A research report from Shanxi Securities Company Limited indicates that the pet food industry remains highly competitive, with companies continuously increasing marketing and R&D expenditures, which puts pressure on profitability. Functional pet food in China may be entering a phase of significant volume growth. On one hand, the growth rate of pet numbers is slowing while the aging rate is gradually rising, leading to increased segmentation in health care and disease management needs for elderly pets. On the other hand, under the trend of precision feeding, pet owners are willing to pay a reasonable premium for functional food, which allows companies to both expand revenue scale and improve profitability to some extent. Listed pet food companies in China are still in the early stages of functional food deployment, especially prescription diets, which pose substantial challenges to their R&D capabilities, production capacity, and channel expansion. The main viewpoints from Shanxi Securities Company Limited are as follows:

Key drivers behind the development of functional food

(1) Demand side: Pet population growth is slowing while the aging rate rises. Specifically, the number of urban dogs and cats in 2025 increased by 1.8% year-on-year, lower than the 2019-2024 compound annual growth rate of 4.6%. Among them, dogs grew 1.6% year-on-year, maintaining a relatively stable pace, while cats grew 1.9% year-on-year, showing a slowdown. Additionally, dogs and cats over seven years old account for nearly 20% of the total in China. By comparison, in Japan, senior dogs over seven years old represent 56.8% and senior cats 44.4%; in the United States, the overall proportion of aging dogs and cats is 37%; and in the European Union, senior dogs exceed 30%. China's elderly pet market is still in its infancy, and over the next five to ten years, it will enter a concentrated aging cycle, with increasing segmentation in health care and disease management needs for senior pets.

(2) Supply side: From the perspective of industry competition, food manufacturers' deployment of branded staple food, especially premium staple food, is particularly important. In terms of market capacity, staple food serves as the cornerstone of pet food consumption, maintaining a stable share of around 70%, with the market size for dog and cat staple food approaching 113.8 billion yuan in 2025. In terms of profitability, staple food outperforms snacks because it has larger demand volumes and greater economies of scale. Moreover, staple food is highly standardized and suitable for assembly-line production, whereas snacks have many SKUs and rely heavily on manual operations in multiple processes. Furthermore, from a business model perspective, branded staple food carries pricing power and commands higher gross margins.

Product R&D trends in functional pet food over the past decade

(1) New product launches have grown steadily. According to Mintel GNPD statistics covering dry food, wet food, and snacks, a cumulative total of 54,834 functional pet food products were launched globally between 2016 and 2025. The number of launches in 2025 reached 6,717, an increase of 40.5% compared to 4,780 in 2016.

(2) Launch categories: Skin and coat products are the most numerous, followed by digestive health products, with both primarily being dry food offerings.

(3) Formula ingredients: Plant proteins are the most widely used, concentrated in dry food; yeast has also shown significant growth in dog and cat dry food. Other common ingredients include herbs, algae, and unsaturated fatty acids such as omega-3.

(4) Nutritional positioning: Claims of grain-free and high protein have seen the most notable growth, with grain-free options often targeted at pets with grain sensitivity or poor digestive tolerance.

(5) Systematic approach: The functional performance of pet food cannot be judged solely by ingredient selection, as functional outcomes result from the interplay of formula design, manufacturing processes, and bioactive stability.

Global trends in functional pet food development

According to Euromonitor statistics, the global penetration rate of prescription diets for dogs and cats in 2025 is 4.1%, with cat prescription diets at 3.6% and dog prescription diets at 4.5%. The global penetration rate of non-prescription premium staple food for dogs and cats stands at 26.3%, with cats at 26.2% and dogs at 26.3%. Considering that non-prescription premium food includes some staple products without functional claims, the actual penetration rate of functional food globally is below 26%. Euromonitor has compiled prescription diet penetration data for ten countries, showing divergent performance. In 2025, Japan and Italy have the highest penetration rates at 10.9% and 10.1% respectively, the United States sits at 6.3%, while Brazil and Russia remain at low levels of 1.6% and 2.9%. Other countries fall within the mid-single to high-single digit range.

China's functional pet food market may be entering a rapid expansion phase

According to industry projections, the penetration rate of functional staple food will surge from 15% in 2024 to 35% by 2030. Based on the aging proportions of pets in China, the United States, and Japan, the current prescription diet penetration rate in China is estimated at approximately 1%-2%, with expectations of growth to 3%-4% by 2030.

(1) Assumptions include a 7% annual growth rate for China's urban dog and cat staple food market from 2026 to 2028, and 6% from 2029 to 2030, both exceeding the global growth rate of around 5%.

(2) The penetration rates of prescription diets and functional food are assumed to increase uniformly from 2025 to 2030.

(3) Based on these assumptions, the calculations show that from 2025 to 2030, prescription diets and functional food will enter a period of rapid growth, with compound annual growth rates of 26.3% and 21.3% respectively, far exceeding the overall dog and cat staple food market growth rate of 6.6%.

Risk warnings

Risks include intensified market competition, product expansion falling short of expectations, trade friction risks, raw material price fluctuations, and product quality risks.