Pet Industry in India and China

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Pet Food Market in India 2010

The Pet Food market in India has been growing steadily. The market is
dominated by certain foreign brands. Other domestic players are looking to
foray into various segments and provide a variety of products to lure the pet
owners. The market is worth INR 876 mn and shows huge potential for
growth with increasing number of pets especially in the urban towns and
cities in India. Consumer perceptions are changing rapidly and the pets are
increasingly being treated as companions. This has fostered potential for the
players to ramp up their products and services in the market. However, the
market is dominated by the dog food category but other categories are also
slowly evolving with growing attention from players.
The report begins the market overview section indicating the size and
growth of the market including the market share of each segment. It also
provides the import structure and highlights the major brands being
imported.
An analysis of the drivers explain the factors for growth of the industry
including low penetration of branded pet food, increasing pet ownership,
increasing consumer awareness, and increasing organized retail chains. The
key challenge identified encompasses high import duties and frequent bans
on imports. Key trends have also been analyzed including dominance of
non-vegetarian dog food, players providing customized products and
services, and increasing promotional activities.
The competition section provides an overview of the competitive landscape
with the share of players in the branded dog food market and including brief
profiles of key domestic and foreign players in the pet food market. The key
developments in the sector have also been highlighted.
Changing lifestyles in the form of the rise in nuclear families and double
income households have encouraged the growth of pet ownership in urban
areas of India. Increasingly, pets are being looked upon as companions and
members of the family rather than as guard dogs for example. Pet owners
have started to take an interest in their pet’s diet, health and grooming. A
gradual shift towards prepared pet food has been observed. Pet owners are
more willing to spend on pet food and pet care products than ever before.
This trend has spawned an entire industry, with a growing emphasis on pet
care.

Most of the branded pet food is imported. The government’s reduction of the
import duties on pet food in 2007 provides a boost to both manufacturers
and importers. But the ban on imported pet food due to the outbreak of
Avian Flu in year 2006, which continued through 2007, resulted in the
reduced availability of pet food. A few foreign brands such as Royal Canin
and Bento Kronen escaped the ban, but others like US brands Pro Pac and
Purina were impacted. On the other hand, locally manufacturing looked up.
According to Euromonitor International, veterinary clinics and pet shops
remained a leading distribution channels for pet food and pet care products
in 2007. But more and more retail outlets and supermarkets started emerging
as viable distribution channels. This has reduced the influence of vets on
consumer purchasing decisions. In the days to come, with pets increasingly
being treated as companions and fashion accessories, pet owners, especially
in the urban areas, are expected to spend more on their pets.

Key Trends and Developments

Pet owners in India have traditionally relied on vets to provide them with
guidance on taking care of their pets. The influence of vets stretches beyond
the realm of vaccines and extends to advice on pet food. Thus, over the
years, manufacturers have pitched their products to vets, and focused on
getting them to recommend products to pet owners. Most vets in India sell
pet food and pet owners traditionally purchased pet food from vets.
However, as pet owners become more familiar with different brands of pet
food and pet care, they are increasingly becoming the decision makers and
making their purchases elsewhere. This trend was shown by veterinary
clinics’ decreasing share of retail value sales of pet food and pet care
products; its share decreased by slightly over four percentage points between
2002 and 2007. This gradual decline in share indicates that pet owners are
slowly, but surely, becoming empowered in making their own decisions
about pet food and pet food products and pet welfare in general.

As the central advisory role of the vet in everyday decisions regarding the
pet welfare declines, over the forecast period, manufacturers will need to
communicate directly with pet owners. Whilst it is difficult to target pet
healthcare products and dietary supplements directly to pet owners,
manufacturers can start this process by promoting their pet food brands
through the media and by increasing their distribution reach to pet shops,
upermarkets/hypermarkets, other food stores and other non-food stores.
Manufacturers should ensure that retail outlets selling pet food also offer pet
accessories and grooming products or services.

The increasing number of pet shops and advertisements for pet food brands,
combined with the greater concerns about pet health and welfare, are driving
the shift towards prepared pet food. The number of advertising campaigns
directly targeting pet owners is rising and most advertisements strive to
communicate the benefits of prepared pet food and its nutritional value over
homemade alternatives. The support of vets for these campaigns has led pet
owners to purchase prepared food for their pets.

Indian consumers traditionally favoured freshly cooked over prepared pet

food. Most pet owners continue to give their pets homemade food, while
offering prepared food as a snack. Thus, the diet of pets in India is a
combination of prepared and non-prepared pet food. However, the
perception that freshly prepared, homemade pet food is healthier and more
nutritious is changing, as manufacturers and vets advocate the benefits of
prepared pet food. Manufacturers have aggressively targeted vets with their
products and many are using the professionals to recommend prepared pet
food to pet owners. Effem India Pvt Ltd was one of the first manufacturers
to target pet owners directly through media advertisements and direct
communications. Other manufacturers are increasingly using advertisements
in pet magazines and leaving promotional literature in veterinary clinics.
These marketing strategies have increased the consumers’ general awareness
and acceptance of prepared pet food.

The frequent bans on imports of pet food have affected its availability in
India. There are very few domestic manufacturers of pet food in India and
their main focus tends to be on dog treats and mixers such as biscuits. Apart
from Venky’s India Ltd and Tetragon Chemie Pvt Ltd, there are no other
domestic manufacturers with a pan- India distribution. Moreover, Effem
India is the only multinational that has domestic production facilities. Thus,
economy brands tend to be available during the bans but premium and
midpriced pet food tends to suffer as these are largely imported. Since the
development of pet food is at an embryonic stage in India, the irregular
availability of brands has hampered the creation of brand loyalty among pet
owners.

From 2004, imported pet food was negatively affected by legislation in the
form of bans on imports from certain countries. In 2006-2007, the import
ban due to the rise of Avian Flu affected US-based manufacturers severely.
There was a breakdown in the supply chain for major brands such as
Eukanuba, Purina, and Pro Pac, as these are imported from the US. On the
other hand, brands such as Bento Kronen and Royal Canin, which are
imported from Belgium and France, respectively, escaped the ban and their
availability was not affected. Thus, the irregular availability of major
imported brands has clearly affected the development of pet food in India.

The import ban on pet food continued in 2007 and shows no sign of letting
up. The availability of major brands such as Purina, Pro Pac, Sportmix, and
Iams remained in doubt throughout the first half of 2007, with imports stuck
at Indian ports due to the blanket ban on stocks from countries affected by
Avian Flu. The cost pressures are expected to mount on importers over the
forecast period, as they suffer from the loss of sales and by having to pay for
the stock that is held at the ports. Whilst the major manufacturers and
importers formed an association in order to lobby the government on the
import ban, the industry is hopeful that a positive outcome will be achieved
in the short term.

Import restrictions leading to the irregular availability of pet food will

hamper the development of pet food in India. The irregular availability of
pet food is also expected to prevent the major manufacturers from creating
brand loyalty for their brands. In order to generate brand loyalty and drive
expansion, the regular availability of pet food and good distribution
networks are key issues for manufacturers. In order to overcome the import
restrictions, manufacturers such as Purina Pet Care India Pvt Ltd would do
well to shift the production of their brands to India, as Mars Inc has done in
the past by establishing Effem India in the country. In addition,
manufacturers should continue to lobby the government, but given the
latter’s position this strategy is unlikely to create a long-term solution to the
import restrictions.
Indian Market: Waiting to be Tapped

The Indian pet foods market is a young, growing market and there are a few
major players that are active in it. Imports currently constitute 40 percent of
the total pet foods market in India, with the US being one of the dominant
suppliers. The pet foods market has been growing at an average annual rate
of 10-15 percent for the last few years. Consumption of branded pet foods is
currently concentrated in urban towns and major cities and much of the
demand for branded dog food is generated almost wholly from the urban
population, which is the key target segment for marketing and promotional
initiatives.

India has a large number of pet dogs and cats. In fact, a recent survey
concluded that there are 3.6 million pet dogs in the six major cities alone.

The affluent section of the urban population – the 350 million strong
middleclass that we hear of so much – is the major target segment for pet
food products in India. Indian pet owners have traditionally fed their pets
with homecooked food, and the slowly increasing practice of feeding
branded pet foods is a relatively new trend. The size of the Indian pet foods
market estimated by industry sources at approximately 6,000 tones and
growing annually at 10-15 percent – very small compared to the vast
international pet foods market.

The vast majority of pet owners in India are highincome households, with
dogs being the most popular pet choice at over 55 percent of the pet
population, followed by cats. The Indian pet foods market therefore
predominantly caters to dog food products. Dog food, therefore, accounts for
almost 80 percent and cat food for approximately 15 percent of the total
market. Other segments such as aquarium fish food, bird food and food for
other animals like rabbits and guinea pigs account for the rest. The pet foods
market in India is largely concentrated on dried foods segment and moist.
Semi-moist pet food is not manufactured in India.

Indians traditionally have fed their pets prepared home food scraps, thinking
that this is more nutritious, but this trend is slowly changing in major Indian
cities and urban areas. In recent years, here has been a growing trend of
young pet owners switching to branded pet foods because of increasing
consideration of factors such as convenience of feeding pets with prepared
branded foods and also because of the increasing awareness resulting from
marketing efforts of manufacturers and vets about the balanced nutritional
benefits of feeding pets with packaged prepared foods. The Indian
perception of pets has also changed as owners have come to treat them more
like members of the family. As a result, pet owners are more interested in
ensuring their pet’s health with pets foods designed for specific health
conditions leading to increased demand for branded specialized pet food
products.

China vis-a-vis India: Economy Segment set to Grow

The pet food and pet care products market in China remains relatively
underdeveloped.

According to Euromonitor International data, the Chinese market accounted

for just 1 percent of global value sales in 2007. Although this figure has
doubled over the past decade, it compares unfavourably with China’s share
of global packaged food sales, which expanded by nearly two percentage
points, to 5.2 percent over the same period. In order to bring their
performances more in line with those of their packaged food peers, pet food
companies need to broaden their consumer base at the lower end of the
market.

Overall, the Chinese pet food and pet care market was worth US$676
million in 2007 (having posted a CAGR of 13% over 1998-2007), compared
to a figure of US$4.7 billion in neighbouring Japan.

In terms of segmentation, premium dog and cat food in China grew its value
share of total sales from 21 to 35.5 percent between 1998 and 2007, while
the share of mid-priced brands declined from 70 to 59 percent over the same
period. The share of economy dog and cat food declined from 8.7 to 5.9
percent. Moreover, by 2012, it is estimated that economy products will
account for just 5 percent of the Chinese dog and cat food market.

The growth of pet food and pet care products in China is being held back by
a low propensity to purchase among the country’s less affluent consumers.
This is underlined by the fact that annual expenditure per pet in China stood
at just US$2.50 in 2007 (compared with US$70.10 in Japan). Although this
figure can be increased by selling ever more expensive premium and super-
premium products to existing consumers, there is far greater potential for
sales growth (in both volume and value terms) in luring pet owners who
continue to feed their pets household scraps into the economy segment.

India, a market not wholly dissimilar to China in terms of its scale and
development, illustrates how the potential of economy brands is not yet
being realised in China. The economy products accounted for 61 percent of
total cat and dog food value sales in the country in 2007, up from 32 percent
in 1998.

While the overall growth of Indian pet food and pet care products was less
than that of China in the 10 years to 2007, it is estimated that India will
achieve a CAGR of 11 percent between 2007 and 2012, compared with a
figure of 8.6 percent in China. The divergence in performance between these
two markets will be at least partly the result of the relative narrowness of
China’s pet food consumer base compared to that of India.

Savvy pet food manufacturers can utilise these trends to grow their overall
share of the Chinese market. This stratum of consumers is extremely price-
sensitive and high-volume, low-margin sales will be vital to profitability. As
a result, manufacturers that invest in local production facilities will gain an
important additional cost advantage.

A huge improvement in both the quantity and quality of China’s

transportation infrastructure is helping to transform the country’s logistics
industry, reducing distribution costs and opening up new swathes of
potential consumers to pet food manufacturers. This has gone hand-in-hand
with the spread of chain retailers, that are moving beyond the metropolitan
areas of Beijing and Shanghai to second- and third-tier cities. Pet superstore
Cool Baby’s expansion into such markets as Nanjing and Yantai has been
particularly notable in this regard. In the medium term, the spread of chain
retailers into the less developed provinces of mid- and west China will
provide an additional boost to sales.

A sustained marketing effort will also be required to drive demand for

economy products. Although China’s urban population is expanding rapidly
and should eclipse its rural counterpart sometime during the next decade, the
country retains many of the cultural characteristics of a peasant society. This
is of particular relevance for the pet food market, as it is the continuance of
rural attitudes towards animals that is in many respects responsible for
hampering the growth of economy pet food. By stressing the benefits of
packaged pet food over household scraps, marketing can play an important
role in breaking down these established attitudes in order to promote
anthropomorphism and develop the market.

Unlike the premium and mid-priced pet food segments, in which foreign
firms are dominant, indigenous firms are best placed to benefit from any
growth in economy pet food sales. Although this segment has been
extremely fragmented, it would appear to be consolidating rapidly. For
example, Euromonitor International data shows that the combined market
share of the three largest players (Chengdu Care Pet Food, Nory Pet and
Zhangjiagang Lianfeng Pet Food) increased from 20 to 38 percent between
2000 and 2006. With growth in this segment likely to take off in the medium
term, some of the global market’s larger players may be tempted to make an
acquisition in order to boost their growth, gain control of local production
facilities and improve their overall position in the potentially lucrative
Chinese pet food market.

Top Global Trends till 2012

Until now, pet food private label products have been largely confined to the
economy segment, with the exception of Germany and, to a lesser extent, the
US, but they are beginning to develop a presence in the premium and mid-
priced segments.

Pet food superstores are particularly well placed to exploit this trend. In the
developed world, this may be facilitated by the shadow cast over branded
products by the Menu Foods recall, as well as growing economic insecurity,
particularly in the US.

Euromonitor’s report also proposed that in addition to the growing threat of

private label encroachment, issues such as the quality and tractability of
ingredients will be brought to the fore by the US Menu Foods recall.
Consumers’ faith in branded pet food products, as markedly superior to their
private label counterparts, will be weakened. As a result, products that
contain human-grade ingredients will gain a significant advantage.

In developing economies, the economy products will be the main driver and
much of the growth is expected in this segment. As the economy segment in
developing markets is price sensitive, it will be very difficult for producers
to add value. The very nature of this segment precludes significant
innovation. The private label products are likely to gain in such markets
which will put additional downward pressure on margins.

Most of the growth in retailers’ private label sales is likely to come from the
economy segment, as rising employment boosts disposable income and
reduces poverty, adding millions of new consumers to the bottom of the
market.

Branded pet food products can address these issues by aggressively pushing
into developing markets in terms of both distribution and marketing. It could
be argued that such an investment would be uneconomic. But the potential
for growth in these markets over the medium and long term is huge.

As a result of the limited affordability of premium products in developing

markets and the ability of pet food producers to increase sales volumes will
be limited. While there will be some potential for remium products in
locations with concentrations of affluent consumers, including Moscow,
Beijing, Shanghai, Mexico City and Rio de Janeiro, these will be niche,
rather than mass, markets.

However, foreign pet food manufacturers could use their niche markets to
facilitate the distribution of their products in developing markets, making it
more difficult for indigenous manufacturers to develop their own premium
offerings.

But one strategy that indigenous firms in developing markets can use to gain
an advantage over foreign rivals at the very top end of the premium segment
is to market their products in terms of their freshness.