Everyone has bought into the idea of toilet paper panic buying, but something doesn’t add up.
Ok. Today on myth-busters: panic buying toilet paper.
I’m not buying it.
I reckon there is no panic buying. There is no hoarding. There’s no humans getting totally irrational.
It’s all a myth.
I mean sure. In the early days, people did go a little crazy. There was some panic in the mix then, for sure.
But the world didn’t fall apart. Life found a new equilibrium. We got on with things. The panic driving the panic buying evaporated.
But there’s still not enough paper on the shelves…
So if it’s not hoarding, what is it?
Ok, think about this.
How many people poo at work? How many people do their business at the business?
I did a quick google search on this, but surprisingly there is very little data available.
So I did some back of the envelope calculations.
Given the work day accounts for half of the waking day, but almost all of our post-coffee hours, my guess is 60-70% of our business happens at the business.
There’s weekends though, so maybe we can call it 50%. It doesn’t matter too much. It wouldn’t surprise me if it was as high as 80%. But lets say 50%.
So what does this mean? What does it matter where people are doing their business. Toilet paper is toilet paper, right?
Well, yes and no.
If you’ve only ever bought toilet paper from a retail outlet like Woolies, all toilet paper looks pretty much the same. Some is a little bit fluffier. Some is a little more ‘eco’.
But if you run a business like I do, you know that the domestic and commercial segments are completely different.
Commercial TP is often entirely different grades. It’s delivered via boxes rather than rolls, or if it is on a roll, the roll is massive. It comes packaged for pallets, not shopping trolleys.
It’s a completely different product.
And often the companies that make it are solely in the commercial space, and don’t even make a residential offering.
So the point is, that you can’t just flick a switch and make all commercial paper residential paper. It doesn’t work like that.
However, that’s pretty much what happened to demand. We flicked a switch and sent everyone home, to do all their business in ‘the home office’.
And how big is the shift? Well, if you sent 50% of total ‘business’ back home, to add to the 50% of business that was already happening there, that effectively doubles home business, which therefore implies a doubling of residential paper demand.
But what’s worse, the toilet paper industry isn’t set up to deal with fluctuations in demand at all. It’s normally pretty constant. People find the paper they like, and use a pretty consistent amount of it, regardless of what’s going on in the broader economy.
Demand for toilet paper is not cyclical.
And so toilet paper companies don’t have much spare capacity sitting around. They’re output levels are generally pretty constant.
But suddenly, demand effectively doubles. Over-night.
Do you think they were ready for that?
And so are we sure that this toilet paper shortage is not a problem on the supply side?
It seems to me that the most likely problem is not with panic-buyers, but with the residential paper suppliers being totally overwhelmed by a sudden and mammoth explosion in demand.
There’s an investing rule that’s always worth remembering. People, and markets, can be idiots in the short run, but in the long run, you can bet on them being rational.