Corporations are increasingly entering the domestic pet food market. As the number of households with companion dogs and cats is noticeably increasing, the demand for supplies for them is bound to rise. Typically, when the number of market participants increases, prices decline through fierce competition. However, the pet food market has yet to show such signs. What is the reason?
According to the distribution industry on the 18th, Royal Canin, the number one corporation in the domestic market share, plans to increase pet food prices starting on the 24th. The company noted that the prices of raw materials for pet food have risen, and transportation expenses and other costs have steadily increased, making it necessary to raise product prices. The extent of the increase has not yet been confirmed.
Other pet food companies are also contemplating price increases. Notable examples include the imported pet food brand Hills and the domestic pet food corporation Harim. The rise in exchange rates against the U.S. dollar (a drop in won value) is the biggest burden.
In response, the distribution industry acknowledges that while the increase in raw material prices is a reason, it is mainly due to the strong 'lock-in effect' that makes changes in demand due to price adjustments less likely. The lock-in effect refers to the phenomenon where once consumers purchase or use a specific product or service, it becomes difficult for them to switch to other alternatives. This means that pet owners find it hard to switch their pet’s food easily due to fears of allergies or refusal to eat.
It is akin to the difficulty parents face in switching infant formula easily. A distributor commented, 'Pet food demonstrates a consumer behavior characteristic where once it starts being fed, the consumer cannot easily switch even if the price is raised.'
'Lowering prices a little does not attract consumer choice in this market, leading new entrants to target the market with premium products. This is why price competition does not arise even with the increasing number of market participants.'
Recently, there has been a trend emphasizing the raw materials of pet food. This is especially true for New Zealand pet food corporations represented by Ziwipeak. Recently, New Zealand pet food corporations have launched massive promotional campaigns. They focused on highlighting that New Zealand pet food is high-quality feed based on clean raw materials and unique nutritional components.
A representative from New Zealand Trade and Enterprise remarked, 'It contains premium quality ingredients such as pasture-raised meat, green-lipped mussels, and venison,' adding that, 'It has up to four times more Omega-3 than grain-fed meat, which helps support pets' cardiovascular health, brain, and eye health, and is beneficial for weight control due to lower saturated fats.'
Lastly, the fact that households with companion dogs and cats generally have higher incomes is a reason the market is shifting towards the premium sector. According to a report titled 'Diagnosis and Status Survey of Pet Industry Research Systems' recently released by the Korea Rural Economic Institute, the scale of pet ownership differs according to the economic status of households due to the considerable expense involved in pet ownership.
In cases where the average monthly household income is below 3 million won, the pet ownership rate was 15.4%, but when income increased to above 5.01 million won, the ownership rate rose to over double at 32.7%.