The Effects of Coronavirus Panic-Buying
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For long-time residents of the United States, the sight of empty grocery store shelves is more than just a mere oddity. It’s mildly panic-inducing to be reminded that so much of your existence is inherently linked to certain inventory at your local Walmart or Kroger. The ultimate effect of the panic created by COVID-19 has resulted in a run on a wide variety of goods at stores across the country. From toilet paper to quick-dry yeast, people everywhere are finding themselves one step behind their neighbors when it comes to panic-buying.
It has also put an enormous infrastructure that feeds the entire country under a microscope, showing Americans the time and effort that goes into getting the goods they need onto those store shelves as efficiently as possible. You might never have given shipping logistics a moment’s thought before a few weeks ago, but staring at that steadily dwindling pile of extra TP might have you more concerned.
Here’s a deeper look at how America’s retail community — stores and consumers alike — are being affected by the sudden surge of shopping that hit during mid-March.
Last updated: April 13, 2020
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People Are Motivated by Fear
You don’t often get a chance to see so many people’s instinctive fears explode at the same time, but the surge of shoppers in mid-March showed the way that fear can quickly become contagious.
“It is natural for people to want to overprepare, especially when they are hearing confusing or conflicting messages,” said mental health therapist Prairie Conlon. “Secondly, when people begin to panic-buy, it incites more panic-buying. With the media showing images early of shelves emptying, it encourages others to buy out of fear that there won’t be any left.”
Conlon added that the chaos of the situation can make many feel helpless and out of control. “Preparing,” she said, “gives them a feeling of being back in control.”
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Sudden Change Makes Matters Worse
Writing in Psychology Today, Dr. Utpal Dholakia broke down some of the other factors that contribute to panic-buying. Among them was the suddenness of how things like this hit. Even otherwise levelheaded people who might take the wait-and-see approach are pushed to overreact based on how quickly things evolve and how unplanned the entire process feels.
Dr. Dholakia also observes how panic-shopping tends to lead to much larger purchases and ones that are driven as much by availability as they are by need or price.
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No One Wants the "Sucker's Payoff"
There’s also a mathematical explanation behind the way that people approach panic-buying, one that Chris Stiff, a lecturer in psychology at Keele University, wrote about for The Conversation.
Stiff suggests that game theory is at the heart of panic-buying and claims that the fear of getting the “sucker’s payoff” — essentially misplacing your trust in others and being punished as a result — is what causes people to partake in it.
In practice, this means that once you begin to see others panic — even if you don’t think they’re being rational — failing to respond accordingly could result in you getting burned later on. If you’re the last one to the store, you get nothing, even if everyone else was being crazy.
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The Same Behavior Used to Cause Bank Runs
There is perhaps no better illustration of the “sucker’s payoff” than bank runs, such as those that occurred at the beginning of the Great Depression.
Banks operate by taking deposits and then making loans with those deposits, meaning they never have 100% of their deposits on hand. If customers lose faith in the bank and start pulling out their money, it means that the bank is in danger of failing. And if you don’t get down and pull your money out before that happens, you’ll be ruined.
That basic equation meant that rumors could quickly escalate into full-scale runs that would wipe out a bank in an afternoon — as is famously depicted in the Frank Capra classic “It’s a Wonderful Life.” In fact, it was the bank runs from the Great Depression that prompted the creation of the FDIC in 1933 to insure deposits up to $250,000 and, by extension, ending the practice.
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Human Toll of Panic-Buying Hits Those Least Able To Respond
Looking at the current situation from a purely game theory perspective does fail to address the human impact at play here, as many of the people left out by the sudden crush of shoppers were hardly “suckers” simply getting their payoff. In fact, they tended to be among the most vulnerable Americans, or people who have simply had more pressing concerns in recent days.
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Elderly Unable To Get Needed Resources in Rush
Another group that’s pushed to the edges by the rush on goods are the elderly — a particularly serious issue given how that same group is among the most vulnerable with regards to the current health crisis. Many senior citizens live on fixed incomes, and they would have had every right to fear rushing to a store potentially filled with symptomatic and asymptomatic people. Not to mention, they would benefit greatly by cooking at home and minimizing social contact.
One such example that caught the national eye was that of an Australian woman captured as she wept in front of empty shelves at her local store, having missed the chance to get the food she needed. The image was publicized by a 9 News reporter from Sydney on Twitter and went viral under the hashtag #StopHoarding.
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Lowest Earners Among Those With Fewest Options
The coronavirus outbreak is putting even greater strain on a certain subset of the population — low-income Americans. A recent survey performed by GOBankingRates found that roughly half of those polled had less than a month’s worth of emergency savings at their disposal when the pandemic hit.
Among those hit hardest are low-income Americans who don’t have the financial flexibility to buy a lot of additional groceries at once. It was an issue that was on tragic display when one Utah mother, Lauren Whitney, went viral with a video of her crying after discovering that diapers had sold out at the store — a post with over 5 million views on social media site TikTok.
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Sales at Grocery Stores Are Spiking
Of course, responding to consumer behavior is precisely what retail chains across the country are built to do — especially when that behavior is to buy more. And for retailers, those empty shelves are an example of a missed opportunity to capture some of the spiking demand for goods.
“We are seeing sales in almost every category increase significantly during this time,” said Kurt Jetta, Ph.D., executive chairman and founder of Tabs Analytics. “Being the normal ‘flat’ is being down in this environment. We expect sales continue to be well above normal levels, as consumers will have much more discretionary income to allocate to grocery purchases, given many fewer options to spend their money.”
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But Sales Surge Might Not Mean a Big Hangover
If grocers are concerned that all of the panic-buying was a one-time sugar high before the hard crash, Jetta does offer reassurance that groceries tend to be one purchase people don’t overlook, even in tough times.
“Similarly, there is no question people will buy things they don’t normally buy, but they will be more likely to use them, as well,” Jetta said. “Again, there are far few options to spend and consume. These gains will be somewhat moderated by high joblessness, but historically grocery purchases are highly inelastic to changes in personal income.”
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Visiting the Store Is an Important Routine for Many
Plus, as Jetta notes, trips to the grocery store aren’t always about the purchases.
“Most people are just pushing up their normal purchase cycle rather than hoarding,” Jetta said. “This reinforces what I have always said: The vast majority of Americans enjoy going grocery shopping; many of Americans’ most beloved brands are grocers (H-E-B, Wegmans, Publix, Trader Joe’s). That means they will actively seek to shop more often as a means of ‘getting out.’”
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Companies With Strongest Supply Chains Best Suited To Handle Crisis
Of course, one of the reasons people fixated on those empty grocery store shelves is because such a sight is truly rare. America’s retail chains are often wonders of distribution logistics.
“Companies like Walmart and Target have invested enormously in their supply chain but also in having diverse channels for reaching customers,” said Ethan Chernofsky, vice president of marketing at Placer.ai. “Options like Buy Online Pick Up In-Store (BOPIS) and curbside pickup can be very attractive in times like these, and place brands that have already proven out these models in a strong position.” Chernofsky added that Walmart has been especially informative as its traffic has “remained shockingly steady even in hard-hit regions, further establishing their offline dominance.”
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Logistics Are Having Their Day
The surge in demand and the pressure that it puts on supply chains has made a lot of Americans keenly aware and interested in the building of the supply chains themselves.
“Logisticians are valuable when things are chaotic, that’s the nature of their role,” said Drew McElroy, chairman and co-founder at Transfix, a digital freight marketplace that connects shippers with carriers across the country. “They demonstrate their true value when times are tough. What they need, and by extension, shippers need now more than ever is reliable technology and partners during this pandemic.
“You can’t be haggling over every load when you’re dealing with unprecedented volume. Each step in the process takes time, so streamlining as much as you can with technology is the first thing shippers are doing to make sure freight is getting to where it needs to go. Digital brokers offer that speed and ease of use, and most importantly the flexibility to handle wild swings in volume.”
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Unexpected Bottlenecks Present New Challenges
However, the law of unintended consequences is always at play. Every crisis is bound to have unexpected bottlenecks, and shipping companies are encountering their own unique set of challenges.
“Drivers are working tirelessly to ensure the free movement of goods, and can perform a large portion of their job function while maintaining the proper social distance,” McElroy said. “We’re even seeing shorter drive times, with highways and interstates empty. Unfortunately, when they reach their destination, oftentimes at distribution centers, they’re hitting a logjam. When you combine the safety requirements, the depleted workforce at facilities and the sudden influx of essential items, it’s no wonder that you’re seeing three and four times the average wait times.”
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Certain Stores Better Positioned To Ride Out the Crisis
On the flip slide, some businesses are also well-positioned to benefit from the crisis, due to both the nature of what they’re selling and because of how the reaction to the crisis has played out.
“Home Depot, Lowe’s and the rest of the home improvement sector are still often themed as essential retail allowing them to keep their doors open,” Chernofsky said. “Even more, the seasonality that normally benefits these brands comes in (the) spring period between March and May. The combination of timing and the ‘essential retail’ status within this current environment has propelled these brands to strong year-over-year growth even during the coronavirus pandemic.
“Even more, this is a sector that generally performs well during periods of economic uncertainty with pushes to restore as opposed to buying new or to do it yourself as opposed to paying for help. The sector is enjoying strength now, but it could be poised for even better performance moving forward, especially compared to the wider retail sector.”
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Wholesale vs. Traditional
Another place where differences in consumer buying habits come into the picture is in comparing the wholesale grocery market — think Costco or Sam’s Club — to the more typical grocers out there. The nature of panic-buying presents each business model with its own opportunities and challenges.
“It’s important to note that wholesalers generally have a membership, and therefore pull from a more specific part of the population that may be predisposed to stocking up in a situation like this,” Chernofsky said. “On the flip side, groceries have no limitations on who can visit giving them (a) wider audience to pull from.”
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Wholesale Shoppers Might See Little Change in Habits
However, for wholesalers worried that the most recent rush of stockpiling will mean a hit in demand over the course of the year, Chernofsky is more optimistic.
“It’s certainly not crazy to think that much of the stockpiling effect could impact visits for the coming weeks, however, it would be surprising to see this trend last for too long,” Chernofsky said. “Costco, Sam’s Club and others are already centered around less frequent visits with larger basket sizes than a traditional grocery chain, so this type of behavior — while exaggerated in this instance — is not fundamentally different.
“The biggest impact will likely come from the perpetuation of coronavirus concerns. As those begin to dissipate, the period of economic uncertainty many expect will likely further strengthen wholesale players for the value they can provide. Costco and others have proven out a very strong business model that seems to be all but impervious to even the most extreme of scenarios. It’s hard to imagine a situation where they are not among the strongest performers in the wider retail sector.”
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E-commerce Retailers Discovering New Challenges
Of course, what’s potentially disastrous for many businesses has proven to be a real boon for one segment: e-commerce. Online retail is currently experiencing an unusual period as business is exploding in the midst of a national crisis.
“It’s a strange time to be an e-commerce retailer because there is increasing demand, and there are supply chain issues,” said Calloway Cook, president of Illuminate Labs, an online nutritional supplement provider. “We use a fulfillment company to warehouse and ship out our products, and due to COVID-19 they’ve had to reduce staff and adopt social distancing measures in their warehouses, which reduces efficiency and leads to a significant amount of orders being shipped late. Thankfully we haven’t had any customers complain about an order that they received late.”
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Unexpected Products Seeing Surges in Buying
Elsewhere, the rush of panic-buying is motivating some consumers to make decisions they had otherwise delayed. Deep freezers, for instance, saw a crush of buyers as people wanted to ensure they could continue to buy in bulk.
“For about a year, I had wanted a deep freezer, mostly to take advantage of sales on food while raising a growing family,” said Amanda Giovino of Norwell, Massachusetts. “With the COVID-19 pandemic, my desire quickly turned into a necessity, as online food shopping offered scarce availability on pickup/delivery times as well as food itself.
“After browsing several retailers big and small, hitting many dead ends, I was finally able to place an order online at a local appliance store. When I called to receive an update on my order, I was rudely told, ‘There isn’t a single deep freezer in the United States.’ This statement provided me with fuel to search even deeper. Two hours later I had a deep freezer in my trunk. Time to stock up!”
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Toilet Paper Suddenly a Top Priority
Among the most visible results of panic-buying was a sudden shortage of toilet paper as people began to stock up at home. And while some of this is related to fear, it also represents a reality about how sudden shifts in the economy can ripple out. As Will Oremus detailed in a Medium post, the issue is primarily one of increased demand solely in one area.
While people are using the same amount of toilet paper overall, they’re now relying almost exclusively on their supply at home instead of public toilets where they work or when they’re out and about.
This surge in demand has Georgia Pacific estimating that the typical American household will see a 40% spike in their toilet paper usage with everyone staying at home.
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Price Gouging Can Bring Out the Worst in People
One ugly effect of panic-buying is price gouging — i.e., using the spike in demand to charge much higher prices for goods than you otherwise would. It’s illegal throughout the United States, but some were still finding ways to maneuver around those bans.
EBay, for instance, saw people selling toilet paper for wildly exaggerated prices. This included at least one case where a 72-pack sold for over $120.
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Man's Attempt To Stockpile Hand Sanitizer Horrifies Nation
Another story that caught the eye of many Americans was that of a Tennessee man who saw an opportunity to profit and drove around buying up some 17,000 bottles of hand sanitizer under the assumption he could jack up the price as people started rushing to stores and discovering them cleared out.
The man, Matt Colvin, only managed to sell 300 or so bottles via Amazon before he was shut down by the site and a warning was issued to sellers about price gouging. That was followed by an investigation by the state’s attorney general — with Colvin wisely opting to back down and donate the sanitizer.
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Medical Supplies Unavailable to Professionals Due to Stockpiling
One other consequence of panic-buying is that it can have unforeseen effects on the availability of some products, which means the people who need them the most sometimes can’t get them.
The surge of purchasing that surrounded basic medical supplies like protective masks by consumers often meant that hospitals and other medical facilities struggled to secure their own supplies — an issue only exacerbated by the already critical situation.
So, however proud you might be about moving early to grab that box of N-95s, consider donating them to those truly in need.
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Mitigating Panic-Buying Is Possible
While much of what America saw over those heady few days in mid-March was driven by instinct, it is possible to reduce the effects of panic-buying.
The Yale School of Management recently published some advice from Nathan Novemsky, a professor of marketing at Yale, on how companies could help control the nature of panic shopping.
Among the things Novemsky highlighted was a need to publicize the effect panic-buying can have on others, helping insert a sense of community into a place where most people are simply acting out of fear and a sense of scarcity.
He also detailed how companies can use good corporate communication to keep consumers updated on how they’re addressing the crisis, potentially putting people at ease and making them less likely to get swept up in fear-driven buying.
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Panic-Buying Puts a Strain on Economy, Society
While the psychological and mathematical underpinnings behind panic-buying in times of crisis are hard to deny, it’s still impossible to ignore the way a surge of fear can leave people in dire straits. One can hardly argue with wanting to secure a surplus for you or your family, but the effects can be a lot bigger than you realize. After all, that person who isn’t able to get what they need might be the same ER nurse who’s working nonstop to keep you and your family safe.
The good news is that the infrastructure underlying America’s retail institutions is robust and ready to tackle all sorts of unforeseen challenges. Hopefully, those people who were in tears in mid-March won’t have trouble getting what they need throughout April. But one can also hope that more people take some sobering lessons from how their panic-shopping can affect the rest of their community.
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