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Pet products in China: high-end products and services hold great promise

In recent years, rising household income and housing improvements, coupled with only-child loneliness and growth in elderly population, have contributed to the rapid growth of the pet-related industry in China. Wang Pingxi, an industry leader in Beijing, reckons that China’s pet market will grow at the rate of 30% annually. Wang’s advice to interested Hong Kong companies is to target the high-end services segment of China’s pet market.

Robust growth of pet products and services

President of Kudi Pets Group Wang Pingxi first came into contact with the pet industry in 1999 when he was publishing a pet magazine. He then created the brand of “Kudi Pets” and opened its first store in Beijing. Currently the Beijing-based Kudi Pets Store boasts more than 100 chain stores nationwide to become a leader of the Beijing pet care industry.

Photo: Pet grooming
Pet grooming

Wang said that he launched the first Kudi Pets Store with an investment of Rmb500,000 in 2002. With a business floor space of 300 square metres, the shop was the first of its kind in offering a variety of pet supplies and services such as pet care and pet grooming under one roof.

From 2002 to 2009, Wang’s pet business developed fairly smoothly. Kudi Pets chain store operations quickly expanded in Beijing. New shops were also set up in other cities like Shanghai and Shenyang. On top of this, during this time he also opened a 1,500 square metre pet supermarket, the first of its kind on the mainland, providing a one-stop shop for a variety of pet-care services. In 2005, Wang invested more than Rmb7 million in Beijing and Shanghai respectively to establish large pet parks allowing pets to play, swim, receive training and stay over.

Today Wang’s pet kingdom encompasses pet shops, hospitals, funeral services, pet transportation, pet training schools, pet grooming schools, pet vet training, pet park and pet breeding farms. The company currently employs about 300 people, with a yearly turnover of over Rmb100 million.

Online and physical store strategy

Turning to recent developments, Wang pointed out that from 2009 onwards, the emergence of online pet stores has made a thrust at his stores. He added that the online pet market has been very active in recent years, with a high growth momentum. Both sales performance and number of stores have increased in multiple folds. For instance, Taobao.com features more than 60,000 pet supplies stores on the mainland.

Wang said that the new online pet stores have the greatest impact on brick-and-mortar businesses in pet food sales because about half of a pet owner’s monthly spending is in pet food.

Wang reckoned that the advantage of online sales was primarily low product prices. Currently, the Chinese government does not collect taxes on online shops. Hence, online stores do not have the pressure of high rents or staffing costs. The ensuing reduction of operating costs makes it possible to sell merchandise at small profits but quick returns. Moreover, home delivery gives regular customers buying in bulk great convenience, saving them the effort of carrying their shopping home.

Photo: Pet products distributed by Kudi Pets
Pet products distributed by Kudi Pets

Also, some of the online shops are selling certain foreign pet goods that are not available at conventional shops. These goods are imported through parallel channels not used by the conventional shops. Wang reckoned that sooner or later the Chinese government would introduce policies to create a level playing field for the online and physical shops. However, he said that given the ubiquity of the internet, online stores will without doubt become the major sales channel for pet supplies in the future.

That said, the blooming of online shops does not mean the demise of physical stores. Due to the nature of the pet care industry, the suite of pet services such as medical care, bathing, grooming and fostering provided by conventional shops cannot be delivered virtually while demand is ever increasing. In first-tier cities such as Beijing, Shanghai and Guangzhou, pet owners give their pets a bath one to four times a month. There is no online substitute for directly consumed services. Therefore, online stores specialising in selling pet supplies and physical shops focusing on pet services will likely be the future trend of the pet industry.

Wang reckoned China’s pet market will continue to grow at an average rate of 30% annually. This is because currently China's pet consumption is concentrated in the first-tier cities, which account for about 60% of the pet market share. Whereas, in the second- and third-tier cities, feeding the pets with leftovers is still relatively common and there is still a lack of demand for pet health products, medical examination, bathing, grooming and other services. When the attitude of second- and third-tier cities’ pet owners and consumers has changed, and pet food feeding is generally accepted, the pet supplies markets will be huge in China. In terms of product type, pet food is expected to post the biggest growth in demand, followed by pet treats.

Having made visits to Hong Kong to study the pet market, Wang gave some advice to Hong Kong companies interested in the mainland pet market. He said that basic pet products and services already have a good coverage in the first-tier cities, leaving limited opportunities in this regard to Hong Kong companies. Compared to their mainland counterparts, Hong Kong pet industry players have an edge in areas such as education level, service standard and overall quality. He said Hong Kong companies can focus on high-end service sector, introducing the more advanced operations from foreign countries into the mainland. Wang said his company, in collaboration with a German firm, has recently established China's first minimally invasive medical centre for pets. He said that Hong Kong businesses can also open up such innovative services on the mainland.

High barriers to pet food imports

Currently Wang’s company is the agent of dozens of brands of many countries and regions around the world, such as the “Pinnacle” and “Everclean” of the US, "Sunrise" and "Best Choice" of Japan, "Gemon” of Italy and "Haipet" of Taiwan. Besides selling in their stores, these products are also distributed to supermarkets, online stores and other sales channels.

Wang said that his company has the relevant import licences, and therefore customs clearance of imported products is handled by the company itself. Meanwhile there are a large number of customs brokers on the mainland who can assist overseas suppliers to complete the clearance process.

Every year Wang participates in exhibitions and related meetings of the pet industry around the world for product sourcing and keeping up with latest industry trends. Wang said “Pinnacle” was the first brand he secured as an agent after meeting its owner at American Pet Products Association’s annual procurement exhibition held in the US in 2000. The exhibition also inspired Wang to open his first pet chain stores on the mainland.

Turning to his more than 10 years of experience as agents, Wang said that there is a high threshold for foreign pet foods to enter the Chinese market. First and foremost, pet food import needs approval from China’s Ministry of Agriculture. After China joined the WTO, although the Ministry of Agriculture has issued more than 150 permits for pet food imports to a number of countries, the rate of meeting the requirements of the food safety inspection bureau of China’s Customs has remained very low. This is due partly to the food itself and partly to trade friction. Therefore, international brands of food for which Kudi Pets acts as agents are all produced in factories on the mainland. The company also deals in a range of imported products, including pet supplies, health care products, toiletries and care supplies.

Xue Yuan, Special Correspondent, Beijing 

Content provided by Picture: HKTDC Research
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