Shanxi: Structural upgrading in the pet food industry, promising prospects for the functional food segment

Shanxi released a research report stating that the pet food industry is currently still in the midst of intense competition, with companies continuously increasing their marketing and R&D investments, and profitability facing challenges. China's functional pet food may be about to enter a volume expansion phase. On one hand, the growth rate of pet numbers is slowing down while the aging rate is gradually rising, leading to increased segmentation of health care and disease-related needs for aging pets; on the other hand, in the context of precision feeding, pet owners are willing to pay a reasonable premium for functional food, which for companies can both increase revenue scale and improve profitability to a certain extent. The layout of domestic listed pet food companies in functional food is still in its early stages, especially for prescription diets, which pose significant challenges to companies' R&D capabilities, production capabilities, and channel expansion capabilities. The main viewpoints of Shanxi are as follows: Main driving factors for the development of functional food (1) Demand side: Pet population growth is slowing down, and the aging rate is rising. On one hand, in 2025, the number of urban dogs and cats increased by +1.8% year-on-year, lower than the 2019-2024 CAGR (4.6%). Among them, dogs increased by +1.6% year-on-year, with relatively stable growth; cats increased by +1.9% year-on-year, with growth slowing down. On the other hand, dogs and cats aged 7 and above account for nearly 20% in China, while in Japan, elderly dogs aged 7 and above account for as high as 56.8% and elderly cats 44.4%; in the United States, aging dogs and cats collectively account for 37%; in the European Union, aging dogs account for over 30%. China's aging pet market is in its early stages and will continue to enter a concentrated aging cycle over the next five to ten years, with increased segmentation of health care and disease maintenance needs for aging pets. (2) Supply side: From the perspective of industry competition, food manufacturers' layout in branded staple food, especially high-end staple food, is particularly important. From the perspective of market capacity, staple food is the ballast stone of pet dog and cat food consumption, with its share stable at around 70%, and the dog and cat staple food market size in 2025 is nearly 113.8 billion yuan. From the perspective of profitability, staple food > snacks. Compared with snacks, staple food has larger demand and greater economies of scale; at the same time, staple food has a high degree of standardization and is suitable for assembly-line production, while snacks have many SKUs and many processes rely on manual operations; in addition, from the perspective of business models, staple food branding has certain bargaining power and higher gross margins. Product R&D trends in functional pet food over the past 10 years (1) New product launches are growing steadily: According to Mintel GNPD statistics (covering dry food, wet food, and snacks), from 2016 to 2025, the cumulative number of functional pet food launches globally was 54,834, and the number of launches in 2025 (6,717) increased by 40.5% compared with 2016 (4,780). (2) Launch categories: Skin and coat products are the most numerous, followed by digestive products, and both are mainly dry food products. (3) Formulation ingredients: Plant protein is the most widely used, concentrated in dry food; yeast has also shown significant growth in dog and cat dry food; in addition, common ingredients include herbs, algae, unsaturated fatty acids (omega-3), etc. (4) Nutritional positioning: The growth of grain-free and high-protein claims is the most obvious, among which grain-free is often launched for pets sensitive to grains or with poor digestive tolerance. (5) Systematicity: The functional performance of pet food cannot be judged solely by the choice of ingredients; functional effects are the result of the interaction among formula design, manufacturing processes, bioactive stability, and other factors. Global development trends in functional pet food According to Euromonitor statistics, in 2025, the global penetration rate of dog and cat prescription diets was 4.1%, among which the penetration rate of cat prescription diets was 3.6%, and the penetration rate of dog prescription diets was 4.5%. In 2025, the global penetration rate of non-prescription premium food for dogs and cats was 26.3%, among which cats were 26.2% and dogs were 26.3%. Considering that non-prescription premium food includes some staple food without functional claims, this means that the global penetration rate of functional food is below 26%. Euromonitor compiled prescription diet penetration rates for 10 countries, and the data showed divergence. In 2025, Japan and Italy had high prescription diet penetration rates, at 10.9% and 10.1% respectively; the United States had a prescription diet penetration rate of 6.3%; Brazil and Russia had low penetration rates of 1.6% and 2.9%; and the remaining countries were distributed between mid-single-digit and high-single-digit levels. China's functional pet food may be about to enter a volume expansion phase According to forecasts by Zhongyan.com, the penetration rate of functional staple food will jump from 15% in 2024 to 35% in 2030; based on the pet aging ratios in China, the United States, and Japan, the current penetration rate of prescription diets in China is estimated at about 1%-2%, assuming it grows to 3%-4% by 2030. (1) Assume that the growth rate of China's urban dog and cat staple food market size is 7% from 2026 to 2028 and 6% from 2029 to 2030, higher than the global growth rate (about 5%); (2) Assume that the penetration rates of prescription diets and functional food increase evenly from 2025 to 2030. (3) Based on the above assumptions, the calculation yields: from 2025 to 2030, prescription diets and functional food will enter a period of high-speed growth, with compound growth rates of 26.3% and 21.3% respectively, far higher than the overall growth rate of the dog and cat staple food market (6.6%). Risk warnings: Risk of intensified market competition; risk of product expansion falling short of expectations; trade friction risk; risk of raw material price fluctuations; product quality risk.