I’ve seen a lot of people question the run on toilet paper. I think I have the answer….tell me what you think.
Let’s take a pause- we don’t have a toilet paper shortage, we only have a temporary logistics issue. This is about systems management, not a sudden bowel blow out due to corona virus.
Here’s why: (IMO)
A Costco size pack of toilet paper is about 6 cubic feet. An average size family pack is likely 4 cubic feet. Let’s say the average retail price is $20 per pack.
Now, I bet you’ve seen all the pictures of empty store shelves and that probably makes you feel like consumption is out of control, but here’s the thing….the average grocery aisle is about 98 feet long and 7 feet high. Let’s assume it goes 3 feet back. That means that at any given time, a typical grocery store has the ability to store 225 large packs of toilet paper on the shelves at any time. We might also assume that they have a whole pallet out back, so let’s double the stock and say any store has 500 packs on hand.
Ok, now let’s think about how often you might buy one of those packs. Monthly? Every two to three weeks if you eat the burritos at 7 Eleven….you get the idea. Now let’s guess at how many people go into a grocery store or Costco each day. Those stores base the delivery of these items on a guess of how many people might buy them each trip. For instance, a grocery store might guess that one out of every 20 shoppers grabs a pack of TP. If they have 1000 shoppers a day, they have to replace the paper about every two days. (500 packs on hand and expected sales of about 200 per day.)
Ok, let’s move to transportation: In order to keep up with every other day deliveries, wholesalers will send a loaded truck to X number of grocery stores in a particular area on a rotation. A 53 foot trailer can hold 3400 cubic feet of product. So, on a good day, if fully loaded a trailer can hold maybe 1200 average size packs of toilet paper meaning, they could restock almost 4 regular grocery stores or one Costco.
Here’s where the issue happens…..ready…..
We all get word that there MAY be a toilet paper shortage. Now instead of of 1 out of 20 shoppers grabbing TP, it’s like 10-12 out of 20, meaning in order to keep up that store would need 2 deliveries a day, at least. Now logistically, that’s not impossible, however, it’s not profitable. Remember how much space all that TP took up? Remember how much they sell it for? Let’s make a guess on the gross margin of TP. I’m gonna guess high and say they make 10%. I bet it’s waaaaay lower. In fact, Costco’s number one selling item is TP and they sell it at just over cost. They make virtually no money on it. That’s why they put it in the back of the store- so you have to pass everything else to get it.
This means each pack is potential gross profit of maybe $2 per pack for a regular store. Let’s do the math- the truck holds 1200 packs times $2 gross profit each. The load is worth $2400 to the grocery store in gross margin, before the cost of staff, lights, rent, etc.
Now is where the logistics issue comes in….if we were to do the math on any other product, the profit margins would be higher. Bread, eggs, store brand canned items, candy, etc. For example- the average gross margin on wine is about 20%. A case of Chateau Ste. Michelle wine takes up about the same space as family pack of toilet paper. If we used lower end Pinot Grigio or a Red Blend @ $10/bottle, the gross margin is over $24 per box and a fully loaded trailer would be worth almost $30k in gross margin dollars to the store. $30k or $2400….do the math…which truck is more valuable? If you had to cancel three other trucks in order to accommodate the quadruple need for delivery in toilet paper, would you do it? Even if it meant your shelves were empty? Now, wine is a high margin item, but we could do this with virtually every item in the store. Coffee, bread, produce….$’s per square foot on the truck and in the store, it makes the least amount of sense to step up toilet paper deliveries. Couple that with the idea that the run on TP is temporary, and it makes even less sense for the grocery store to react. The consumption of paper hasn’t changed. That means that all the people panic buying have amassed a small stock at home and will be out of the paper market for a while.
Im willing to bet production of TP hasn’t slowed down, I’m willing to bet that the scheduled truckloads of TP will continue to show up every other day or so. I’m also willing to bet an inexperienced grocery store manager will over-order in an effort to meet the short term immediate demand and come the first of April, you and I can saunter into the grocery store and buy a pack of toilet paper at our leisure. Im even willing to bet we’ll get it on sale because the manager will have over-ordered and will have a ton of back-stock.
There are some good lessons here…1) Supply and Demand is a profit based system. 2) You should never run too low on things you consume regularly because the system is susceptible to disruption. 3) When it comes to stressors, things that challenge us, we are all human and regardless of where we live or how much money we make, there are things and common needs that are universal. 4) Be careful how you react at work. Overreaction will cause some useless work or overstock, and lack of thoughtful planning can lead to a crappy situation.
In the meantime, if you need a roll, hit me up, Ive got some. If I can help kick ideas around during this stressful time, let me know. And stay away from 7 Eleven burritos- that stuff isn’t good for your innards.
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