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Citi Global Insights

According to the forecasts of iResearch, a management and consultancy group, the gross merchandise value (GMV) of local on-demand sales for China supermarkets will surge from Rmb46.7bn in 2019 to Rmb388.3bn in 2023, driven by increasing online-to-offline penetration (from 1.4% to 10.7%). Over the same period, daily on-demand orders being delivered on open platforms would jump from an average of 9.5mn items to an estimated 27.7mn.
Supermarkets are the biggest players in China&rsquo;s overall RMB13.1tn local retail market. While they are expected to remain primarily offline and serve consumers who live or work nearby, on-demand delivery offers them the opportunity to extend their footprint by 3-5km. For consumers, on-demand delivery takes the time and inconvenience out of shopping.
Online sales of China&rsquo;s top 100 supermarkets were close to Rmb50bn in 2019 (4.7% of their total revenue), reports the China Chain Store &amp; Franchise Association. Of the top 100 supermarkets, about one-third deliver to homes (average order size of roughly of Rmb75), about 60% have a group purchase business (1% of sales), and nearly half have launched an online live streaming business.
Apart from food and fresh produce, on-demand delivery could be an increasingly popular distribution channel in categories such as apparel, small electronics, cosmetics and healthcare. Multiple delivery services are likely to combine to provide comprehensive solutions. Two examples: on-demand delivery + warehouse solutions; cold-chain services + on-demand delivery solutions.
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Figure 1. On-Demand Retail GMV in China&rsquo;s Supermarket Segment
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Figure 2. Avg. Daily Orders for China&rsquo;s On-Demand Delivery Segment
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Source: Citi Research, iResearch
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Source: Citi Research, iResearch
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China&rsquo;s local delivery market broadly breaks down into three categories:
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<li style="margin: 0in 0in 10pt 0px; line-height: 12pt; font-size: 9pt; ">Open on-demand delivery: delivery services are offered under a platform model to external parties, including local retailers, restaurants, individual customers and logistics players. Typically, orders are delivered directly from supplier to recipient.</li>
<li style="margin: 0in 0in 10pt 0px; line-height: 12pt; font-size: 9pt; ">Captive on-demand delivery: an operator owns its online transaction platform and fulfills orders via its own delivery network. External parties are excluded.</li>
<li style="margin: 0in 0in 10pt 0px; line-height: 12pt; font-size: 9pt; ">Courier services: orders are typically consolidated and processed at sorting centers and are fulfilled on a less urgent basis than for on-demand delivery, being received by a customer later the same day or the next day.</li>
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Chinese consumers&rsquo; increasing preference for online shopping and continuing improvements to technology platforms and logistics channels suggest an ever-increasing share (and range) of the household shopping basket will be handled by delivery services. Drilling down, iResearch forecasts the open on-demand segment of the local delivery market will grow at an annual compound rate of 30.6% between 2019 and 2023, outpacing the growth of China&rsquo;s overall local delivery market.
For more information on this subject, please see report <a style=" text-decoration: underline;" href="https://www.citivelocity.com/cv2/go/ANALYST_DIR/X19GUl9fbzkeer988n8d/X19OQVZJR0FUSU9OX0JBU0U2NF9fcmVuZGl0aW9uL2VwcHVibGljL2RvY3VtZW50U2VydmljZS9kWE5sY2w5cFpEMUZSV3hNTm5ZMFp5MWhTUS9aRzlqWDJsa1BUTXdNREV6TWprM0ptTm9ZVzV1Wld3OVFXNWhiSGx6ZENCUVlXZGxKbk4xWWkxamFHRnVibVZzUFZkbFln" target="_blank" rel="noopener">Bridging Online/Offline Retail Demand</a>
Citi Global Insights (CGI) is Citi&rsquo;s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click <a style=" text-decoration: underline;" href="https://ir.citi.com/6A3IURUaezPxFLppsgdBkqidjLaLn558JwHISYaDZcTfE9XMRB1isDDDVorqrxpR%2fTnEi4RUCl8%3d" target="_blank" rel="noopener">here</a>.

Post the outbreak of Covid-19, activity is picking up notably in China’s on-demand retail and delivery markets. We summarize an overview of these consumer segments by analyst Alicia Yap.

China Retail: Doors Open for On-demand Delivery

China&rsquo;s census, carried out once a decade by the National Bureau of Statistics (NBS), provides an invaluable--and rare--snapshot of the country&rsquo;s demographics, highlighting both the economic and social progress made and the challenges ahead. Here are the top lines from the census: 
Population growth at a six-decade low in 2020: China&rsquo;s population stood at 1.41 billion in 2020, up 5.38% from 2010. But the average annual growth rate in the past decade was the lowest since the Great Famine (1959-1961). While China remains the world&rsquo;s most populous country, a prolonged slowdown in population growth means it now accounts for 18% of the world&rsquo;s population down from 22.7% in 1975. 
Low fertility rate: The NBS estimated around 12 million births in 2020, 33% lower than the recent peak in 2016, when all couples were allowed to have two children. The census also showed the average number of children born to a woman over her lifetime stood at about 1.3 in 2020, well below the world average of 2.47. 
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<a target="_blank" name="_Ref71656585"></a>Figure 1. New births dropped to around 12mn in 2020, a 60-year low
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<a target="_blank" name="_Ref71656603"></a>Figure 2. Population aged 65+ accelerated to 13.5% of total in 2020
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Source: NBS, Citi Research
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Source: NBS, UN, Citi Research
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Ageing accelerates: China&rsquo;s population aged 65 or over reached 190.64 million people in 2020, more than the entire populations of Russia and Bangladesh. At 13.5% of the total population, that&rsquo;s 4.65 ppt higher than in 2010 and well above the UN convention of 7% to define an ageing population.
Regional imbalances: Coastal provinces of Guangdong, Zhejiang, Jiangsu and Shandong as well as Henan showed the largest population rises in the past decade. Meanwhile Heilongjiang, Jilin, Lianoning, Shanxi, Inner Mongolia and Gansu posted sizeable declines. China&rsquo;s population further convened in the more economically developed east and in cities. 
Urbanization continues apace: There were 901.99 million people living in urban areas in 2020, accounting for almost 64% of the total population. This urbanization ratio was 14.21 ppt higher than in 2010 and strongly beat the 13th Five-Year Plan target of 60% by 2020. As a result of increased population mobility and improved housing conditions, the census found households continued to downsize to 2.62 persons in 2020. 
Education advances: The census found 218.36 million people with a university education. Broken down, that&rsquo;s 15.467 persons per 100, a massive increase from 8.93 in 2010. The illiteracy rate dropped from 4.08% to 2.67%.
Overall sex composition shifts: The ratio of males to females stood at 105.07 in 2020, showing a slight decline from 2010&rsquo;s census. Following the gradual banning in the 2000s of gender-selective tests and abortions, the census reported an improvement in gender balance at birth. 
Challenges vs. Opportunities
China&rsquo;s demographic shift is often presented as a crisis. Almost certainly, the country&rsquo;s economic growth, savings rates and external surpluses will taper relative to past decades, while reforming the retirement system will challenge policy-makers. On the plus side, the next phase of China&rsquo;s economic development will be characterized by a better educated and more skilled workforce, greater innovation and more pervasive robotic automation. In terms of demand, an emerging &lsquo;silver economy&rsquo; will be a key factor in an increasingly consumption-driven economy.
For more information on this subject, please see <a style=" text-decoration: underline;" href="https://www.citivelocity.com/cv2/go/ANALYST_DIR/X19GUl9fh5bbpq6tuajf/X19OQVZJR0FUSU9OX0JBU0U2NF9fcmVuZGl0aW9uL2VwcHVibGljL2RvY3VtZW50U2VydmljZS9kWE5sY2w5cFpEMUZSV3hNTm5ZMFp5MWhTUS9aRzlqWDJsa1BUTXdNREUxTlRBeUptTm9ZVzV1Wld3OVFXNWhiSGx6ZENCUVlXZGxKbk4xWWkxamFHRnVibVZzUFZkbFln" target="_blank" rel="noopener">China Economics: A Reality Check on China&rsquo;s Great Demographic Transition</a>
&nbsp;
Citi Global Insights (CGI) is Citi&rsquo;s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click <a style=" text-decoration: underline;" href="https://ir.citi.com/6A3IURUaezPxFLppsgdBkqidjLaLn558JwHISYaDZcTfE9XMRB1isDDDVorqrxpR%2fTnEi4RUCl8%3d" target="_blank" rel="noopener">here</a>.
&nbsp;

When the world’s most populous country conducts a census, the results are keenly awaited around the globe. As we highlight in this summary, economist Xiangrong Yu believes the census shows China to be at an inflection point in what he terms a great demographic transition. Challenges and opportunities abound.

China: Demographic Crisis or Age of Opportunity? 

In Mid-Year Outlook 2021, we examine our exit from the pandemic and what lies beyond. We highlight the assets that still offer recovery potential even after the strong rally of the last year. But we also explain why these are unlikely to be the investments that lead markets higher in the long term. We thus seek to exploit the trends that will keep reshaping the world beyond COVID.

Traveling to the post-COVID world: New portfolios for a new economy

Today, more and more consumers consider their pets a part of their families. As such, they are willing to pay more to feed them and care for them.&nbsp;Many consumers found pandemic lockdowns to be the perfect time to adopt a pet (or a second pet) they never had time previously to adopt and train. By Citi research (and U.S. Packaged Facts&rsquo;) estimates, there was more than 5% growth in total pet-owning households in the U.S. during Covid, compared to less than ~1% growth in 2018 and 2019.
The full note poses the following questions: 
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<li style="margin: 0in 0in 10pt 0px; line-height: 15.75pt; font-size: 12pt; ">Pet Population: How many pets are out there?</li>
<li style="margin: 0in 0in 10pt 0px; line-height: 15.75pt; font-size: 12pt; ">Pet Category: Which sectors of the pet industry (food, products, retailers, services, etc.) are growing the fastest?</li>
<li style="margin: 0in 0in 10pt 0px; line-height: 15.75pt; font-size: 12pt; ">Pet Parent Behavior: What is driving consumer behavior in the pet landscape today?</li>
<li style="margin: 0in 0in 10pt 0px; line-height: 15.75pt; font-size: 12pt; ">Pet Stocks: Which companies (and stocks) are best positioned to benefit from a growing pet population?</li>
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Broadly speaking, Citi analysts reckon the increase in the number of pet households over the past year will be a tailwind for the industry for several years to come, not only in terms of pet food and pet products purchased but also in terms of pet services provided. The analysts also see a high probability that new pet-owning households will replace their pets over time, creating a consistent stream of new pets and frequent pet purchases.
During the pandemic, many consumers had more time and energy to spend on their pets. Without vacations or visits to restaurants, consumers also had more discretionary income to spend on their pets. They spent more on pet food) and non-pet supplies, by trading up and experimenting with more premium brand offerings. However, consumers spent less on veterinary supplies and non-medical pet services.
&nbsp;
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Most Pet Owners Spent More on Their Pets During the Pandemic...&nbsp;
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Source: Citi Research, Packaged Facts (U.S. Pet Market Outlook 2021-2022); March 2021
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&nbsp;
Looking ahead, the Citi report raises the idea that newer and younger pet owners might not have the same level of discretionary income as historically long-standing pet owners. This could affect their ability to sustain their level of spending on their pets, particularly as they are able to resume their pre-pandemic consumption habits (e.g., vacations, clothes, gym memberships, eating out, etc.).&nbsp; Further, Packaged Facts found that ~40% of new dog owners said that their decision to get a dog was somewhat impulsive, and as a result, the analysts said there is at least the chance that some people who adopted a pet during Covid might look to give the pet back to a shelter or its previous owner.
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40% of New Pet Parents Said That Their Pet Acquisition Was in Part an Impulse
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Source: Citi Research; Packaged Facts (U.S. Pet Market Outlook 2021-2022); March 2021
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&nbsp;
Similarly, a study of new pet owners conducted by Merck Animal Health in November 2020 found that many new pet owners: 
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<li style="line-height: 115%; margin: 0in 0in 2pt 0px; font-size: 11pt; text-indent: 24px;">considered re-homing their new pets once the pandemic was over</li>
<li style="line-height: 115%; margin: 0in 0in 2pt 0px; font-size: 11pt; text-indent: 24px;">wished that taking care of their dog&rsquo;s health did not take so much time </li>
<li style="line-height: 115%; margin: 0in 0in 8pt 0px; font-size: 11pt; text-indent: 24px;">were unaware of how much it costs to care for a dog.&nbsp; </li>
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&nbsp;
To be sure, pets are a big, long-term financial and lifestyle decision.&nbsp; 
<ul style="margin-bottom: 0in; margin-top: 0px;">
<li style="margin: 0in 0in 10pt 0px; line-height: 12pt; font-size: 9pt; ">Financial:&nbsp; The true cost of pet ownership includes much more than just an initial outlay of cash to bring a pet home &ndash; it includes the cost of food, toys, supplies, veterinarian visits, vaccinations, and much more over the course of a pet&rsquo;s lifetime.&nbsp; The average spend per household on a pet in 2020 was $1,460 ($1,274 for dogs and $942 for cats), and dogs and cats live for 10-12 years and 10-15 years on average.&nbsp; Citi analysts said there was a possibility new pet owners might not have thought through the long-term costs/ lifestyle changes associated with pet ownership.</li>
<li style="margin: 0in 0in 10pt 0px; line-height: 12pt; font-size: 9pt; ">Lifestyle: In addition to the financial burdens of pet ownership, the report pointed out that there are certain lifestyle factors associated with pet ownership that younger consumers might not have considered quite as carefully before getting their first dog: Who is going to walk your dog when/ if you return work?&nbsp; Who will care for the pet when you go on vacation?&nbsp; </li>
</ul>
The analysts said they don&rsquo;t necessarily believe there is going to be an influx of dogs in shelters (and they recognized that many new pets entered loving pet homes over the past year as second and third dogs). But they said they do expect there could be some change in psyche of newer pet owners over the next 12 months, which could in turn impact the overall level of spending in the pet category.&nbsp; It remains to be seen if the upsurge in pet care sales and interest from these newer consumers will be sustained as Covid restrictions lift over time. 
For more information on this subject, please see <a style=" text-decoration: underline;" href="https://www.citivelocity.com/t/r/eppublic/2CZ59" target="_blank" rel="noopener">United States Food Manufacturers - Citi&rsquo;s Perspective on Pets: Post-Pandemic Points and Picks</a> first published on September 30. 
Citi Global Insights (CGI) is Citi&rsquo;s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click <a style=" text-decoration: underline;" href="https://ir.citi.com/6A3IURUaezPxFLppsgdBkqidjLaLn558JwHISYaDZcTfE9XMRB1isDDDVorqrxpR%2fTnEi4RUCl8%3d" target="_blank" rel="noopener">here</a>.

More time and money to spend during lockdown has fuelled a rise in pet ownership among younger millennial and Gen-Z consumers- pushing the U.S. pet care market to retail sales of $107 billion last year. As the economy opens up, and alternatives for their disposable income re-emerge, will these consumers continue to pay a premium for pet care? A new report by Citi Research’s Wendy Nicholson takes a closer look at this rapidly growing sector. 

Pet Shops Buoyed 

How have attitudes to healthcare changed in a post-pandemic world? 
Citi conducted a survey of 5,000 U.S. adults, chosen to be representative of the national population in terms of age, gender, region, and income. The survey took place online between September 14 and 22 this year. The margin of error for the whole sample responses is +/-1.6 at a 95% confidence level. The focus was on consumer sentiment across various healthcare categories to gauge individuals&rsquo; comfort to reengage with the healthcare system. 
Here are some of the high-level takeaways: &nbsp;&nbsp;
<ol style="margin-bottom: 0in; margin-top: 0px;">
<li style="line-height: 107%; margin: 0in 0in 10pt 0px; font-size: 9pt; ">Consumer sentiment on utilizing healthcare and general comfort on return to life pre-Covid is improving &ndash; 67% of respondents said they had not changed healthcare utilization patterns from pre-pandemic levels, while 18% suggested they are using less healthcare and 12% utilizing more. In terms of general comfort on return to pre-Covid life, individuals that are uncomfortable dropped to 22% from 33% in Citi&rsquo;s previous survey.</li>
<li style="line-height: 107%; margin: 0in 0in 10pt 0px; font-size: 9pt; ">Much of the backlog has already been captured. But some pent-up demand remains with uncertainty on rescheduling &ndash; About 76% of respondents have not canceled a procedure since the start of the pandemic. Of the 24% that have canceled, a large majority (~70%) or 16% of total respondents have since had a procedure performed. This leaves 8% of total respondents noting that a canceled procedure has not yet been performed and among that 8%, 13% are not planning to reschedule, and 23% are unsure.</li>
<li style="line-height: 107%; margin: 0in 0in 10pt 0px; font-size: 9pt; ">Sustained interest in digital modalities and still elevated telehealth &ndash; While telehealth utilization will certainly drop post-pandemic, decreases will be far from linear (driven largely by the proliferation of Covid variants and vaccine efficacy), and normalizing at levels significantly higher than pre-pandemic. In the Citi survey, telehealth utilization has increased from 48% at the height of the pandemic to 62% this year (vs 10% pre-pandemic). Importantly, 81% of telehealth users said they will continue to use telehealth post-pandemic. That&rsquo;s up from 75% last year. &nbsp;A majority of responders noted that it is very important/important that their physician offers virtual visits.</li>
</ol>
&nbsp;
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<li style="line-height: 107%; margin: 0in 0in 10pt 0px; font-size: 9pt; ">Still some trepidation in going to a hospital, but consumers are gaining more comfort &ndash; 75% of survey respondents suggested some level of comfort in seeking non-emergency care in a hospital vs 65% in the previous survey. Additionally, ~35% of respondents are either somewhat or extremely likely to consider other non-hospital facilities for procedures, suggesting continued comfort in alternative sites of care. </li>
</ol>
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The full impact of Covid on long-term attitudes towards healthcare will be felt for years to come and it is clear that the sector as a whole will need to be responsive to any lasting changes in behaviour. For more information on this subject, please see the full report, first published on October 1: <a style=" text-decoration: underline;" href="https://www.citivelocity.com/t/r/eppublic/2CtAK" target="_blank" rel="noopener">US Healthcare - Taking the Pulse of the Healthcare Consumer</a>
Citi Global Insights (CGI) is Citi&rsquo;s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click <a style=" text-decoration: underline;" href="https://ir.citi.com/6A3IURUaezPxFLppsgdBkqidjLaLn558JwHISYaDZcTfE9XMRB1isDDDVorqrxpR%2fTnEi4RUCl8%3d" target="_blank" rel="noopener">here</a>.
&nbsp;

Has the pandemic changed how we view healthcare systems and our interaction with them? Are people more reluctant to go to hospitals? Will they forgo certain surgeries now? Citi Research surveyed 5,000 adults in the U.S. to glean more specifics about current sentiment. The survey’s findings are in a new report by Citi’s Ralph Giacobbe. The top lines are summarized here.

U.S. Healthcare: A Reengagement Story

The dust has not settled on the German election, France&rsquo;s election in April offers up a variety of candidates. In addition, Italy&rsquo;s local election could set the clock ticking for political change. Here&rsquo;s a closer look at the constraints on Germany&rsquo;s next Chancellor, the political capital of France&rsquo;s leadership and the scenarios for Mario Draghi&rsquo;s future. 
Germany: More Ambition, Less Clout
Following the election, the social democrat Olaf Scholz is in pole position to succeed Angela Merkel as chancellor. His economic and European policy ambitions are arguably greater than those of his predecessor, but Citi analysts say his coalition will be less stable, the debt brake even more binding and that an upper house majority is unlikely.
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Germany &ndash; Polling and Election Result (%)
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Germany &ndash; 2021-25 Bundestag Seat Distribution (Seats)
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Source: Citi Research, Wahlrecht.de
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Source: Citi Research, Bundeswahlleiter
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France:Greater Political&nbsp;Fragmentation and Room for Surprises &nbsp;
&nbsp;
With about six months to the first round of the Presidential elections on 10 April, investor interest in the outcome is rising. The Citi reports questions if there could be a premium for interesting candidates and if the re-composition of the political landscape could spring a surprise, giving President Macron another challenger than RN&rsquo;s Marine Le Pen. Ultimately, however, in the absence of a (preferable strong and stable) majority in the lower house, there is likely very little that a newly-elected President can do, the report said.
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France: Themes likely to matter the most when choosing your candidate in 2022, Number of responses
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Source: Elabe and Citi Research
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Italy: Watching Draghi
&nbsp;
The debate about Draghi leaving his PM job to be elected President in early 2022 has already started. Under most scenarios, snap elections next year remain unlikely in Citi&rsquo;s view, but not impossible. Political volatility will likely resume, but a major U-turn relative to Draghi&rsquo;s policy direction is unlikely.
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Italy: Voting Intentions for Main Political Parties (%)
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Lega, FdI and Forza Italia represent the centre-right bloc
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Source: Citi Research, various pollsters
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Amid this leadership uncertainty, the fallout from Brexit continues, strengthening the theme of a continent in flux.&nbsp; Couple that with continent wide efforts to kick start economies still coming to grips with the full impact of the pandemic, and it looks like the one certainty over the next few months will be uncertainty. 
For more information on this subject, please see <a style="text-decoration: underline;" href="https://www.citivelocity.com/t/r/eppublic/2Czvo" target="_blank" rel="noopener">European Economics Weekly - Who Will Lead Europe?</a> First published on October 1st. 
Citi Global Insights (CGI) is Citi&rsquo;s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click <a style="text-decoration: underline;" href="https://ir.citi.com/6A3IURUaezPxFLppsgdBkqidjLaLn558JwHISYaDZcTfE9XMRB1isDDDVorqrxpR%2fTnEi4RUCl8%3d" target="_blank" rel="noopener">here</a>.
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Europe is slowly emerging into a post-pandemic world, but the continent still faces a period of political uncertainty around who will lead in the coming years, and how. In a new report, Citi Research’s Giada Giana lays out some potential paths forward. 