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Wealth Insights

E-Commerce: Could COVID-19 Lead to Accelerating Trends?

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Key Takeaways

  • COVID-19 is a global pandemic that will have a profound effect on the global economy as the virus rolled out in stages across the world. As the most severe effects of the virus starts to lift in China, life is beginning to get back to “normal” and some sense on what the new normal looks like is starting to be apparent.
  • A major trend during the crisis was that the government lockdown changed the way consumers acted with more people transacting online out of necessity. Has the crisis accelerated the trend for online transactions or was the increase a short-term solution to “stay-at-home” mandates?
  • Citi analysts explore 3 sectors – online healthcare, “at home” commerce, and online grocery – which may have accelerated due to COVID-19.

 

Online Healthcare

Both online and offline consultations are able to achieve health management for chronic diseases. Despite not being in the same physical location, some online providers use medical equipment that connect to patient cellphones via apps, giving online doctors the ability to monitor heart rate and blood pressure of patients remotely.

Prior to COVID-19, online consultation was approved by the Chinese government and was used primarily for common diseases and chronic diseases (i.e. revisiting patients) as well as online prescriptions. Only some cities had published online reimbursement support policies for Internet healthcare. Once COVID-19 comes under control, Citi analysts think this may change and the Chinese government’s support to online reimbursement may increase.

During the crisis, Chinese online healthcare providers worked with local governments to offer consultations for patients, which helped prove the capability of online consultation teams and promote further cooperation with local government. In addition to increasing healthcare capacity in cities, online healthcare helped provide patients in remote areas with easy accessibility to drugs, which improved the efficiency in healthcare industry in the long run.

One outcome has been an explicit policy breakthrough from the central government on online reimbursement amid the COVID-19 outbreak. On 2 March, China’s National Healthcare Security Administration and National Health Commission jointly released guidance on promotion of “Internet plus” medical insurance services during the prevention and control of COVID-19.

Based on the policy, online consultation and online drug sales are likely to become more important and prevalent going forward. While it may take time to negotiate with individual municipal governments for reimbursement, Citi analysts believe more governments may be supportive of online healthcare after the COVID-19 outbreak.

In the US, a 2019 digital health survey found 29% of consumers have used some form of virtual care, up nearly 40% from 2017 usage figures. A Sykes survey taken in the US in March found that nearly three-quarters of respondents would consider using telehealth to be remotely screened for COVID-19 and two-thirds said the pandemic has increased their willingness to try virtual care.

 

This rapid adoption is consumer led, i.e. healthcare consumers want these changes. Today’s consumers are able to fulfill many of their needs through a tap or swipe, and are increasingly expecting healthcare services to mirror that experience. Prior to COVID-19, the US telehealth market was expected to double over the next five years.

 

At Home Consumption

The COVID-19 outbreak has led to multiple changes in consumer behavior. One change relates to where consumers shop. The population of e-commerce users has expanded from younger consumers to the middle-aged, and the shift from offline to online shopping is happening faster than was widely expected.

Of particular note is the shift to online shopping in fresh food, big-ticket items like autos and real estate, and services such as travel and concert tickets. Citi analysts feel the upper limit on the rate of e-commerce adoption has been raised, opening up new possibilities for the online channel.

Another change is how products are sold online. Since the Chinese New Year holidays, live commerce has expanded rapidly. Live commerce is a new type of online marketing that blends live-streaming and e-commerce, where celebrities and influencers live-stream about products and views can ask questions, comment and buy.  It is characterized by a high conversion rate and a high average spend. The live commerce market was worth nearly RMB 450 bln in 2019 and iiMedia Research estimates this may almost double in 2020 to RMB 960 bln.

Citi analysts feel the spread of live commerce has raised the upper limit for the rate of e-commerce adoption. In 2019, the rate of e-commerce adoption in Chinese retail market was around 20%, with low weighting of online sales for services, and among goods, was relatively low for big-ticket items and daily necessities.

However, since the start of the COVID-19 outbreak, around 160,000 restaurants have begun to use the online sales channel and the number of restaurants conducting live-streams was up 2.2x year-on-year. Museums and wholesale markets have also either started offering online visits or resumed operations through live commerce

 

Online Grocery

During an economic crisis, the food retailing sector is generally considered a safe harbor as even in the worst of times, people will still need to go food shopping. But how they do that has changed recently with more consumers using food delivery services instead of going to their local supermarkets. While the COVID-19 crisis may be exacerbating the level of demand for online grocery due to social distancing, is this shift to online grocery set to accelerate due to the crisis?

To the extent that grocers can meet the elevated levels of demand, more customers may try online grocery and for some to carry on post-crisis, thereby accelerating what Citi analysts see as an unstoppable growth in online growth penetration.

A Kantar survey conducted on 15 February of Chinese shoppers measuring the impact of COVID-19 found 42% of respondents said they would use online more in the future, while only 8% said they would reduce their use after the crisis.

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Market Specific Disclosures

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