China’s Booming Pet Food and Supply Industry

Date: 26/03/2019
Author: Sovereign Group
Company: Sovereign Group

Research from Sovereign Group suggests the pace at which China’s economy is growing has slowed and is not expected to exceed a growth of 6.5% in the near future. But certain areas are booming and will far exceed that rate – such as the pet food and supply industry, which is expected to grow by more than 50% to reach RMB 15.8 billion ($2.6 billion) by 2019.

China’s National Bureau of Statistics reports that China is ranked third globally for dog ownership, with more than 27 million pet dogs; only the US (55 million) and Brazil (36 million) are ranked higher. Almost 7% of Chinese households nationwide have owned a dog, while around 2% have owned a cat.

As with any nascent industry, distribution channels for pet food and supplies is undeveloped and highly fragmented. Small, independent pet foods are popping up across China – from larger cities such as Beijing, to smaller cities such as Hangzhou and Yueyang.

Sales of the top 28 foreign and domestic Chinese brands on Alibaba platforms exceed RMB 2.5 billion ($368 million) in 2016, with an average unit price of RMB 115 ($17). Analysis of the top stores selling in the category, shows 27% of sales from dog food, 14% from aquarium products and 13% from cat food (as illustrated in the chart).

Many international brands are already being sold on China’s e-commerce platforms. Royal Canin (USA) and IRIS (Japan), are sold on Alibaba’s Tmall and Taobao platforms. The number one selling brand is Royal Canin; however, the other four top five brands are Chinese domestic brands (see chart).

Interest in approaching this market means considering several factors.

Cultural/Regulatory Risks – With the market expanding quickly, there are some risks. During the Cultural Revolution, owning a pet was looked down upon. Even now, there are many articles citing pet ownership as a Western ideological influence. In other areas, city governments have begun to crack down on pet ownership. Fully understanding the market opportunities is important and critical to long term success. You should take necessary steps to understand and mitigate potential risks.

IP Protection – It is important that foreign brands protect their intellectual property as early as possible. The first step is to register your trademark in China, including both the English and Chinese language brand name. Chinas uses a “first-to-file” system rather than the “first-to-use” system prevalent in many developed countries. You don’t want to find yourself in the same situation as Michael Jordan – in court battling a Chinese company that was able to take advantage of his brands popularity and unprotected IP in China.

Partner Selection – Traditional distribution channels are highly fragmented. Regardless of their entry model, brands will need the support of partners, including distributors. Most partners will not have experience of what has been a niche industry, so it is vital to select a partner that is well-established and experienced in a related industry.

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