China's Pet Market Prospers Despite Economic Headwinds: A Japanese Case Study for Future Growth

In a time where China's economy was slowed by COVID-19, its pet market has shown remarkable resilience and growth potential despite macroeconomic headwinds. Our analysis is guided by the historical development of Japan's market, which shares similar demographic characteristics with China such as declining birth rates and an aging population. This makes Japan an insightful case study for understanding the future trajectory of China's pet industry.

Our model projects that the Chinese pet sector will see sales growth twice as fast as other consumer businesses in 2023-25E, growing at a CAGR Compound Annual Growth Rate of approximately 12.9 to reach Rmb756.5 billion by 2030. This forecast is based on the expectation that China's pet ownership will continue to rise, with diversification across sub-sectors and consumption upgrades driving the market forward. The sector is anticipated to deliver an EPS Earnings Per Share CAGR of approximately 28 from 2023-25E, which is more than triple the growth rate of global peers.

The key driver expected to sustn double-digit growth over this period is the expansion of the 'cat economy'. This tr was underscored by a significant shift in household preferences where pet cats are increasingly outnumbering pets dogs due to their lower mntenance requirements. A survey conducted by UBS Evidence Lab indicates that nearly 80 of Chinese pet owners mntned or increased pet-related sping post-pandemic compared to pre-pandemic levels, highlighting the sector's robust resilience agnst economic downturns.

The 'cat economy' will likely be the primary growth engine for China's pet market going forward. While Japan experienced a similar shift where cat ownership surpassed dog ownership, China's pet industry is relatively late in developing when compared to mature markets like Europe, North America, and Japan. This provides ample room for growth, particularly as it relates to the pet food sector which currently accounts for 41 of overall industry sales but boasts lower barriers to entry.

To become a domestic market leader in this space, Chinese companies face several strategic challenges:

1. Identifying and seizing new market trs: Recognizing emerging opportunities such as pet medical care, pet medicines, and insurance.

2. Enhancing technological capabilities and cost leadership: Utilizing advancements in technology to improve efficiency and reduce costs while mntning competitive pricing.

3. Leveraging digital platforms for direct-to-consumer D2C sales: Utilizing the power of online channels to reach consumers more effectively.

As China's pet market continues to grow, these strategic considerations will play a pivotal role in determining which companies can capture the lion's share of this expanding segment.

In , while the global downturn and craft beer boom may impact leading breweries' product mix upgrade, Chinese electric vehicles EVs are expected to make significant strides globally as per UBS Research analysts. For information on how activities related to US securities are conducted through UBS Securities LLC, please refer to our .

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*This content is provided as a resource for our clients, and it should not be construed as investment advice or an offer to buy or sell specific financial instruments. The information presented here has been compiled from sources believed to be reliable but UBS does not guarantee its accuracy.

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