Invest KOREA

Introduction

With population ageing and the declining birthrate, a growing number of Korean households are opting to own pets. As such, the domestic pet market is expected to expand from a scale of KRW 1.43 trillion (USD 1.27 billion) in 2014 to over KRW 6 trillion in 2020, and pet-related industries, too, will see a steep growth.

Also, while pet-related industries had previously been limited to the sales of pets, pet foods and healthcare, the pet industry is now being diversified, merging with a variety of other industries, such as pet grooming and insurance. As such synergy continues to grow, the industry is expected to account for a bigger chunk of the economy.

However, although the current Animal Protection Act deals with pets, the Act only focuses on the protection of animals, making it inadequate for cultivating and developing pet and pet-related industries. That is, compared to how fast they are growing in scale and importance, support policies and institutional assistance are still insufficient. There is an increasing need to nurture the pet industry through systematic and practical policies and legislative support.

Overview of Pet-related Industries

1) Current status of pet ownership in Korea

The demand for pets is rising in Korea as the number of one-person households continues to grow. According to a 2015 public opinion survey on animal protection, 21.8 percent of all households owned pets as of 2015, a 3.9 percent increase from 2012. From this, it is estimated that some 4.57 million households own pets. Cat owners raise an average of 1.74 cats, while dog owners raise an average of 1.28 dogs. Based on this estimate, there are about 5.12 million dogs and 1.89 million being raised as pets in Korea—a 16.6 percent and 63.7 percent increase, respectively, from 2012 figures.

2) Current status of Korea’s pet industry markets

Pet-related industries are estimated to have accounted for about KRW 894.75 billion (USD 794.54 million) in 2012. As the increasing demand in pets vitalizes related markets, the average annual spending for each household is on the rise. In particular, spending on pet-related products has been surging since 2010, despite the global recession. This is typical of the pet industry, which is affected little by changes in the economy.

Pet-related industries have been recording two-digit growth rates every year, and are expected to contribute to the creation of new markets and jobs. Pet-related markets are anticipated to continue on a steady path of growth and reach a scale of about KRW 6 trillion (USD 5.33 billion) by around 2020.

Traditional Pet-related Industries

Looking at the market trends in each sector, it is estimated that the pet food market was worth about KRW 150 billion (USD 133.2 million) USD in 2012, and about KRW 250 billion considering the retail value (including 40 percent margins). As consumers look for increasingly high-quality goods, the retail market for pet and pet-related products witnessed rapid growth in sales from KRW 168.7 billion in 2009 to KRW 267.4 billion in 2011, a 1.7-time increase in two years. Also, the relationship between the pet product retail industry and services industry is growing more complex as more shops sell products for pets as well as provide vet care and grooming services.

1) Pet food

Unlike feeds for industrial livestock, pet foods are seeing a growing trend of products targeting aging and obesity. In particular, as health care for pets continue to grow in importance, it is expected that the vaccination, medical treatment and diagnosis market will further develop and flourish.

2) Vet care

As of December 2014, there are some 4,000 vet clinics across Korea, a 40.5 percent jump from 2008, and of which 2,792 are for pets, 771 for industrial livestock and 416 for both. A total of 5,745 veterinarians work at such clinics. Recent vet clinics not only provide medical care services but also sell products, offer grooming services and run pet cafés and pet-related facilities.

3) Medical devices

The majority of medical device makers for pets in Korea are small enterprises that each produce a wide range of items on a modest scale. Recently, however, as the number of pets grow and interest mounts in veterinary medicine, veterinary medical device markets are starting to thrive with increasingly specialized and high-end products. Lately, various medical devices, even expensive, cutting-edge equipment designed for humans, are being used to treat animals. In 2002, there were merely 15 Korean companies making 11 types of devices, but the number of registered companies started to surge in 2007, and the number of items has exceeded 40 since 2008 and stayed over 60 every year since 2011. Since then, permission for manufacturing started to exceed those for imports. As of March 31, 2013, a total of 703 items were registered by 98 manufacturers and 74 importers. Of these items, registrations for 41 items at 18 companies were terminated, leaving the current number at 662 items at 154 companies.

4) Medication

The domestic market for animal drugs is also continuing on an upward trend for both domestic-made products and imported finished goods, while exports as well are seeing continued growth every year for both raw materials and finished goods.

Emerging Pet-related Industries

1) Insurance

The Korean pet insurance market is largely uncharted territory that has yet to be formed on a large scale. Several companies had attempted to provide insurance for pets in 2008, but ultimately gave up in 2010 due to the difficulty of setting standards for coverage and low profitability. Later, when the Companion Animal Registration System came into effect in 2013, several companies launched new insurance products for dogs. However, due to the lack of variety in insurance products, most pet owners still have little choice but to shoulder the burden of expensive veterinary care costs.

As veterinary care expenses continue to mount, the pet insurance market, too, is expected to set out on a new path of growth. It is likely that products covering congenital or genetic diseases, cancers and injuries will be developed, along with policy riders that cover regular checkups, death benefits, pregnancy complications and compensation for medical expenses. In addition, the rising demand for pets is also increasing the number of cases where owners have to compensate for any loss inflicted by their pets on another person (Civil Act Article 759-2), creating another growth factor for the pet insurance industry.

Compared to the United Kingdom, where 20 percent of pet owners have pet insurance, less than 0.1 percent of Korean pet owners can say the same, with only two companies offering pet insurance in the country. However, because medical expenses are higher for pets than for people, as there is no equivalent to the National Health Insurance system for pets, the pet insurance market has a high potential for growth. In the United Kingdom and Japan, pet insurance markets are growing at an average annual rate of over 17 percent, and have the highest growth potential among all pet-related industries.

2) Recreation

Markets for service businesses such as companion animal training schools, modeling agencies and grooming shops are expected to break down into more subdivisions and undergo further specialization. While the main purpose of pet grooming is currently for maintaining hygiene and cleanliness, greater importance will be placed on aesthetic factors in the future. In addition, various new businesses are expected to emerge, such as pet hotels and vacation packages for travelers with pets.

Plans and Policies to Expand Pet Industry Exports

1) Institutional reform

For the past 30 years, Korea’s pet food and product manufacturing market has achieved both significant internal and external growth. However, individual companies can only do so much in their efforts to enter foreign markets, making it crucial for the government to support the Korean pet industry as a whole through related policies. The massive Chinese market is a blue ocean when it comes to pet industries. While the number of pets owned in China is 20 to 30 times the scale of Korea, Chinese pet owners have relatively little trust in pet products or foods made in the country. Therefore, there seems to be sufficient opportunity for Korean companies to benefit from the Korean Wave and enter China’s pet industry market.

There are, however, also real obstacles to achieving that goal, including those regarding export customs. For instance, for a Korean company to export pet food to China, it has to go through a two-and-a-half-year customs process, and if there happens to be a change in the Chinese buyer, the company will have to repeat the process and wait for another two and a half years. Although the chances of having restrictions imposed are low, as long as companies go through the customs process and take the necessary precautions, there still remain practical difficulties of operation. If such matters could be improved through inter-governmental agreements, Korea’s pet industry can see an explosive surge in opportunities for entering foreign markets.

In the case of the United States, pet products are beneficiary items of the Korea-U.S. Free Trade Agreement, meaning Korean pet product companies have the opportunity of enjoying customs-free access to U.S. markets as long they can prepare the necessary documentation for proving the country of origin.

2) Establishing customized, industry-specific reforms

Around 70 to 80 percent of pet-related products in the U.S. market are characteristically supplied by Chinese, U.S. and Mexican companies. Of these, the more expensive products that require a higher level of technology to make are usually made in the U.S., Canada and Germany, while most of the cheaper accessories and clothes are made in China and Mexico. Although several Korea pet product design brands have entered the U.S., Korea still has a weak presence in the country.

Therefore, rather than engaging in a simple competition with China’s low-cost products, Korea has a greater chance if it targets premium U.S. markets, focusing on eco-friendly or organic pet foods and health products. Korean companies should also come up with differentiated products that combine innovative ideas with wi-fi or other new technologies.

Thus, as it is now easier for Korea’s small and medium companies to apply, enhance, and converge their current businesses that have suffered fierce competition, and switch over to the pet industry, it is time they try making inroads into the “super pet market” of the U.S. by merging differentiated technologies and ideas.

3) Participating in expos—expanding company-led participation

Korea Dog News operated its own booth as a communication channel for Korean companies at the China International Pet Show (CIPS) held in Beijing in November 2014, and signed a Korean agency contract with the organizing committee of Shanghai’s Pet Fair Asia. At the last three fairs it set up a Korea promotion center to help a number of Korean pet-related companies export pet products to foreign countries.

In the U.S. as well, Korean companies are actively taking advantage of pet fairs to expand exports. They should also pay greater attention to the world’s largest Global Pet Expo, presented every spring by the American Pet Products Association (APPA) or Super Pet Expo.

Source: An Analysis of Pet-related Industries and Their Course of Development (2016), Ministry of Agriculture, Food and Rural Affairs