domestic terminal market share of 11.40%, other brands account for less than 5%.

In the view of Yan Linze, an investor in Zuoyi Capital, because the pet industry is mainly concentrated in the staple food track at this stage, facing opportunities, it also means that it may be more difficult to stand out and gain consumer recognition.

A senior person in the field of pet food said that China's pet nutrition market has just begun, and the head has not yet been firmly formed, which still has the opportunity to catch up with or even surpass the emerging start-up brands.

It is worth noting that unlike the pet market in the United States, Japan and Europe, which is dominated by offline supermarkets and pet stores, although China's pet market started late, the penetration rate of online pet consumption is higher. According to Nielsen data, as of June 2021, pet food e-commerce sales reached 25.06 billion yuan, an increase of 27.2% year-on-year. Among them, Solid Gold, Newtrees, Wess and Econa have achieved rapid expansion in the first half of 2021.

Although e-commerce channels favor the first major channel for food sales, they are currently facing many dilemmas: the lack of production standards in the industry and the uneven quality of quality have led to the difficulty of cultivating customer loyalty. At the same time, the e-commerce platform is filled with a large number of pet food brands, most brands through the price war to obtain competitive advantage, directly lead to the decline in corporate profits, affect the subsequent development of the brand, how to balance the distribution of benefits between online and offline channels, directly test the ability of enterprises.

Zhu Hui said that at present, the proportion of online channels for pet nutrition is relatively large, and market expansion will be accelerated through the "online + offline" combination boxing model in the future. However, the pet offline channel is different from the fixed channel of milk powder, which requires a channel cultivation process, so it is necessary to choose a city with a relatively developed economy to cultivate offline channels.

Consumption model gives birth to the trend of high-end Technology innovation has become a killer

Although multinational giant companies still account for the majority of the proportion in the high-end market, with the rapid growth of the pet economy, pet food is entering a period of consumption upgrading, and "high-quality personalized pet food" has become the fastest rising consumer demand.

According to the "2021 Pet Food Industry Consumption Insight Report", the overall consumption of pet staple food shows a trend of quality upgrading. According to the unit price distinction of staple grain products, the growth rate of consumers of staple grain products with a unit price of more than 200 yuan on the internet is the highest, close to 40%, followed by the growth rate of staple grain products with a unit price of 125-150 yuan and a unit price of 175-200 yuan.

The reporter saw from the Jingdong mall that a bag of 5.4kg of high-end cat food was priced at more than 300 yuan. Among them, Surico Gold Full Stage Natural Grainless Chicken Flavor Cat Food 308 yuan; Aikenna Chicken Flavor Natural Grain Cat Food 5.4kg Price 461 Yuan; orijen Desire Natural Grainless Fresh Meat Cat Food 5.4Kg Up to 700 Yuan. From these data, it is not difficult to see that with the change of pet concept, pet owners' requirements for consumer goods such as pet food and supplies have changed to high-end.

Putting aside the strategy of the enterprise itself, there are the most direct reasons for the high-end trend and the change of consumption patterns. Generation Z has gradually become the mainstream of consumption, they pay more attention to quality and refinement needs, and the cost of brands investing in high-end products will be higher, not only in the composition of each link of the channel, but also in the sales team, research and development technology and brand promotion, so it pushes up the cost.

"Consumption stratification, high-end and rationalization coexist, which is a feature of current pet consumption. At the product price level, there is indeed a certain premium, the main reason is that compared with the human economy, the pet economy is in the early stage of industrial development, or relatively narrow, small volume, then the cost is apportioned to specific products, it will be relatively high. Li Zhongqi, president of the Asia Pet Research Institute, said.

Zhu Hui believes that behind the high-end market competition is the competition of comprehensive strength between enterprises. On the one hand, it is to support the innovation of high-end products and technology research and development, and whether it can break through in many brands in the future in 1 to 3 years tests the research and development strength of an enterprise, which also leads to the accelerated elimination of some brands that lack moats in competition. On the other hand, the comprehensive operation ability of online and offline channel integration, whether enterprises can adapt to the choices of emerging consumers and have positive interaction with consumers in the channel reform, and crack the pain points of the industry from the demand side, is the key to whether it can occupy the market.