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Business is changing – it all started with the toilet rolls

We’ve been hit by pandemics before: I remember as a schoolboy catching Hong Kong ‘flu during the 1969/70 outbreak which may have killed 80,000 in the UK. But this latest pandemic is not just a public health emergency; it may be the first since Black Death swept Europe in the 14th century to leave us with lasting economic and business damage.

Those of us who own and run small businesses know our problems won’t be over when the lockdown ends. There will not be an immediate bounce-back, and even if there was, history tells us that business failures are common at the start of a recovery.

In this series of posts I’m going to explore how we can help our businesses survive and prosper in the aftermath of CV-19.

But let’s start at the beginning.

The first signs of disruption to ordinary day to day business life occurred not in tightly controlled communist China but in its capitalist satellite, Hong Kong. In early February there were reports of panic buying of toilet rolls. By 17th thugs armed with knives had reportedly stolen 600 toilet rolls, worth around £167, from a delivery van outside a supermarket.

The panic spread around Australia even quicker than the virus. By 4th March with 41 confirmed CV-19 cases and just one death, Australia’s Chief Medical Officer (Dr Brendon Murphy) was telling Parliament “We are trying to reassure people that removing all of the lavatory paper from the shelves of supermarkets probably isn’t a proportionate or sensible thing to do at this time.”

As the virus inevitably reached Britain so did the panic buying. By early March friends and family reported being unable to find toilet roll in the shops, while on social media there were stories of online deliveries going missing, presumed stolen. Northumbrian Water helpfully warned of the dire consequences to plumbing that could befall anyone of us who foolishly ran out of bog roll and resorted to flushing wet wipes, kitchen roll or newspaper.

So, why this epidemic of panic buying? And why toilet rolls? Was it wholly irrational: an example of the madness of crowds? And what are the lessons for business?

By the way, this is not a new phenomenon. In the Spectator magazine (9 May) a letter writer, Peter Haylings, recalls visiting a house in Hampshire in the mid-1990’s where they were still using shiny Izal toilet paper. The owner’s mother had apparently stocked up in 1914 with enough toilet roll to see the family not just through the Great War but also the next 80 years!

And anyone who has had to do tax exams might recall the case of Andrew Rutledge, a serial entrepreneur, money-lender, hotel proprietor and owner of a crisp factory, who in 1920 while on a business trip to negotiate an advertising contract with Belgian state railways on behalf of a cinema bought 1 million toilet rolls from a bankrupt German manufacturer. He quickly sold them on for a substantial profit and unsuccessfully attempted to claim the deal was not a taxable ‘adventure in the nature of trade’.

Generally there’s not much money to be made from selling toilet rolls. They’re inexpensive and the margins are low. But they’re also bulky (and getting bulkier as our delicate behinds demand softer cushioned paper) taking up lots of space on supermarket shelves and in delivery vans.

However in the UK retail floor space is expensive. Faced with high rent and rates, along with the associated costs of light, heat and cleaning, supermarkets keep a close eye on the profit earned per square metre of floor space. Filling a shelf with low margin toilet rolls that take up valuable space will be less profitable than using it for high margin but compact items, such as coffee, gin or olives. Or to put it another way, a shelf of toilet rolls needs to be fully sold and re-stocked a lot more frequently than a shelf of gin bottles.

Obviously there’s a balance to be struck. Shops can’t simply decide not stock low profit essentials on the grounds they take up too much valuable shelf space. The whole point of a supermarket, or even a corner shop, is to supply everything the customer needs so they’re not lured away by better stocked competitors.

Modern stock control systems, using bar coding and the internet-of-things, allow supermarkets to readily keep track of the stock at each store and match it to anticipated demand. They’ve also been able to convert more backroom storage into profitable selling space by using distribution centres with much lower storage costs. Manufacturers and retailers can predict fairly well how much stock they need and how much they should have in reserve to cover any normal peaks and troughs in demand. So far as I know the demand for toilet roll is not seasonal, though maybe there are geeks closeted away in the bowels of ASDA’s head office maintaining statistics about how much more they sell when the last weekend of Wimbledon coincides with a full moon?

In normal times the system works fine. Shops maintain enough stock to meet the demand from their customers while at the same time not devoting too much space to this low margin product. They can even start get clever and tweak the demand artificially with offers (reduced prices, BOGOFs, extra Nectar points) knowing that people who stock up early one week probably won’t buy again the following week.

But it’s a system that doesn’t cope well with a sudden unpredicted rise in demand. It doesn’t take many customers to clear a shelf of toilet rolls. A problem that’s made worse by most of them being sold in large multi-packs of 9, 16 or more. A run on toilet rolls is quickly obvious because it leaves a big gap on a long shelf. Inevitably somebody uploads a photograph on Twitter. Soon followed by a video, probably including a heart-rending human interest angle. Before long the video is picked up by rolling tv news to add real life drama to their hours of inconclusive uninformed speculation. Pretty soon a newspaper finds a picture of somebody in Costco with their trolley piled high with dozens of toilet rolls without mentioning it was taken 2 years ago in Belgium and the culprit manages a care home with 40 residents. And very quickly you have a full blown panic.

So the question is, are the public (egged on by hysterical media) to blame for panicking, for over-reacting and behaving irrationally?

With few exceptions, my view is that most of toilet roll buying was not driven by panic or profiteering, but by a perfectly rational response to very unusual circumstances.

Consider these facts:

  • You’re told you may need to isolate for 2 to 4 weeks if a member of your household shows symptoms of COVID-19
  • You have no idea how likely that is because nobody knows how prevalent it is in your area or how easily it spreads
  • You have no idea how a rumoured lockdown, like the ones already enforced in other countries, might affect your ability to get supplies
  • You don’t particularly want to run out of toilet roll. Yes, there are alternatives but they’re undignified. And yes, your great grandparents used newspaper but you only buy one a week
  • You see toilet roll shelves in your usual supermarket are not completely bare but have a few packets, much less than usual.

What is the rational thing to do? Unless you’re certain you have enough roll to see you through a possible 4 week quarantine, plus a few more to be on the safe side, surely you will buy. And if you’d normally buy a pack of 4 but they only have packs of 16, that’s what you will buy.

It’s not panicking: it’s a rational response to unprecedented circumstances and incomplete data about what might happen next.

If the average household usually stashes away enough toilet roll for the next 3 weeks and suddenly decides it might be more prudent to increase that to 6 weeks, it going to cause a temporary shortage. I’ve made these numbers up, by the way. Though I’m very fond of statistics I’m not so anally retentive as to record the rate at which I use loo paper.

The temporary shortages of toilet rolls were a minor inconvenience for a few short weeks. As we tentatively emerge from lockdown and businesses start the process of recovery and rebuilding there will be far bigger challenges. The way the world works will have changed, our customers will behave in ways that might have seemed irrational a few short months ago, and most of us will be facing this uncertain future with depleted resources.