Why Investment in the Booming Pet Economy Is Cooling (AI Translation)

【周刊提前读】宠物经济勃兴 一级市场投资为何趋冷？

The pet economy, referred to as the "it economy," is experiencing rapid growth, particularly in China, where significant societal and economic changes are fueling this trend. By 2024, pets in China are expected to outnumber children under four for the first time [para. 1]. The pet economy spans breeding, trading, food, supplies, grooming, training, and healthcare, with China's urban pet market slated to grow 7.5% year-on-year, reaching 300.2 billion yuan in 2024. This growth is fueled significantly by younger generations, with the cat market outpacing dogs in growth at 10.7% versus 4.6% [para. 3].

Young people, particularly those born in the 1990s and 2000s, are the main drivers of the pet economy, comprising 41.2% of pet owners. Factors such as societal atomization and delayed marriage have increased the emotional significance of pets, as they often serve as companionship for single or stressed individuals [para. 4]. The demographics of pet ownership reflect changing societal norms, with approximately 45.4% of owners single or unmarried [para. 5].

The U.S.-China trade war and rising import tariffs have affected the industry, causing spiked import prices for pet products. Domestic brands, however, have leveraged this shift, with companies like Chunke and Gao Ye Jia capitalizing on the demand for locally produced alternatives. Domestic brands now dominate the market, with the premium pricing of international brands giving way to cost-effective local products [para. 7][para. 9]. For example, baked pet food, introduced around 2020, has overtaken puffed pet food in popularity, contributing to rapid sales growth of over 90% in categories like freeze-dried and baked cat food [para. 11][para. 13].

E-commerce has become pivotal for the pet industry in China, as brands heavily emphasize online platforms for growth. Approximately 80% of sales for brands like Gao Ye Jia occur online, aided by emerging marketing platforms like Xiaohongshu and Douyin [para. 14]. Affordable pricing and high nutritional standards have driven the broader adoption of domestic brands while intensifying competition. Consumers’ purchasing patterns are largely loyal to a few trusted brands, and online presence enhances visibility and accessibility [para. 15][para. 17].

Beyond food, pet healthcare occupies 28% of the pet market but faces profitability challenges. Non-chain hospitals dominate, comprising 75% of the sector, but many struggle to break even due to high operational costs. Chains like New Ruipeng, although dominant, have also faced steep financial losses and consolidation pressures, focusing now on refining operations for sustainability [para. 20][para. 23][para. 24]. A lack of specialization among veterinarians, coupled with reliance on human-compatible drugs for pets, further constrains industry performance [para. 26][para. 28].

The broader pet industry also faces ethical and regulatory challenges. Irregularities such as undocumented breeding and "pet blind boxes" (boxes with mystery pets, often unwell or misrepresented) have raised ethical concerns. Advocacy for better breeding regulations and "adoption over purchase" campaigns have yet to fully upend commercial breeding practices [para. 36][para. 38]. Stray animal issues, exacerbated by unregulated breeding, are addressed through programs like TNR (Trap-Neuter-Return), though these require significant resources and often depend on government and local community support [para. 39].

Amid growing demand, investments in the pet economy have cooled since the 2021 financing peak. Market focus now leans toward long-term growth driven by innovation, quality control, and sustainable operations. As companies expand globally, attention is also turning to opportunities in less competitive, emerging markets like Southeast Asia. Regulatory gaps in areas like pet funerals and breeding remain challenges for scaling, while improving animal welfare remains an urgent concern for the industry [para. 43][para. 46][para. 48]. ✍