Fit for Growth

The Big Business of Health and Wellness

Love handles, a spare tyre, middle-age spread. Throughout nearly all of human history, food was in short supply and carrying an extra layer of body fat was a sign of good health and prosperity. Until fairly recently, a bit of blubber remained a status symbol in much of the developing world. Times have changed.

While some 125 million people today face chronic food shortages, the health and capital costs of overeating (and lack of exercise) are far higher. According to the World Health Organisation, 65% of the global population lives in countries where being overweight kills more people than being underweight.

In the United States, the world’s fattest nation, an estimated 300,000 deaths per year are attributable to obesity. The healthcare cost of all that extra weight is estimated at some $210 billion annually.

Little surprise, then, that thin is in – supporting the growth of a global health and wellness industry now valued in excess of $4 trillion.

Snip & Tuck
Value of key global health and wellness market segments.

 width=300 height=170 /><br/><em>Source: Global Wellness Institute</em></p><br/><p style=text-align: justify;><strong>Big Mac Attack</strong><br/>World’s most obese countries (percentage obesity rate among national population).</p><br/><p style=text-align: justify;><img class=alignnone size-medium wp-image-3162 src= alt=
Source: World Health Organisation

Every Step You Take
World’s most and least active countries (by average number of steps).

 width=300 height=124 /><br/><em>Source: Stanford University</em></p><br/><p style=text-align: justify;>For millions of people around the world, Apple Watch has helped them to stay connected, be more active and live a “healthier day,” CEO Tim Cook boasted in September when unveiling the company’s autumn product release.</p><br/><p style=text-align: justify;>The spotlight on watches may seem surprising for a firm that makes so little money from them. More than 60% of Apple revenues come from mobile phones, 17% from laptops and iPads, and 12% from services (including iTunes, the App Store and iCloud).</p><br/><p style=text-align: justify;>Yet the head of one of the world’s most valuable companies seems awfully focused on a gadget grouped in the company’s smallest segment</p><br/><br/><ul style=text-align: justify;><br/> 	<li>the “other products” category</li><br/> 	<li>that collectively represents less than 7% of revenues. Does Cook see something in this digital timepiece that the rest of us are missing?</li><br/></ul><br/><p style=text-align: justify;>The Apple Watch was introduced in 2015, when the company launched its first entirely new product following the death of founder Steve Jobs. But the real story begins even earlier, somewhere in the mid-1970s.</p><br/><p style=text-align: justify;>That was when the world started getting fat.</p><br/><p style=text-align: justify;>Since 1975, worldwide obesity has tripled. Today, 650 million adults are obese and another 1.8 billion are overweight – including 68% of adults in America, the fattest country in the OECD, a club of rich nations. The World Health Organisation even has a special term for this international epidemic: “globesity.”</p><br/><p style=text-align: justify;>When Cook launched the first Apple Watch, however, its health benefits were mostly an afterthought. Times have changed. Now, when you look at the watch section of the company’s website, the message is loud and clear: “All new. For a better you.”</p><br/><p style=text-align: justify;>At the September Series 4 launch event, Chief Operating Officer Jeff Williams described the new Apple Watch as “an intelligent guardian for your health,” pointing out that it can detect if a wearer falls and send their location to emergency contacts using the built-in SOS feature.</p><br/><p style=text-align: justify;>Able to take electrocardiographs (and share such data with one’s physician), it’s also the first “ECG” product offered directly to consumers.</p><br/><p style=text-align: justify;>“Capturing data about a person’s heart in real time is changing the way we practice medicine,” says Ivor J. Benjamin, president of the American Heart Association, who describes the ability to access health data on demand as “game-changing.”</p><br/><p style=text-align: justify;>Like in so many other areas, Apple is not the pioneer of such wearable medical devices, a market that’s expected to top $14 billion by 2022, up from $6 billion in 2017. In the medical smartwatch segment, Apple leads with 17% global market share, well ahead of FitBit, an activity tracker launched in 2007 that has 9.5% market share.</p><br/><p style=text-align: justify;>Somewhat ironically, the largest market for medical smartwatches is the United States, where 25% of adults now own at least one such device.</p><br/><p style=text-align: justify;>There are a host of other niche health wearables, including those focused on managing asthma, back pain and ulcers. iSono Health, based in the US, has even introduced a “smart bra” that can assess early signs of breast cancer and transmit such information to one’s healthcare provider.</p><br/><p style=text-align: justify;>This brave new world of high-tech health consciousness is being driven by consumer demand, especially among millennials. The 18-34 demographic has shown a willingness to spend on healthier lifestyles – a big part of the reason why Amazon spent $13.7 billion to acquire Whole Foods, the organic grocer – and, perhaps even more important, to share a snapshot of that lifestyle on social media.</p><br/><p style=text-align: justify;>This trend is especially pronounced in emerging markets, where millennials are the primary driver of healthy lifestyle growth. In countries like Brazil, China and Mexico – where fresh fruit and vegetable prices are rising rapidly, even as the cost of processed food declines – millennials order avocado toast to demonstrate their membership in the global elite.</p><br/><p style=text-align: justify;>Meanwhile, the percentage of the total population with the means to invest in health and wellness is expanding rapidly: worldwide, every second, five people enter the middle class and one escapes extreme poverty.</p><br/><p style=text-align: justify;>For members of the new middle class, fresh fruit juice has a lot more cachet than a bottle of Coke. Governments are now seeking to encourage such trends through their tax policies: California, for example, managed to reduce the consumption of sugar-sweetened beverages by nearly 10% following the introduction of a soda tax.</p><br/><p style=text-align: justify;>Beverage makers are taking notice and focusing on healthier options. That’s why Coca-Cola has recently acquired smaller rivals specialising in vitamin water, coconut water and tea. Consumers generally react positively to such moves, as do investors – who increasingly monitor the environmental, social and governance metrics of the companies they invest in.</p><br/><p style=text-align: justify;>In the minds of millennials, in particular, work-life balance is another way to measure wellness.</p><br/><p style=text-align: justify;>In a world increasingly dominated by digitalisation, “people will work on average only three hours a day in 2050,” predicts Bernd Thomsen, a German futurist, who says that we’ll use all that additional leisure time to engage in social activities and sports.</p><br/><p style=text-align: justify;>Not only will future generations spend fewer hours in the office, they will also retire earlier. The European Commission forecasts that, by 2060, Europeans will spend roughly a third of their lifetime in retirement, four years more than they do today.</p><br/><p style=text-align: justify;>The commercial impact of greater health consciousness and increased leisure time will be enormous. According to Goldman Sachs, a generational shift in perspectives on health and wellness is already stoking changes in athletic apparel, food, beverage and tobacco spending.</p><br/><p style=text-align: justify;>With millennials taking a daily approach to being healthy, the ritualisation of wellness creates a “healthy lifestyle” evident in pop culture that informs how individuals express themselves, interact with communities and spend their free time. The implications are far-reaching, as consumers will direct more money towards products and services that fulfill everyday healthy lifestyle needs.</p><br/><p style=text-align: justify;>The principal industries that will benefit include sports, food & beverages, and the IT sector, from hardware to software, including data handling. Even more directly, pharmaceutical, healthcare and medtech players stand to benefit from so-called “datafication”: Merrill Lynch estimates that personal healthcare delivery alone could eventually be worth up to $10 trillion globally, including positive impacts on health, life expectancy, productivity and quality of life.</p><br/><p style=text-align: justify;>For the US, which is projected to spend nearly 20% of GDP on healthcare by 2024, based on a McKinsey study, this could equate to annual savings of at least $600 per person per year, or 1-2% of GDP.</p><br/><p style=text-align: justify;><strong>Time is Money</strong><br/>Global smartwatch sales (in millions of units)</p><br/><p style=text-align: justify;><img class=alignnone size-medium wp-image-3164 src= alt=
Source: Statista

Stuck in the Middle With You
Global population by socioeconomic class (in billions)

 width=300 height=203 /></p><br/><p style=text-align: justify;><em>Source: Brookings Institution</em></p><br/><p style=text-align: justify;>Meanwhile, the “techceleration” of our daily lives is just getting started. By 2025, according to IDC, people will interact with connected devices once every 18 seconds – or 4,800 times a day. So data creation and capture is about to explode. Today, according to Merrill Lynch, only 0.5-1% of all data has ever been analysed and used. By 2025, the amount of data stored and analysed will skyrocket to 37%.</p><br/><p style=text-align: justify;>The upcoming introduction of the 5G mobile standard – which is 10-20 times faster than the current standard – will be key to our ability to process this massive data trove and use it to power next-generation technology like autonomous vehicles.</p><br/><p style=text-align: justify;>In the healthcare industry, 5G could open up $1 trillion of services, according to HIS Global, as it becomes the base for the development of 24/7 connectivity and sensors – building upon health and wellness data-capture that has already risen exponentially with the adoption of smartphones and digital wearables.</p><br/><p style=text-align: justify;>At the same time, as each individual’s most personal data flows ceaselessly across the globe and seamlessly from one device to another, concerns about the right to privacy will mount. If <a href=>privacy</a> will even exist in the future remains very much to be seen.</p><br/><p style=text-align: left;><strong>Brown Shipley Investment Office</strong></p><br/><p style=text-align: left;>This article appears in our Global Investment Outlook 2019. An indepth look at the key trends and big ideas that will shape the global investment outlook over the next 12 months. Download a copy of this document <a class=local href=>here</a>.</p>

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