Panic Buying: Is it Really the Problem?

At the moment, empty shelves are a common sight in many German supermarkets. Particularly products like toilet paper, kitchen towels, and dry goods like pasta, rice, and flour are more often than not sold out Both retailers and the German government repeatedly assure that these shortages have nothing to do with dwindling supplies, but rather it is the enormous spike we have seen in consumer activity since the beginning of the crisis, which has lead primarily to delivery delays. The press has largely put the blame on consumers’ panic buying. But is “panic buying”, or hoarding, really the only explanation that is keeping our shelves lean?

Weekly Demands Keep Changing

Let us take a closer look at how the daily lives of many people have recently changed.  Less than three weeks ago the majority of people went to work or school five days a week. At these locations, they consumed a not inconsiderable amount of everyday products, such as sanitary products. On top of that, many people had been eating lunch at their work canteens, and, particularly those in urban areas,had been going out to restaurants in the evening. However, within just a few days, the point of consumption concerning many products has drastically changed.

The restrictions currently in place as preventative measures against the spread of the coronavirus have forced the majority of public life into isolation. Many people now work remotely, and children are no longer allowed to attend school, which has made the home the main place of action for both business as well as free-time activities.  What this means is that many products that were readily available and being used at either work or school are now largely being consumed at home. Without totally disregarding panic buying, the reality of the situation is that the weekly demands for many household products have doubled if not tripled within just a few days. Additionally, many people have minimized the number of times they go shopping per week as has been recommended by the authorities.  This has resulted in people buying the products they need in larger quantities (scientifically known as “lot sizes”). This is a combination that quickly leads to empty shelves, even without ascribing it to panic buying.

Average Consumers Buy Like Company Purchasing Managers

In practical terms, the average consumer’s purchasing behavior is very similar to that of a company’s purchasing manager. They predict how much they will need for a day or week, take into account the hassle (expense) of buying the products more or less regularly, assess the risk of a stock out, and consider the shelf-life of the products. In the case of products such as toilet paper, which is rather bulky, this quickly leads to the fact that many families, after weighing up these criteria, consider to stock up on what they will require for a week. Considering that this phenomenon has been occurring for the entire country, supply chains have a hard time adjusting to such an abrupt spike in demand. In contrast, the consumption in companies sharply declined within just a few days, which has led to the exact other extremes. Due to this shift in demand, we have observed an extreme supply demand mismatch in both directions depending on the stage in the supply chain. Above all, the coronavirus is not only a regional problem. It has become a global pandemic in a very short amount of time. Something neither retailers, wholesalers nor producers were entirely prepared for.  

Stabilizing the Situation

It can be safely assumed that the current situation will not be going back to normal any time soon. The initial rush for certain products is probably over. After the first two weeks of increased restrictions supermarkets have seen things calm down significantly. This is in part due to the fact that people are, at least for the time being, sufficiently stocked up. They have also realized that, in spite of logistical challenges, there is no real shortage of supplies in Germany.

Producers, logistics companies, and food suppliers have been able to ride out the initial shock by taking extreme measures in adding extra shifts, hiring more workers, collaborating with other companies, and adjusting to the sales market. Nevertheless, supermarkets will continue to experience a higher and furthermore, a more unpredictable demand over the next few weeks or even months. This is due to the risks and consequences regarding people’s buying behaviors that will have an impact on the situation for the time being.  What is more, food suppliers can already foresee what lies ahead: a lack of harvest workers and a falling number of sales markets abroad, which, additionally, will have an impact on selling prices. Already in the logistics industry, the lack of truck drivers and the increased lead time due to a more intense border controls are being felt.  

Restructuring Supply Chain Management

Several strategies and concepts in risk management and, generally, in supply chain management will need to be reassessed if not entirely restructured after the coronavirus crisis. At this point more resources will likely be made available to develop measures needed to support the resilience of supply chains. One interesting observation has been the tremendous increase in inter-firm collaborations such as the staff sharing collaboration between McDonald’s and the discount supermarket chain Aldi. Various new supply chain and risk management initiatives will have to be investigated in order to be better prepared for such a large-scale pandemic like the coronavirus.

Corona Crisis: Analyses & Comments
This news is part of the Corona series of analyses and comments with KLU researchers regarding different aspects of the effects of the ongoing coronacrisis on our daily lifes, the economy, our way we work and more. Find all analyses and comments.  

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