As China’s pet lovers turn to domestic brands for value, investors sniff opportunity

Amid a nationwide spending decline, China’s pet owners are looking for higher value for money when it comes to food and other products for their furry companions. This shift, according to analysts, gives domestic companies a chance to fetch themselves a larger share of the country’s 279.3 billion yuan (US$39 billion) pet market.

Investors who are betting big on this trend have identified manufacturers as likely winners. For instance, US private equity giant Advent International and Chinese investment firm Boyu Capital announced on August 12 that they had acquired a stake in Seek Pet Food, a Shandong-based manufacturer of mid-range and high-end pet food. The transaction was reportedly valued at over 1 billion yuan, making it the largest deal in the sector in China this year.

In May, China’s Legend Capital took a stake in functional pet food maker RedDog. And Last February, L Catterton, a US consumer-focused investment firm, injected capital into Partner Pet, a Chinese brand known for its premium freeze-dried pet food.

“China’s pet food sector is still fragmented, with the top 10 companies’ market share only accounting for 31 per cent of the total, and local companies grew faster than imported brands in recent years, leaving large upside for those local brands,” said Nina Jiang, China consumer analyst at UBS. Substitution of domestic brands for imported ones will accelerate as consumers seek value and awareness of local brands grows, she said.

The pet food market was worth 69 billion yuan in 2023.

An increase in deal activity in pet-related industries reflects investors’ enthusiasm for the sector. In the first half of the year, the industry saw 16 investments, surpassing the 13 deals recorded throughout the entirety of 2023. Pet food was the most active segment with five deals, three of which involved domestic manufacturers, according to data compiled by CSC Financial.