《Deconstructing the Pet Economy 》Series 03：The Pet Economy: A "Counter-Cyclical" Asset in the Consumer Sector

While most consumer categories face growth anxiety, why does the pet economy continue to demonstrate hard-wired demand resilience?

《Deconstructing the Pet Economy》 is a research series authored by David Thomas, Director at FirstCapital Advisers, with research partner Wing Ho, Chief Administrative Officer at FirstCapital Advisers, applying a macro lens and data-driven analysis to systematically examine the structural transformation of the global pet industry.

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Every investor assessing a consumer sector must eventually confront a core question: when the macro economy turns downward, will demand in this sector materially contract?

For the pet economy, recent data presents a compelling answer.

Spending Rigidity Under Inflationary Pressure

In 2025, the average Consumer Price Index for pet-related products and services (including veterinary care) in the Eurozone stood at just 0.7%, significantly below the Eurozone headline inflation rate of 1.9% and the EU-wide rate of 2.3%. This reveals an important reality: even amid volatility in commodity and energy prices, the price elasticity of pet consumption is markedly lower than that of most other consumer categories.

On the demand side, spending resilience is equally apparent. Bloomberg Intelligence's Pet Economy Report 2025 notes that despite inflation driving up costs, owners broadly expect to increase spending across all pet consumption categories. In the United States, approximately 50% of pet owners maintained their spending levels in 2025, with only 22% choosing to reduce expenditure. That means nearly four in five owners did not materially cut pet spending under economic pressure.

The APPA's 2026 State of the Industry Report further corroborates this trend. With US pet ownership penetration already stabilised at 66% and no longer growing, total industry expenditure continues to rise — US165 billion in 2026.

A September 2025 research report from Huachuang Securities captures this succinctly: the pet economy is, at its core, a deep fusion of the emotional economy and the real economy — and it is this emotional dimension that lends the sector its counter-cyclical character.

The Underlying Logic: Not "Consumer Goods", but "Family Members"

Why does pet consumption exhibit this resilience? The answer lies in a fundamental difference in consumption motives.

When consumers cut back on dining out, delay car purchases or reduce luxury spending, they rarely reduce spending on family members. And today, pets are increasingly defined as family.

According to the 2026 China Pet Industry White Paper (Consumption Report), 58% of Chinese pet owners refer to their pets as "family members", and 29% view them as "close friends". In the United States, APPA data indicates that over 97% of owners consider their pets a member of the family.

The strength of this emotional bond translates directly into spending rigidity. Humanisation has become the norm: 65% of Chinese owners prepare tailored nutritional plans, nearly 40% plan trips with their pets, and 26% have arranged professional photo shoots or purchased holiday attire. In macro data, these expenditures are classified as "discretionary consumption", but in the mental accounting of pet owners, they are rapidly migrating toward "essential spending".

In essence, the counter-cyclical nature of pet consumption stems from its reclassification — within the consumer psyche — as a core household expenditure. This perceptual shift is long-term and likely irreversible.

Public Market Corroboration: Performance Speaks

The counter-cyclical thesis is not only supported by macro data; it is also reflected in capital markets.

Huachuang Securities' research shows that as of September 2025, A-share listed Guaibao Pet traded at a valuation multiple of 64x, and Zhongchong Pet at 43x. Guaibao Pet recorded compound annual growth rates of 27% in revenue and 54% in net profit between 2020 and 2024. Globally, leading pet companies have consistently demonstrated earnings resilience superior to most consumer sub-sectors through successive economic cycles.

Primary market activity reinforces this picture. In China, 15 financing deals were completed in the pet sector in the first half of 2025, with total capital raised approaching RMB 1 billion. Pet healthcare accounted for approximately 53% of that capital, making it the largest destination. Capital is flowing from basic food toward quality-upgrade segments — healthcare, supplies, smart devices — which sit at the heart of the shift from "essential" to "essential-plus".

A Rational Perspective: Counter-Cyclical Does Not Mean Immune

It is important to emphasise that "counter-cyclical" is not synonymous with "immune". The pet economy contains significant internal stratification.

Pet food, as an absolute staple, demonstrates the strongest defensive characteristics during consumption downgrades — owners will prioritise the food budget above all else. However, non-essential categories such as premium grooming, luxury apparel and high-end accessories may still face demand contraction in a significant recession.

Moreover, counter-cyclical performance varies by region. In mature Western markets, pet expenditure is deeply embedded in household budget structures and exhibits stronger resilience. In certain emerging markets, where pet ownership itself remains in a penetration growth phase, economic volatility may slow the pace of new owner acquisition, though it is unlikely to materially reduce spending by existing owners.

Investment Implications

For investors focused on the consumer sector, the counter-cyclical attributes of the pet economy suggest opportunity in two directions.

First, as a defensive allocation within a portfolio. Pet consumption possesses demand rigidity comparable to consumer staples. In an environment of heightened macro uncertainty, where most discretionary categories face headwinds, it may offer relatively stable growth returns.

Second, identifying growth within defensiveness. Pet healthcare, smart devices, functional nutrition and related categories simultaneously exhibit staple-like demand characteristics and structural upgrade potential. These sub-sectors may offer a favourable balance between defensiveness and growth, and could deliver returns above the industry average.

In the next article, we will focus on one such high-growth sub-sector now emerging — pet home furnishings — and explore why it may represent one of the most noteworthy value pockets within the broader pet economy.

Next up: Nearly 40% of Consumers Are Willing to Pay 20% More — for What Pet Products?

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Data Sources (in order of appearance):

• Eurostat, Pet-related CPI data, 2025

• Bloomberg Intelligence, Pet Economy Report 2025

• American Pet Products Association (APPA), 2026 State of the Industry Report

• Huachuang Securities, Pet Economy In-Depth Research Report, September 2025

• PetData, 2026 China Pet Industry White Paper (Consumption Report)

• Euromonitor International, World Market for Pet Care 2025

 Data as at: May 2026

Disclaimer

This article has been prepared by FirstCapital Advisers based on publicly available information for industry research and discussion purposes only. It does not constitute investment advice, an offer, or a solicitation. References to third-party data and views do not constitute an endorsement of their accuracy, completeness or timeliness. Investors should conduct their own independent due diligence and thoroughly assess all relevant risks before making any investment decision. FirstCapital Advisers and its affiliates accept no liability for any loss arising from reliance on this content.