Sector Trend Analysis – Pet food trends in South Korea

Pet population and ownership

The pet population in South Korea has increased by a compound annual growth rate (CAGR) of 10.8%, from 4.9 million pets in 2014 to 7.5 million pets in 2018. The pet population will continue to show growth from 2019 to 2023, with a CAGR of 2.8%.

Dogs accounted for 61.3% of the pet population in 2018 and will continue to increase at a CAGR of 4.0% from 2019 to 2023. The cat population had the largest growth, with a CAGR of 28.2% from 2014 (1 million cats) to 2018 (2.6 million cats), while the fish population remained almost unchanged.

The reason that both the reptile and bird populations are extremely low is associated with South Koreans' culture and living environment. However, the reptile population proliferated significantly, from 100 reptiles in 2014 to 2,400 reptiles in 2018, with a CAGR of 51.4% over the past five years. Turtles have recently become popular in South Korea. South Koreans do not have the appropriate environment to keep birds as pets, given that 50% of the population lives in apartments. However, both the reptile and bird populations are projected to grow at CAGRs of 11.3% and 6.1%, respectively, from 2019 to 2023. Other common pets found in the home include small mammals such as hamsters.

In 2018, South Korea experienced strong cat ownership growth, at a CAGR of 25.1% from 2014 to 2018. This growth reflects a big increase, with 516,200 households owning cats in 2014 in comparison with 1.3 million in 2018. The percentage of households owning dogs increased to 15.9% in 2018 from 13.5% in 2014, while the percentage of households owning cats increased to 6.5% in 2018 from 2.8% in 2014.

Retail market size

The pet food market in South Korea has grown significantly, from a starting market size of US$515.4 million in 2014 to a market size of US$864.9 million in 2018. The projected market size for 2023 is US$1,168.9 million. Every category has contributed to the growth of pet foods in South Korea and will continue to do so. In 2018, the majority of the pet food market was made up of dog food, at 70.5%, followed by cat food at 28.3% and other pet food at 1.2%.

Company shares

In 2017, almost half of South Korean pet food purchases were made from the top five companies: Mars Inc., Daehan Feed Co. Ltd., Daejoo Co. Ltd., Nestlé SA and Texas Farm Products Co. Inc.

Nestlé SA and Texas Farm Products Co. Inc. lost market share from 2013 to 2017, with CAGRs of −10.4% and −7.2%, respectively. Domestic companies, such as Daehan Feed Co. Ltd. and Daejoo Co. Ltd., have been able to provide generally cheaper products with similar quality. These companies have also been able to produce innovative products to appeal to the intricacies of their market segments.

Brand shares

The top brand, Royal Canin by Mars Inc., dominated the pet food market in South Korea, with a retail sales value of US$107.3 million, followed by ANF by Texas Farm Products Co. Inc. at US$34.1 million and Catsrang by Daejoo Co. Ltd. at US$32.5 million.

Market segmentation

Dog food

With the increase in the dog population, dog food in all price ranges performed well in 2017. From 2014 to 2018, dog food sales experienced a significant increase, from US$411.4 million to US$609.9 million, with a CAGR of 4.8%. Dry dog food accounted for 75.9% of total dog food sales in 2018. All categories are forecast to grow from 2019 to 2023.

Premiumization to drive value growth–urban areas

Urban consumers regard their dogs as part of the family and tend to purchase super-premium brands of prepared dog food. With the growing number of single-person households, more consumers are choosing a pet instead of children and are keen to give their dogs quality food, such as human-grade, grain-free and handmade formats. Super-premium dog food containing 80% meat protein is expected to become a major trend among consumers who purchase premium dog food. Premium products had strong growth from 2014 to 2018 and are expected to continue this trend from 2019 to 2023. Premium dry dog food and wet dog food recorded CAGRs of 11.0% and 10.1%, respectively from 2014 to 2018.

Economy dog food to develop rapidly–rural areas

Dog owners in rural areas are rapidly converting to prepared dog food as their pets become part of the family. This change is set to support the growth of economy dog food, as pet owners feed their dogs with this variant, purchasing large pack sizes to save money. Even though owners are beginning to regard their dogs as family members, owners still hesitate to spend more on better-quality dog food. To target these owners, manufacturers that had previously focused on producing cheap food for dogs are turning toward quality dog food. This will help economy dog food achieve stronger constant value growth in the future with the introduction of more premium-quality pet food. Economy dry dog food has followed the same trend as premium dry dog food, with a CAGR of 7.3% from 2014 to 2018, and is expected to grow at a CAGR of 5.7% from 2019 to 2023.

Increasing diversity in dog treats

Dog treats maintained strong growth in 2017, with the number of brands and types of treats expanding rapidly. In addition to supporting dental health, these products have flavours that are attractive to dogs, and owners give treats to their dogs as snacks. Manufacturers are expected to widen their ranges of dog treats. The premiumization trend is also expected to be seen in dog treats as owners consider nutrition and ingredients more carefully when choosing even treats. Dog treats experienced the biggest growth between 2014 and 2018, with a CAGR of 14.0%, and is forecast to reach a CAGR of 6.9% from 2019 to 2023.

Daehan Feed Co. recorded growth in mid-priced and premium dog foods in 2017. The company is the leading domestic player and has built a positive reputation for its products.

Grain-free dog food with a higher meat content is set to be one of the main trends in premium dog food over the forecast period. Orijen and Acana by Champion Petfoods have developed premium dog food that includes 70% to 80% meat protein, while Wealtz by Daehan Feed is able to offer lower prices as a domestic brand.

Global pet food manufacturer Mars Korea recorded value growth in 2017 with a 17.2% market share, particularly in dog treats with its Greenies dental treats. Its Cesar brand led in the wet dog food category, with good growth in 2017. On the other hand, domestic food manufacturers began to enter the pet food industry on the strength of their expertise and brand reputation in human food. However, they still face distribution channel issues as they are weak in the veterinary clinic channel in dog food, and therefore their introduced super-premium products such as 100% human-grade and organic pet food have not achieved significant shares. Only Prunus, which is produced by CHD Medics Co. and distributed through veterinary clinics, recorded strong value growth on the basis of veterinarians' trust in the product. However, its entrance into the pet food industry was successful in making consumers' perception of domestic pet food more positive. Meanwhile, Nestlé SA lost value share owing to increased competition, with a CAGR of −16.2% from 2013 to 2017.

Cat food

Cat food grew significantly from 2014 to 2018, at a CAGR of 26.1%, and is forecast to grow at a CAGR of 8.2% between 2019 and 2023. Dry cat food accounted for 81.8% of the cat food sales in 2018 and recorded a CAGR of 25.4% from 2014 to 2018. Economy dry cat food had the highest growth in the dry food category, at a CAGR of 38.1%, from 2014 to 2018 and is forecast to take the lead (CAGR of 9.2%) from 2019 to 2023. It is worth noting that cat treats began to expand significantly as a popular category and, as a result, showed the strongest growth among all categories, at a CAGR of 51.8%, from US$3.8 million in 2014 to US$20.2 million in 2018, and is forecast to continue growing, at a CAGR of 8.1%, from 2019 to 2023.

As the cat population increases, manufacturers expect that the number of cat owners will increase gradually and that more pet owners will begin to value the advice of specialist retailers. This trend is set to support the development of premium and specialized cat foods, targeting cat owners who regard their cats as family members and are concerned about the health of their pets.

Feeding stray cats supports growth

In South Korea, the increasing number of stray cats has become a social issue as they can carry a variety of viruses or diseases such as herpes. There are divided opinions about feeding stray cats. Nevertheless, this practice has become quite popular and has led to a strong performance for economy cat food in 2017. During the winter, economy dry cat food tends to enjoy strong growth as people are more willing to take care of stray cats during the cold weather. These activities are set to support the growth of economy cat food over the forecast period.

Greater competition of cat food leads to price drops

Cat food is available in a wide range of products that are offered in all categories. The cat population continued to grow in 2017, leading cat food to be regarded as an immature and emerging category with potential for strong growth. As more manufacturers entered the cat food market, the average unit prices of cat food declined in 2017, and prices are not expected to increase when measured at constant 2018 levels.

The top five companies in the cat food category accounted for a 69.0% market share in retail sales in 2017. From 2013 to 2017, Daejoo Co. Ltd. recorded the highest growth, at a CAGR of 20.7%, followed by Daehan Feed Co. Ltd. at a CAGR of 19.7% and Natural Pet Co. Ltd. at a CAGR of 14.2%. Although Mars Inc. had a 29.5% market share in 2017, its growth decreased at a CAGR of −1.6% from 2013 to 2017, as did that of Nestlé SA at a CAGR of −5.6%.

The leading brands in cat treats, such as Temptations by Mars Korea and Purina Friskies mix by Lotte Nestlé Korea, achieved strong growth in 2017, strengthening their positions. These two players created a sensation in cat treats by offering new snack concepts for cat food to pet owners, including treats with crunchy exteriors and soft interiors, as well as offering a wide variety of new flavours.

Domestic brands are ranked highly in the cat food market, with healthy growth rates in 2017. Catsrang by Daejoo Co. and Probest by Daehan Feed Co. target consumers who feed stray cats. Economy dry food is set to record higher constant value growth than premium dry food over the forecast period, as players develop marketing strategies and campaigns aimed at those taking care of stray cats. Meanwhile, Daehan Feed Co. has also successfully developed its mid-priced and premium cat food brands, Iskhan and Wealtz, as well as its economy brands. As the leading domestic player, the company has invested in a variety of its cat food lines, which helped cat food to record strong growth.

Other pet food

The category of other pet food grew well from 2014 to 2018, with a CAGR of 9.6%, and is forecast to continue growing at a CAGR of 6.7% from 2019 to 2023. Small mammal/reptile food made up a majority (90.4% in 2018) of the sales of other pet food and will continue to do so in the next five years. Small mammal/reptile food showed strong retail current value growth of 10.7% in 2018. Although this market is smaller and less developed than the dog and cat food markets, the small mammal/reptile category has performed relatively well in a difficult economic environment. The rising popularity and appeal of small mammals, particularly among couples with small children, have contributed to this growth. Moreover, the emerging pet humanization trend is also creating opportunities for value-added products, particularly those emphasizing health and wellness or naturalness, in addition to snacks.

Value sales of small mammal/reptile food have significantly outperformed those of both fish food and bird food over recent years. Such factors as reduced fertility rates, a shrinking average home size, accelerating consumer lifestyles and, most importantly, urbanization are among the main drivers of demand growth for the small mammal/reptile food market. Value-added products tapping into the humanization trend (particularly natural offerings and those addressing health and wellness concerns) will be key to driving future growth in the small mammal/reptile food segment.

The increasing reptile population in South Korea is leading to the healthy growth of the category of other pet food. The reptile population increased rapidly in 2018. Turtles are particularly popular as pets, and related food products recorded healthy retail value growth, even though the category remained small. However, except for small mammals and turtles, there are debates about whether wild animals such as snakes or scorpions should be introduced as small pets in the home, because they can be harmful to humans.

Bird food recorded steady growth from 2014 to 2018 despite its small retail value, US$15,000, in 2018 and is expected to record the strongest constant retail value growth, at a CAGR of 9.2%, from 2019 to 2023. Negative perceptions about wild animals and reptiles are increasing, and therefore the number of consumers keeping birds as pets is predicted to increase in the next five years.

Animal Protection Law being discussed

Discussions around an animal protection law are in progress, and the category of other pet food is likely to be heavily affected depending on the details of this law. If snakes and scorpions are designated as special pets requiring caution, pet owners will need to be trained in how to care for them, and this would probably lead to a decline in the number of owners of other pets over the forecast period, which would negatively affect the sales of reptile food.

Daehan Feed Co. Ltd. dominated the market share of the category of other pet food in 2017, at 75.0%, with a CAGR of 1.2% from 2013 to 2017.

Distribution channels

In 2018, internet retailing (43.9%) and non-grocery specialists (24.6%), such as pet shops (15.2%) and pet superstores (9.2%), sold most of the pet products (68.5%) in South Korea. Coupang is the largest online retailer in South Korea, with more than $3 billion in annual sales. Hypermarkets and veterinary clinics also performed well, with shares of 15.0% and 12.0%, respectively, in 2018. Traditional grocery retailers and other non-grocery specialists had the largest losses, with CAGRs of −20.9% and −50.8%, respectively, from 2014 to 2018.

Both producers and especially consumers are benefiting from internet retailing. Consumers have a greater selection of products, usually available at a lower cost when companies have to compete by lowering prices. Companies benefit from fewer barriers to entry and can interact and build a stronger relationship with their consumers through internet retailing. Companies that do not incorporate internet distribution or interaction can expect difficulties in the upcoming years. For example, Mars Inc. lost market share over the period owing to an overreliance on hypermarkets and supermarkets. In 2016, the company partnered with Alibaba, the largest online and mobile commerce company in the world, to reach a wider audience.

South Korean imports

In 2017, South Korea imported US$209.9 million worth of pet food from around the world. In terms of value, each of the top five exporting countries have experienced growth in their exports to South Korea, with each country having a CAGR well above 9.1%. Canada, the fifth-largest pet food exporter to South Korea, recorded the highest CAGR, 40.2%, among the top five exporters from 2013 to 2017 and accounted for 7.1% of the world's pet food exports to South Korea.

Documents and certificate requirement for imported pet food

According to the Korean Feed Management Act, which is governed by the Ministry of Agriculture, Food and Rural Affairs (MAFRA), importers of feed (including pet food) should submit the required documents for feed ingredient registration to the governor of the provincial government (there are eight provincial governments in Korea) or to the city mayor in order to be able to sell the products in Korea. Korean importers should submit the required documents (ingredient list, Korean language label information, added veterinary medicine contents list, and relevant supplementary documents requested by the government) to the provincial or city government. In addition, importers should submit the required documents for import declaration to inspection agencies accredited by the MAFRA. These are separate registration processes that are required to permit a foreign product to enter the Korean market.

Imported pet food must pass the feed test run by MAFRA and municipal governments as well as the imported feed evaluation run by one of the three consigned evaluators appointed by the MAFRA, namely, the Korea Feed Association, the Korea Feed Ingredients Association (in Korean only) or the National Agricultural Co-operative Federation, before the import certificates can be issued. The feed evaluation includes a product (in-depth) evaluation, a document-only evaluation and a random sample evaluation (about 5% of the document-evaluated product is randomly selected for this test).

Opportunities for Canada

Canada-Korea Free Trade Agreement

According to the Canadian Trade Commissioner Service, the Canada-Korea Free Trade Agreement (CKFTA) will help provide opportunities for Canadian producers, processors and exporters to reach South Korea's 51 million consumers, the fourth-largest market in Asia. As the first free trade agreement for Canada in the Asia-Pacific region, the CKFTA is expected upon its full implementation in 2032 to boost Canada's gross domestic product by $1.7 billion and increase Canadian exports to Korea by 30%. The most-favoured-nation (MFN) tariff rates of South Korea are generally applicable to imports from all countries. The MFN tariff rates of South Korea apply to goods imported from Canada that do not meet the rules of origin (non-originating goods) under the CKFTA.

Since the CKFTA entered into force on January 1, 2015, Canada's agri-food and seafood trade with South Korea has increased by over 20%, and 85% of Canada's exports benefited from duty-free market access into the country. Upon the entry into force of the agreement in 2015, tariffs for Canada's dog and cat food exports to South Korea have been eliminated, increasing the competitiveness of Canadian products in the market. As of January 1, 2017, 93% of Canada's exports are eligible for duty-free access. Upon full implementation of the CKFTA on January 1, 2032, Korean tariffs will be eliminated on 99.75% of Canada's current exports.

The CKFTA can support Canadian exporters by:

• eliminating tariffs on virtually all trade between Canada and South Korea
• improving and expanding market access for Canadian products, and
• providing a competitive advantage with preferential access to South Korean markets

It is important for Canadian exporters to work closely with their importing partners to ensure that South Korea's import requirements are met and the necessary documentation is provided. More details on the CKFTA are available on the Global Affairs Canada website.

According to the Canadian Trade Commissioner Service, exports of dog or cat food products from Canada to Korea:

• should be in retail packages (bulk export for repackaging in Korea is not allowed), and
• should not contain any ruminant-origin proteins (except for milk, rawhide and other dairy ingredients)

South Korea is one of Canada's key export markets for pet food, with the largest CAGR per country in the period from 2013 to 2017, at 45.3%. In 2017, Canada's exports of pet food to South Korea were valued at US$16.3 million (an increase of 214% over the export value of US$5.4 million in 2014), having benefited from the 0% tariff enacted after the CKFTA's entry into force on January 1, 2015.

From 2013 to 2017, seven Canadian provinces and regions exported pet food to South Korea, with Ontario taking the lead at US$11.2 million, which accounted for 68.5% of Canada's total pet food exports (US$16.3 million) to South Korea. In second place was Alberta (US$4.5 million). Ontario also recorded the highest CAGR, 54.5%, for pet food exports to South Korea from 2013 to 2017. Saskatchewan was the only province that had a negative CAGR, −30.2%, from 2013 to 2017.

A total of 5.6 million kilograms of pet food was exported to South Korea from Canada's top seven provinces in 2017, with Ontario in the lead (3.6 million kilograms), followed by Alberta (1.7 million kilograms).

Pet Trade Shows in Korea and the AgriMarketing Program

It is worth mentioning pet industry trade shows in the market. Korea Pet Show, Pet Seoul, and K-Pet Fair. are the major pet industry expos in South Korea. K-Pet Fair 2018 was held for three days in November 2018 and was another opportunity for the Canadian pet industry, including pet food companies, to showcase their products to South Korean customers. Many Canadian companies, some of which were small and medium-sized enterprises (SMEs), attended last year's fair but were unaware of the AgriMarketing Program. It is a Canadian government grant designed to support export expansion projects undertaken by agri-food and beverage companies. The program was designed to offset a portion of eligible expenses to help SMEs reach export markets and execute strategic marketing projects such as participation in trade shows or government-led trade missions. As part of the Canadian Agricultural Partnership (CAP), the AgriMarketing Program will provide support to agri-food and beverage companies through 2023. Interested Canadian SMEs are encouraged to apply for this grant/funding.

Product launch analysis

Between January 2014 and December 2018, 1,456 pet food products were launched in South Korea; of those products, 1,014 were new products, 364 were new varieties/range extensions, 49 were new packaging formats, and 25 were relaunches. From 2014 to 2018, relaunches had the highest CAGR, 73.2%, while new packaging had a negative CAGR, −26.9%.

Most of the new launches were dog snacks and treats, with 406 releases over the period, followed by dry dog food (101), cat snacks and treats (80), wet cat food (57), and wet dog food (47).

Among the 1,456 pet food products launched from 2014 to 2018, no additives or preservatives was the top claim (334), followed by premium claims (257) and skin and coat (functional pet) claims (210).

Conclusion

Among foods for all pet types, dog food is the major market, with a 70.5% market share, followed by cat food at 28.3%. Although pet foods that are economically priced occupy the major market share, the increase in income levels is enabling many consumers to opt for high-end, premium pet foods. On the basis of sales distribution channels, internet pet food sales are expected to outgrow other channels. Under the CKFTA, Canada has a competitive advantage over other countries that do not have free trade agreements with South Korea.

For more information

International Trade Commissioners can provide Canadian industry with on-the-ground expertise regarding market potential, current conditions and local business contacts, and are an excellent point of contact for export advice.

• Overview of the Trade Commissioner Service in South Korea
• Find a Trade Commissioner

For additional intelligence on this and other markets, the complete library of Global Analysis reports can be found on the International agri-food market intelligence page, arranged by region.

Sector Trend Analysis – Pet food trends in South Korea
Global Analysis Report

Prepared by: Hongli Wang, Market Analyst

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