The pet food industry, despite its late start, has a growth rate that significantly exceeds that of developed countries, and the industry is still in a blue ocean.

As the industry develops and concentration increases, some companies will stand out.

In recent years, the continuous development of self-owned brands has driven the sustained growth of corporate profits, and the demand for overseas inventory replenishment will further drive the rebound of revenue.

The performance of listed pet food companies is one of the highlights of the semi-annual reports of all the more than 5,000 listed companies announced.

In the first half of 2024, Guaibao Pet achieved a business income of 2.427 billion yuan, a year-on-year increase of 17.48%, and a net profit of 308 million yuan, a year-on-year increase of 49.92%; Zhongchong Shares achieved a business income of 1.956 billion yuan, a year-on-year increase of 14.08%, and a net profit of 142 million yuan, a year-on-year increase of 48.11%; Pet Shares achieved a business income of 845 million yuan, a year-on-year increase of 71.64%, and a net profit of 97.94 million yuan, a year-on-year increase of 329.38%.

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At present, the domestic pet food industry is in a stage of rapid development, and the market concentration is still relatively dispersed.

Domestic companies mostly started with OEM business and then gradually extended to self-owned brand business.

In recent years, with the expansion of e-commerce business, the proportion of self-owned brand sales of related companies has been greatly increased, and at the same time, the gross profit margin has been continuously improved; as for overseas OEM business, since the second half of 2023, the inventory of overseas customers has gradually bottomed out, and the demand for inventory replenishment will drive the rebound of revenue.

The continuous improvement of the gross profit margin, the net profit growth rate of Guaibao Pet and Zhongchong Shares is obviously higher than the business income growth rate, mainly due to the rapid improvement of the gross profit margin.

In the first half of 2024, the gross profit margin of Guaibao Pet was 42.1%, an increase of 7.84 percentage points year-on-year, and the net profit margin was 12.7%, an increase of 2.71 percentage points year-on-year; the gross profit margin of Zhongchong Shares was 27.97%, an increase of 2.96 percentage points year-on-year, and the net profit margin was 7.91%, an increase of 0.58 percentage points year-on-year.

According to the semi-annual report, the main reason for the increase in the gross profit margin of Guaibao Pet is the product structure upgrade, the increase in the proportion of self-owned brands, and the low price of raw materials.

In addition, from the perspective of channels, the rapid growth of e-commerce channel revenue has greatly driven the increase in the proportion of self-owned brand sales.

In the first half of 2024, Guaibao Pet's direct sales channels (Alibaba system, TikTok platform, JD.com, Pinduoduo and other third-party platforms) achieved a revenue of 866 million yuan, a year-on-year increase of 61.2%, accounting for 35.9% of the main business revenue, an increase of 9.74 percentage points year-on-year, among which, the main sales platform Alibaba system and TikTok platform's revenue was 607 million yuan, a year-on-year increase of 50.71%, accounting for 25.1% of the main business revenue, an increase of 5.54 percentage points year-on-year.

From the perspective of the gross profit margin, in recent years, the gross profit margin of the main pet product companies has continued to improve.

From 2019 to 2021, the gross profit margin of Guaibao Pet was 28.88%, 29.35%, and 28.78%, and increased to 32.59% and 36.84% from 2022 to 2023, and even increased to 42.05% in the first half of 2024; the gross profit margin of Zhongchong Shares also increased from 19.79% in 2022 to 26.28% in 2023 and 27.97% in the first half of 2024.

The improvement of the gross profit margin is closely related to the rapid increase in the proportion of self-owned brand sales.

From 2020 to 2023, the sales income proportion of Guaibao Pet's OEM/ODM model was 50.45%, 46.33%, 35.28%, and 32.51%, which continued to decrease, and the company's own brand sales income proportion increased year by year.

Guaibao Pet was established in 2006, starting with overseas pet food OEM, and against the background of the rapid development of domestic pet food, relying on the advantages accumulated in R&D, production, quality control and other aspects for many years serving international customers, since 2013, the company has launched its own brands such as "Mai Fudi" and "Freight Jia Te" for rapid development, and has now formed a dual-wheel drive development pattern combining overseas OEM and its own brand.

In recent years, domestic brands in the pet food market are on the rise.

The global pet food market concentration is relatively high, but the competition pattern in China is relatively dispersed.

In 2021, the market share of the top five global pet food manufacturers was about 52.5%, with Mars, Nestle, Colgate-Palmolive, Smucker, and General Mills accounting for about 21.2%, 19.8%, 4.9%, 3.4%, and 5.2% respectively.

At the same time, the market share of the top ten pet food manufacturers in China was about 24%, among which the international leader Mars accounted for only 8%, and the competition pattern was relatively dispersed.

In the early stage of industry development, domestic pet food companies mostly focused on OEM/ODM business.

In recent years, with the rapid development of online channels, domestic pet food companies have seized market share through e-commerce channels, and the market share of leading foreign brands has been squeezed.

The pet industry, a trillion-dollar blue ocean market, refers to all industries related to pets, including pet breeding, pet food, pet supplies, pet medical care, pet grooming, pet training, etc.

From the expenditure on pets, the current proportion of pet food is high, with pet staple food accounting for 34% and snacks accounting for 13%.

According to iResearch data, the global pet market size was about 160 billion US dollars in 2021, a year-on-year increase of 11.6%.

The pet industry has a history of more than 100 years in developed countries, and the international pet market has been developed and matured, with a compound annual growth rate of 4.34% from 2012 to 2021.

The Chinese market, due to its late start, has a significant growth rate higher than developed countries.

According to the "2023 China Pet Industry White Paper", the Chinese pet consumer market size was only 33.7 billion in 2012, and the consumer market size reached 279.3 billion yuan in 2023, with a compound annual growth rate of 21.20% from 2012 to 2023.

Before the epidemic, the annual growth rate of the Chinese pet market size was mostly maintained above 10%, and after the epidemic, the growth rate decreased, with a compound annual growth rate of 8.38% from 2019 to 2023, and the growth rate is still higher than that of developed countries.

Wanlian Securities pointed out that with the continuous improvement of pet household penetration rate and industry maturity, there is still a large development space for the market size of China's pet industry.

The "2022 China Pet Industry Trend Insight White Paper" shows that in 2021, the pet penetration rates in the United States, Japan, and Europe were 70%, 57%, and 46% respectively, but only 20% in China in 2022, and the domestic pet penetration rate needs to be improved compared to mature markets.

In recent years, with the rapid economic growth in China, the level of family income has increased, and the improvement of living standards has made pet keepers' pet consumption concepts gradually improve the pet's quality of life, and pet consumption has also extended to multiple fields, driving the continuous expansion of the pet economy scale and the rapid development of the industry.

At present, young people have become the main force of pet consumption, and the proportion continues to rise.

Pets can provide intimacy for young people, avoid loneliness, thereby alleviating the work pressure of young people, and improving the quality of life; in addition, the trend of aging also makes the elderly an emerging force in pet breeding.

Relatively speaking, young people have a stronger willingness to consume, and the elderly generally have a certain amount of wealth accumulation and a stable source of income, and both groups are willing and able to bear higher consumption for the quality of life of pets.

With the development of the industry, domestic companies have gradually shifted from the OEM model to the self-owned brand model.

In the early stage of industry development, the domestic pet consumption market was mainly occupied by multinational companies, and domestic companies generally adopted the OEM factory model, which could only earn lower profits.

After entering the high-speed development period, domestic companies began to establish their own brands, and the products started from the low-end market and gradually developed to the mid-to-high-end market.

Online channels are the first major sales channel for pet consumption, which is conducive to the increase of the share of self-owned brands.

According to Euromonitor data, the proportion of e-commerce channels in China's pet food market has rapidly increased from 10.10% in 2013 to 61.2% in 2021, and in 2021, pet owners' preferences for purchasing channels on e-commerce platforms for pet staple food, snacks, nutritional products, and supplies were 74.5%, 73.1%, 64.2%, and 80.4% respectively.

Compared with other channels, online channels have large traffic, high growth rate, convenient shopping, complete category coverage, low entry threshold, and face the terminal market directly, which is more conducive to the entry and rise of small and medium-sized brands, and companies can more conveniently radiate products to a broader consumer group.

Tianfeng Securities believes that currently, major brands are actively deploying online channels, and some brands that have achieved rapid growth can be focused on.

Although the transaction volume of the Alibaba system is large, the growth of TikTok is fast and worth paying attention to.

For example, Guaibao Pet has achieved a good sales ranking on the TikTok channel.

Taking the sales ranking in April 2024 as an example, "Mai Fudi" ranks first in dog staple food, fourth in dog snacks, first in cat staple food, and first in cat snacks, while "Freight Jia Te" ranks fourth in cat staple food.

At present, the concentration of China's pet market is still relatively low, and the industry concentration will be further concentrated in the future.

According to Shanxi Securities, drawing on the development history of mature pet industry markets, in the early stage of the pet industry, international food giants such as Mars and Nestle entered the Chinese market, and the discourse power was mainly held by these international giants; in the rapid development period of the industry, domestic brands continue to introduce new products, and the competition in the pet market has evolved from pure price competition and channel competition to brand competition.

As the industry gradually matures, the industry begins to frequently merge and integrate, and the market concentration once again focuses on the head.

Overseas inventory replenishment drives growth.

For Zhongchong Shares and Pet Shares with a high proportion of overseas revenue, the growth rate of overseas revenue is mainly affected by the level of overseas inventory.

According to Northeast Securities, taking Pet Shares as an example, from 2017 to the first half of 2018, the US market was in the stage of inventory replenishment, and the company's overseas revenue growth rate also gradually increased; from the second half of 2018 to 2019, and from the second half of 2022 to 2023, the US was in the stage of inventory reduction, and the company's overseas business was also negatively affected.Northeast Securities believes that in the overseas contract manufacturing business, starting from the second half of 2023, overseas customers' inventory will gradually bottom out, and the demand for restocking will continue to drive the rebound of OEM/ODM business revenue, which is expected to last until 2024.

Zhongchong Shares and Pet Shares have a high proportion of overseas business and strong performance elasticity.

In terms of proprietary brands and staple food business, Guaibao Pet has been actively laying out in the domestic market at an early stage, thus having a first-mover advantage, and its growth is relatively stable.