UK grocery shortages: It’s not just panic buying
It’s the (just-in-time) supply chain, stupid!
This article originally appeared in LinkedIn on 25 March 2020.
Visit a supermarket right now and you will inevitably come across long queues and empty shelves. Naturally, people are blaming hoarders and panic buyers, and the government keeps asking people to be considerate when shopping. But is panic buying the reason shelves are empty? If not, then what’s the reason they are? And if it’s not panic buying, then is it enough for the government to ask people not to panic buy?
Retailers and the UK government alike are stressing that there is no supply crisis, only a restocking challenge. I think it’s reasonable to believe them and shop responsibly. At the same time, I completely understand and empathise with those who may be skeptical of certain political authorities or business leaders given the heavy-handed u-turns we’ve seen in the last week (sorry, I meant ‘doing the right thing at the right time’…).
With that in mind, I wanted to share a few reasons why the current situation with supermarket queues and empty shelves, challenging as it may be, is unlikely to be primarily due to hoarding, and some takeaways that follow from that.
The UK has been hit by a perfect storm of demand- and supply-side changes:
1a. Increased demand for groceries through e.g. increased home cooking and the need to be ready (or deal with) self-isolation
1b. On the supply side, the UK operates under a ‘just-in-time’ model of frequently replenishing limited in-store stock
This is as if the Christmas trading peak came suddenly, and retailers hadn’t spent the last 3-4 months preparing for it, causing a challenge in keeping shelves stacked, but not in the back-end supply of food and other key goods.
By focusing on messages against panic buying, the UK Government risks perpetuating current shopping behaviour that’s leading to long queues and empty shelves, which in turn can contribute to panic-buying
First, looking at scale: UK grocery retail saw an extra £1bn in sales in the past 3 weeks, approximately +10% more than usual. That seems like a lot, and it is, but it comes down to approx. £36 per household.
Figure 1: Average food spending in 2019 was approx. £3bn per week. Source: Statista
Drivers of this increase include:
- A significant % of UK workers are now working from home = no more Pret lunches for the many who didn’t bring packed lunches from home
- With schools now closed, kids also now eat at least 1 more meal at home
- (Hopefully) fewer people eating out because of social distancing efforts
- Especially for people not used to cooking very much or very frequently, estimating appropriate quantities to buy is harder / people will get it wrong (and err on the side of caution/waste).
- Many households are now self-isolating, and have had to stock up accordingly (either from pre-isolation times or from asking friends to buy stuff for them - presumably more likely to ask for one big favour than many smaller ones)
- Many (hopefully all?) remaining households are expecting to self-isolate sooner rather than later, and so want to be prepared
- Grocery buying patterns have shifted away from big shops (the kind you do when you go in with a shopping trolley) in the past few years/decades. People instead have been increasingly likely to do small shops, buying enough food for the next 1-3 days at a time. Obviously big shops still exist - it’s just about the % of total transactions they make up. This is now reversing because of the above reasons (and, I’m sure, a degree of worry/uncertainty/panic too), which explains the short-term increase in grocery sales and stores being out of stock
By supply, I am referring to the last few steps of the supply chain here - so the journey food takes between a distribution warehouse and a supermarket, not about the back end of the chain like farms and factories.
There are a few important drivers when it comes to consider the reasons why the supply and stock of supermarkets cannot cope with this moderate, Christmas-style increase in demand, but they all more or less come down to the fact that the system as a whole is optimised for ‘just-in-time’.
The argument here is that just-in-time means that even a 5 or 10% increase in demand leads to empty shelves - because the supply chain has been calibrated to meet the predicted demand as precisely as possible. Over-supplying that level would mean waste (binning fresh produce because it didn’t sell costs $£££), and under-supplying that level would mean losing out on £££, so retailers spend a lot of time and effort figuring out what the right amount is.
So, then, supply-side drivers include:
- The UK’s supply chains are ‘just-in-time’ systems, meaning you have frequent deliveries of (relatively) low volumes of goods
- Supermarkets and convenience stores have enough space to serve demand for a small number of days at any given point. This includes both trading space (i.e. the shelves you and I browse) and in-store warehouse space. Obviously this doesn’t apply across the board (some goods are a lot more slow-moving), but it is especially true for the kid of products we are seeing shortages in (fresh food but also certain ambient food products like canned tomatoes or ambient non-food products like toilet roll)
- One of the main drivers of needing just-in-time is high rent prices (especially in cities like London), which in turn means every additional square metre of space has to make you enough money to be worthwhile. This is why for example big supermarkets have in-store concessions (think Argos inside a Sainsbury’s, Decathlon inside ASDA) - because that extra sqm was not making enough money
- “But Christmas season also sees very big increases in spending and yet supermarkets can handle it fine” - this is very true. However retailers spend 3-4 months planning this, e.g. by rearranging store and warehouse space, placing advance orders, and working on an accelerated (and very stressful) timetable to meet that demand. Again, just-in-time relies on your predictions about demand to be right - and in the world of grocery retail, they generally are, because it’s a highly seasonal business.
The endpoint of the above analysis of supply and demand drivers is twofold:
- Panic buying is not necessary (while actively hurting those who lose out as a result). This much should have been obvious already.
- While public figures are very right to call out hoarders and panic-buyers and discourage such anti-social behaviour, doing so will fall short in ensuring people can access basic necessities, because shortages are not primarily driven by panic buying.
What’s needed then is a combination of the following:
- More precise messaging campaigns that stress more clearly what might constitute excessive buying so as to discourage excessive purchasing
- Adjustments to retailers’ offerings to discourage or prevent excessive purchasing such as the elimination of multi-buy offers and limits on certain items (policies which retailers have already implemented)
- Concrete measures to improve the capacity and flexibility of grocery retail’s supply chains and outlets (which to an extent has been ongoing due to Brexit planning)
What each of #1, #2, and #3 need to look like exactly are (a) long-form proposals in themselves, and (b) proposals I won’t pretend to be in a position to write. An interesting idea offered by Greg Callus (whose tweets inspired this piece) which relates to #3, is for grocery retailers to rent out space from outlets like Pret a Manger to add to their customer-facing capacity.
While I’m not going to offer detailed commentary on the three prongs listed above, I do, want to offer one view of what (1) could look like, and why it is important to do it.
Leaning on COVID-19 messaging to manage buyer behaviour
The ‘flatten the curve’ message has been very effective globally in driving three key messages across:
- An exponentially-growing virus like COVID-19 has the ability to overwhelm even the best healthcare systems
- Through minimising the transmission of the virus using suppression and mitigation strategies we can buy the healthcare system enough time to prevent this
- This also buys governments time to expand their healthcare capacity through e.g. manufacturing more ventilators, FFP3 masks, training more staff etc.
Figure 2: Flattening the COVID-19 infections curve
An analogy could be drawn between the COVID-19 infectiousness approach to ‘flatten the curve’while building up healthcare system capacity and the need to keep the grocery demand curve from spiking too aggressively while expanding grocery retail capacity to deal with the new norm of bigger shops.
Figure 3: Flattening the grocery demand curve. For illustrative purposes only.
Just like any serious COVID-19 case above the healthcare system’s capacity is likely to be fatal, any additional demand above the retail system’s capacity is likely to result in an empty shelf.
This can only go so far: As outlined in the earlier section of this piece, the increase in demand is, well, justified. In order for people to practice effective social distancing and self-isolation where necessary, they need to rely more on grocery retail, and through bigger shops at that.
Is this the new reality?
Following the example of its neighbours, the UK is now (finally) in lockdown. I expect the drivers shaping customer demand, and resultant supply-side changes, will outlast this lockdown. I’m sure supply chain directors are already working hard on improving the resilience and evolvability of their systems.
I do worry, however, that misdiagnosing the current short-term problem of shortages could make things worse and increase the levels of panic buying (or just… panic). Hopefully the message will clear up in the coming days while supply chains readjust to the new reality.
A final afterthought: It is obviously very difficult to tell how long this is going to last, or what the post-lockdown world will look like. On the one hand, there is a lot about this virus that’s still up in the air (seasonality, immunity, a vaccine etc. are all unverified assumptions at this stage). At the same time, consumer habits developed during this period may become sticky in the long run, such as more remote work, and therefore home cooking, even after social distancing measures relax (for an interesting read on this, check out this article on ‘the new normal’).
Disclaimer: Everything written in this article is a personal view, and not representative of my employer or any other organisation I am affiliated with.