I have mentioned before my puzzlement as to the run on toilet paper, where people seemed to be buying much more than they needed so that the stores ran out of them. It was put down to irrational hoarding and there were plenty of jokes made about this phenomenon. I even came across Freudian explanations, saying that the control of one’s bowels is a major achievement for little children that they are proud of, and loss of toilet paper was associated with loss of that control in people’s subconscious, which was why they did not want to risk any chance at all of running out.
Will Oremus writes that the reasons are much simpler and is due to the way the supply chains of products work.
Story after story explains the toilet paper outages as a sort of fluke of consumer irrationality. Unlike hand sanitizer, N95 masks, or hospital ventilators, they note, toilet paper serves no special function in a pandemic. Toilet paper manufacturers are cranking out the same supply as always. And it’s not like people are using the bathroom more often, right?
No doubt there’s been some panic-buying, particularly once photos of empty store shelves began circulating on social media. There have also been a handful of documented cases of true hoarding. But you don’t need to assume that most consumers are greedy or irrational to understand how coronavirus would spur a surge in demand. And you can stop wondering where in the world people are storing all that Quilted Northern.
There’s another, entirely logical explanation for why stores have run out of toilet paper — one that has gone oddly overlooked in the vast majority of media coverage. It has nothing to do with psychology and everything to do with supply chains. It helps to explain why stores are still having trouble keeping it in stock, weeks after they started limiting how many a customer could purchase.
He says that supply chains for many items (like toilet paper) are tightly linked to the retail market and whether they are targeted at commercial establishments (like offices, restaurants, and other public places) or the home market, and the two products are quite different.
In short, the toilet paper industry is split into two, largely separate markets: commercial and consumer. The pandemic has shifted the lion’s share of demand to the latter. People actually do need to buy significantly more toilet paper during the pandemic — not because they’re making more trips to the bathroom, but because they’re making more of them at home. With some 75% of the U.S. population under stay-at-home orders, Americans are no longer using the restrooms at their workplace, in schools, at restaurants, at hotels, or in airports.
He says that the profit margins for toilet paper are very small and that the product is low cost but bulky, making it financially not worth having huge stockpiles of the stuff in warehouses. So the production side is usually working at full tilt and supply is tightly matched to the demand. But that delicate balance got upended when suddenly home demand went up by 40% with a corresponding decrease in commercial need. Shifting the supply chain from commercial to domestic is not easy, because the two products are different. Sending commercial toilet paper to supermarkets would require new contracts to be negotiated and signed, and it is not clear if people would buy that product for their homes.
Because toilet paper is high volume but low value, the industry runs on extreme efficiency, with mills built to work at full capacity around the clock even in normal times. That works only because demand is typically so steady. If toilet paper manufacturers spend a bunch of money now to refocus on the retail channel, they’ll face the same problem in reverse once people head back to work again.
I had thought that after the initial burst of buying, things would get back to normal. But given this analysis, that is not likely to happen until people get back to something like their previous routines of being out of their homes.