Summary of Key Points
Although the overall market size for pet food is still growing (expected to reach 405 billion yuan by 2028), leading companies such as Zhongchong and Peti are facing the challenge of increasing sales without boosting profits. This is due to rising costs and intensified competition (with food giants entering the market and foreign brands competing for shares). The industry's growth momentum has shifted from a focus on increasing the number of pets owned to improving the quality of pet care, with functional and fresh food becoming new opportunities for development.
1. Leading Companies Selling More but Making Less: Costs and Marketing Expenses Eroding Profits
Both Zhongchong and Peti saw an increase in revenue but a decrease in profits in the first half of the year: Zhongchong's revenue grew by 34.9%, yet its profit fell by 37.6%; Peti's revenue increased by 1%, but its profit plummeted by 69.3%. Why?
- Rising raw material costs outpacing revenue growth: Zhongchong's operating costs increased by 45.7% (10 percentage points higher than revenue growth), and Peti's gross profit margins for various products decreased by 3-7 percentage points. In other words, the cost of purchasing ingredients such as meat and grains has become higher, resulting in less profit per unit of product sold.
- Higher marketing expenses: Zhongchong's sales expenses increased by 46.3% (to 430 million yuan) as it needed to build its brand and offer promotional activities to attract customers. With more intense competition, companies must spend more on marketing to stay competitive, which further squeezes their profit margins.
2. Intense Competition in the Industry: Giants Entering and New Players Emerging
The pet food market is highly attractive, accounting for over 50% of total pet consumption. Not only are there established players, but new entrants are also flooding in:
- Food giants entering the market: Companies like Jinluo, Shuanghui, and Yili are entering the pet food sector, as is Wangwang, which has made a strategic investment in the pet brand "Maoxingqiu." These large companies have the funds and distribution channels to quickly gain market share.
- Foreign brands competing for market share: Zhongchong mentioned in its financial report that well-known foreign brands are entering China, forcing companies to spend more on marketing, which has further reduced their gross profit margins.
- Low industry concentration: With so many domestic pet food companies, everyone is competing for market share, leading to price cuts and aggressive marketing efforts, which compresses profit margins.
3. Changing Growth Logic: From "More Pets" to "Better Pets"
The previous growth of the pet food industry was driven by an increase in the number of pets. However, this trend has slowed down, with the industry growing at only 4%-5% in 2023. Instead, there are now structural opportunities, such as pet owners focusing more on the quality of the food they provide for their pets:
- Slowing growth in the number of pets: The growth rate has stabilized, indicating that the market is shifting towards a focus on improving the quality of pet care.
- New trends in pet food: Pet owners are now more interested in better-quality food, with an emphasis on ingredients, traceability, and functional benefits (such as hair growth and digestive health). This is similar to the shift in human food consumption from simply satisfying basic hunger to pursuing healthier options.
4. New Trends: Fresh and Functional Foods Becoming Popular
Trends at pet food exhibitions clearly show that pet food is becoming more similar to human food:
- Popularity of fresh foods: Companies like "Wenshi Ji" are producing low-temperature, slowly cooked fresh grains and offering pet-friendly fresh food restaurants. Maoxingqiu focuses on fresh meat-based foods and canned main meals, which are fresher and meet pet owners' health needs.
- Functional product development: Brands like Nestlé Purina are developing more wet foods, such as nutritional options for senior pets. Small, affordable packages (e.g., fresh grains for around 10 yuan) make it easier for pet owners to try new products.
- Transparency in ingredient lists: Pet owners are more concerned about ingredient safety, so companies need to provide clear and credible ingredient lists, just as we do when buying food for humans.
5. The Way Forward: Innovating and Upgrading to Seize Opportunities
Despite the fierce competition, there are still opportunities in the industry:
- Innovation is essential: Companies need to invest in formula research and development and ingredient traceability, such as creating products tailored to different ages and needs of pets.
- Keeping up with trends: Fresh and functional foods are the direction of the market. Those that can develop products that pet owners trust will have a competitive advantage.
- Industry expert Zhu Danpeng emphasizes: The future success of companies will depend on their ability to innovate, upgrade, and iterate. Failure to progress will lead to elimination.
In summary, the pet food industry is not declining; rather, the era of easy profits is over. Companies need to focus on innovation and quality to stand out. They must either make their products healthier and more distinctive or control costs effectively to avoid the situation where they sell a large volume but make limited profits, like Zhongchong and Peti.