A phrase "life is tattered and worn, but pets are mended with stitches and patches," encapsulates the fundamental reason behind the continuous warming of the pet economy.
Correspondingly, the number of pets in China continues to grow, the pet market is developing rapidly, and the pet economy is showing a trend of expansion. Data from iiMedia Research indicates that the scale of China's pet economy industry reached 592.8 billion yuan in 2023, with an expectation to reach 811.4 billion yuan by 2025.
As a significant component of the pet economy, pet healthcare is experiencing rapid development. The market prospects are broad; however, the industry-leading company, New Rui Peng, has unexpectedly suffered losses amidst a favorable environment.
Recently, New Rui Peng Group, a leading pet healthcare company in China, withdrew its application for listing in the United States, revealing the challenges faced by leading enterprises. The prospectus shows that from 2020 to 2022, New Rui Peng's net losses were 1.00 billion yuan, 1.311 billion yuan, and 1.417 billion yuan, respectively, with a combined loss of nearly 4 billion yuan over three years.
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Such an illogical outcome raises the question: Why, despite the promising future of pet healthcare, is the industry leader incurring such significant losses?Supply Side: New Ruipeng Suffers Huge Losses, High Revenue but Thin Profits
It is well-known that New Ruipeng is a pioneer in China's pet healthcare industry, with three major business segments: pet care services, supply chain services, and local lifestyle services.
Over the years, taking advantage of the industry's expansion, New Ruipeng has rapidly expanded to seize market share and become a leading company in the industry. According to the prospectus, since 2019, New Ruipeng has significantly accelerated its expansion pace, acquiring over 1290 pet hospitals. From 2020 to 2022, New Ruipeng's revenue was 3.008 billion yuan, 4.784 billion yuan, and 5.74 billion yuan, respectively, showing a trend of growth.
It was expected that after achieving scale expansion, New Ruipeng's profitability would also be enhanced, but the reality was contrary to expectations. Not only did New Ruipeng fail to make a profit, but it also had to reduce the scale of its stores due to huge losses. According to incomplete statistics from Pet Notes Pet Business Research, as of April 2024, the number of stores in the New Ruipeng system has dropped to around 1,600, a reduction of more than 300.
The reason for the increase in revenue but the loss in profits is nothing more than the blind expansion leading to costs eroding profits.According to the prospectus data, after a series of major acquisitions, New Ruipeng has expanded to nearly 2000 stores and employs approximately 10,000 people. The labor costs for veterinarians, medical assistants, and groomers have been continuously increasing. In 2020, 2021, and Q1-Q3 of 2022, these costs were 1.039 billion, 1.552 billion, and 1.255 billion yuan, respectively, accounting for 53.9%, 54.9%, and 56.1% of the total cost of its pet medical business.
Moreover, blind expansion has led to low management efficiency and irrational resource allocation, and intense market competition will further affect the company's profitability. Some small and medium-sized pet hospitals have entered the market, attracting a portion of price-sensitive consumers with low-price strategies and flexible business models, diverting some of New Ruipeng's clientele.
The pet medical market is "a big cake, but hard to eat," and New Ruipeng is not an isolated case. Some small and medium-sized medical enterprises that once wanted to seize the "pet economy" dividend through expansion have also closed down. According to statistics, by the end of March 2024, 144 pet hospitals in China had gone out of business.
Clearly, the high pricing and strong market demand in the pet medical industry do not guarantee that companies will make a fortune. The path to profitability for pet medical enterprises, represented by New Ruipeng, is still a long and challenging one.
On the consumer side: complaints are on the rise, with high consumption and low-quality services.In addition to high costs, pet medical enterprises also face an unfavorable market public opinion environment.
On the Black Cat Complaints platform, there are more than 2,346 complaints related to pet hospitals, most of which involve issues such as high fees, misdiagnosis, and excessive examinations. Additionally, claims data from ZhongAn Insurance shows that in terms of pet medical expenses, pet owners spent an average of 2,390 yuan and 2,786 yuan per visit for a single cat and dog, respectively, in 2023.
Are pet medical fees expensive or not? Consumers have their own opinions, and pet hospitals have their own reasons.
For consumers, the cost of treating a pet is much higher than the cost of treating a person, which is very unreasonable. There are also issues such as excessive examinations, minor illnesses being treated as major ones, and unclear fees, among other irregularities in medical practices, causing people to worry.
The "Pet Consumer Dispute and Complaint Research Report" published by the Pet Industry White Paper shows that out of 1,182 questionnaires from 26 provinces, municipalities, and autonomous regions, 37.36% of the respondents have encountered consumer disputes during the pet consumption process. Among them, 41.18% of consumer disputes were caused by medical treatment consumption.For pet hospitals, the cost of using pet diagnostic and treatment equipment is high, the range of drug choices is limited, the investment cost is substantial, and low pricing is difficult to sustain normal operations.
In terms of pet diagnostic and treatment equipment, pet hospitals rely on imported large-scale monitoring devices, which are expensive. However, the number of pet cases is relatively small, leading to high individual costs. According to publicly available data online, a DR machine for pet X-rays costs about 150,000 to 200,000 yuan, and a color ultrasound machine is nearly 300,000 yuan. Approximately 53% of pet hospitals in China have an investment amount of less than one million yuan.
Regarding pet medical drugs, China's pet medical pharmaceuticals are still in the development stage, and the range of drug choices is limited. Therefore, 70% of pet medical drugs still rely on imports, which are consequently expensive. Moreover, due to inconsistent industry standards across different regions and hospitals, and a lack of regulation on medical prices, it is not ruled out that some unscrupulous pet medical clinics may deliberately overcharge, undermining the pet medical environment.
The poor pet medical market environment is a long-standing problem, and leading companies have also been exposed for various violations on multiple occasions. According to "China Finance Online," from 2019 to 2023, several branches of New Ruipeng's Mei Lian Zhonghe Animal Hospital and Bobi Tang Animal Hospital have received at least 17 administrative penalties.
Currently, there is also a situation where, due to a harsh employment environment, an increasing number of young people are abandoning their pets because they cannot afford the medical expenses. This also reveals that the market lacks a standardized and regulated pricing system, and consumers are becoming increasingly dissatisfied with pet medical services. The good times for pet medical companies to "reap the benefits" may be coming to an end.Server-side: High stress for pet doctors, a huge market of billions lacks talent
When it rains, it pours. On one hand, pet owners complain about high costs, and on the other hand, there is a shortage of pet doctors. Indeed, pet medical enterprises are under "tremendous pressure."
Due to the nature of the pet medical industry involving the health and life of animals, it requires a high level of professional knowledge and skills, thus having a relatively high dependency on human resources. However, the number of pet doctors in China is low, which may limit the ability of pet hospitals to improve service quality and expand their scale.
Public data from the internet shows that, as of 2023, there are 136,000 official veterinarians, 165,000 practicing veterinarians, and 177,000 rural veterinarians in China. According to the demand ratio for veterinary services per thousand people in developed countries, there is a shortage of 300,000 practicing veterinarians in China, indicating a significant room for the development of pet medical talent cultivation.
Moreover, due to changes in market supply and demand, as well as shifts in the attitudes of pet owners, the workload of pet doctors has increased, posing greater challenges for pet medical enterprises in terms of talent cultivation and management.Firstly, there has been a significant increase in the demand for pet diagnosis and treatment, which not only increases the workload of veterinarians but also raises the pressure on the quality and efficiency of their services.
A press release about the star doctors at Ruipai Pet Hospital once mentioned: "Interns in the inpatient department, two people taking care of seventeen or eighteen hospitalized animals, working for more than ten hours at a stretch; outpatient doctors, one shift lasts for more than ten hours, with the need for overtime, accompanying surgeries, and night consultations at any time."
Secondly, the chaos in the pet medical industry has led to a crisis of trust between consumers and doctors, with long-term tension in doctor-patient relationships, directly affecting the work of veterinarians.
Furthermore, there is a disparity between the income of veterinarians and their training costs and workload. Training a veterinarian requires a long period of education and training, with substantial time and financial investment. However, pet hospitals typically aim for profitability, pursuing the maximization of economic benefits.
In this situation, hospitals may set doctors' salaries at a relatively low level, relying on commissions or performance bonuses to motivate doctors. While this model can encourage doctors to improve work efficiency and quality, it can also easily lead to doctors pursuing income at the expense of medical quality and professional ethics.Regardless, veterinarians are an essential component of pet healthcare enterprises. How to cultivate, arrange, and retain veterinarians effectively, creating a win-win situation, is an important issue for pet healthcare enterprises to achieve sustainable development.
The enchanting pet healthcare industry has a bright future, but the "money prospect" is worrisome.
Despite the thriving pet healthcare industry, it resembles an "ivory tower" that is visible but unattainable. Leading companies are "bruised and battered," preoccupied with their own survival. The pet healthcare industry is faced with too many problems, and to gain market recognition, a series of issues on the supply side, service side, and consumer side must be addressed.
Considering the long term, under the premise of ensuring the survival of the enterprise, "save where possible, strengthen where possible, expand where possible, and ignite where possible" might be a better business logic.
Firstly, optimize the operational model and save where possible. High charges with thin profits have become a common challenge in pet healthcare. Pet healthcare enterprises need to re-evaluate their expansion strategies and optimize their operational models through information technology, improving management efficiency and reducing operational costs.Secondly, establishing a talent cultivation system, the stronger the better. The quality of medical services is the core competitiveness of pet medical enterprises, which requires continuous upgrading. It is necessary not only to build a comprehensive talent training system but also to innovate veterinary technology and equipment, and comprehensively improve the quality of medical services.
Thirdly, expanding value-added services, the more the better. To gain more revenue, pet medical enterprises can expand more value-added services, such as remote medical consultation, pet insurance, health management, etc., to increase revenue sources while enhancing customer stickiness.
Fourthly, strengthening brand building, the more popular the better. "Traffic is king" also applies to the pet medical industry. By promoting the brand and building user reputation, the brand influence and market recognition can be enhanced, attracting more users.
Despite the pet medical industry's blue ocean hiding the complaints of pet owners, the sighs of pet doctors, and the "tired voices" of pet medical enterprises that have not yet achieved profitability, it seems like a "magical world." However, supported by strong demand, it is expected to go through the ups and downs of the industry cycle and develop faster and more stably.
In summary, most pet medical enterprises have achieved growth in revenue scale, confirming that the pet medical industry has great potential for development. However, an undeniable issue is that most pet medical enterprises are in a state of continuous loss, and the losses are expanding, indicating that it will not be easy for pet medical enterprises to make money.