Tuesday, June 30, 2020

Panic buying or inflexible systems?

Early on in the coronavirus pandemic, the shops ran short of supplies.

There was no sanitiser gel to be had for love or money. Of course, there was wall to wall messaging about how important hand washing was, and how you should use sanitiser if you couldn't wash. Shortage of supplies in the shops means that people were paying attention.

Basic food supplies - pasta, flour, and the like - were scarce. Everyone looked at what was likely to happen, decided that the likelihood of needing to feed themselves at home without being allowed out was pretty high, and put an extra item or two in their basket.

I'm not quite sure how much toilet roll people thought they needed, but being stuck at home means you're going to need more.

I think there's fairly widespread understanding that the the term panic buying was completely misleading. This was (and there will always be the odd exception) a simple adjustment to changing circumstances.

Or, rather, a couple of changes.

The first is that being at home more means that you need more of almost everything. More food, more household supplies. Less petrol in the car, at least for most of lockdown.

Of the 100 days or so we've been locked down, we would normally have been on holiday or a trip for something like 7-10 days. And we would probably have gone out to a pub or restaurant for a meal 5-10 times in addition to that. So that's between 10 and 15 days that we wouldn't have been at home - eating or using other materials. (The Cambridge Beer Festival would have added a whole extra week to that, but that's a slightly exceptional event.) Just because of that, our weekly supermarket spend is going to be up 10-15%.

Other people won't necessarily have the same specific changes, but a lot of people eat out, use takeaways, get schools to feed their children one meal a day, or grab food on the go. So the idea that demand on supermarket supplies in general might be up 10-15% seems plausible.

Recently, Tesco have reported about a 10% increase in demand, which aligns with this. Of course, pubs and restaurants are seeing the other side, with a precipitous drop in income. The overall amount of food required doesn't change, it just gets into peoples stomachs via a different supply chain.

And the supermarket business is pretty cutthroat. The supermarkets have spent years optimising their supply chains to stay competitive. None of them have the slack in their systems to cope with a sudden 10% uptick in demand - if they kept that much headroom in normal operation they would get wiped out in short order.

The second change is in when people shop. We always used to shop twice a week. This is good, you get fresher produce and each shopping trip is more manageable. But now, and this seems to be general, we're making fewer - but obviously larger - shops.

The shift from twice a week to once a week means there's going to be an initial surge. That first shop will have half a week's extra stuff in it, and you end up with everyone having half a week's worth of additional supplies. And just the knowledge that you can't (or won't) simply nip in if you run out means that you're obviously going to have to stock up a little earlier. So there's this sudden surge to add 3 or so days worth of food. Once it's stabilised, of course, it goes back to normal.

We haven't gone for online shopping yet, for the main shop anyway. The supermarket is only a few minutes walk away so it's pretty silly for us. What we have used online ordering for is some of the more specialist items that the local supermarket doesn't carry - the luxury of being able to visit multiple stores is one we've avoided for now.

Longer term, I think it's going to continue in the current state for a while. I really can't see a widespread shift back to pre-pandemic behaviour. People will go out, of course - if only because they're a bit stir crazy - but the idea of going out will soon lose its charm. The hospitality sector is probably going to have to reinvent itself entirely.

The changes we've seen didn't result in the overall volume of demand changing, just in where and how it appeared on the demand side. We have the prospect of the ongoing Brexit fiasco disrupting the supply side, stressing the system again.

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