Shortage, what shortage!

Panic buying, such an interesting phenomenon, at least from a purely academic perspective. There is some of that happening right now in the UK and, from what I have seen online, in other parts of the Europe and the World at large as well. I imagine that those living in poorer countries might be somewhat bemused at the thought of people buying up car loads of toilet rolls and hand sanitizer! In fact I am a little bemused by it myself, if not somewhat amused.

Sometimes there are understandable reasons for panic buying. If there were a strike of all fishermen and they also blockaded all the ports for other fishing boats leading to a possibility of a national shortage of fish which in turn could potentially cause a shortage of fish products on supermarket shelves.

But that all starts with speculation and rumour before any actual impact has been observed.This in itself causes panic buying as people who really want fish for dinner next Thursday want to stuff some in the freezer so they can have their planned future meal. That tends to lead a greater demand for fish products even before an actual reduction in availability. Of course once an actual reduction in availability occurs the two have a cyclical effect with all fish disappearing from shop shelves and freezers for the duration of any strike.

With the current situation, regarding Covid-19, there are two products, in particular, that have seen shortages and empty shelves. One is more understandable than the other. Hand sanitizers have never really flown off the shelf in the UK (probably not in many other countries either) but with the arrival of Covid-19 there is a justifiable and understandable increase in demand for hand sanitizers as people are being urged to wash their hands as often as possible to avoid picking up the virus and accidentally infecting themselves through face touching habits.

Clearly washing hands is only really possible near a sink so an alcohol based hand sanitizer that fits in the pocket or bag meets a need. The fact there is a sudden increase in demand for a product that normally does not have a huge market causes a shortage as it can be difficult to ramp up production quickly. As there is a lag there will be shortages and the shortage itself causes a panic demand such that even when production has been increased there will be a period when the stock will still sell out due to people stocking up as they don't wish to be caught out again.

Fairly quickly in a modern society, barring any potential issues with getting raw ingredients for example, the manufacturers will soon catch up with the demand curve and will cash in on both the rational increased demand and the irrational increased demand. Once there is a short period of overstocked shelves full of hand sanitizers the irrational demand will subside.

This tends to be followed by a fall off in rational demand as well simply because a large number of people have overstocked hand sanitizer and so do not require further supply for a period of time. Manufacturers and retailers are experts at handling these kind of demand curves and it really only benefits the manufacturers and retailers when these short term shortages occur.

But then there are toilet rolls... With toilet rolls there's a difference. The toilet roll producers are used to having sudden peaks and troughs of demand, for one reason or another, and so their systems already flex.

For some unknown reason toilet rolls suddenly became scarce, why? Well, maybe a single store ran out of toilet rolls. That probably resulted in a post on a social media site which tagged Covid-19, that results in a surge of buying, then a few more stores temporarily run out of stock, this results in further social media posts and so the cycle continues until there is a national shortage. Although shortage is not quite an accurate description.

At no time was there a shortage of toilet rolls only a demand-supply catch up period between getting stock from warehouses to shelves. The increased panic buying did require a temporary ramp up in production but nothing that manufacturers had not had to deal with before.

And it cannot be understated how much like Christmas the manufacturers and retailers find this. The increase in sales is only temporary but it does mean that neither the retailers nor the manufacturers have to offer any incentives on what is normally a highly competitive and often highly discounted product. So with no need to discount or otherwise incentivize buyers for a short period of time, the manufacturers sought to enjoy the small, but welcome, increase in profit.

That said, the actual amount of toilet paper used over a period will not really increase, all that changes is where the toilet paper is stored. It is no longer in a manufacturers warehouse, nor in a retailers hub warehouse nor on the shelf of the stores, instead it is taking up space in homes. So in these circumstances it is merely a change of warehousing and the exchange of money through the system. But, there will be slightly more money exchanged and slightly more profit for both the retailers and manufacturers.

There are, of course, some other slightly more disappointing aspects about human behaviour on show. After all, the desire to not run out of a product and so buy more than you might usually do means that, with finite stocks, that somebody will run out due to hoarding of others. Unfortunately unless everybody acts rationally then this will occur time and again. Fortunately, some of the more community minded retailers impose purchase limits where they see an actual shortage as opposed to a logistics shortage. Alas, the shortages will continue while the fear and panic persists.

In an attempt to validate why people might be stockpiling I guess the advice that is being given by government and their advisers is that people should be self isolating as far as possible. And if we look across the Channel to our European neighbours then we can see countries that are, to all intents and purposes, closing down! So if people are looking at Europe and think that this will happen in the UK, which it probably will, then perhaps stockpiling is not so much greed but instead good future planning! It is a hard thing to judge and I suspect there is a bit of both!