Coronavirus toilet roll panic buying is only the start of omni-channel retail's biggest supply chain test

The scenes widely reported from around the world over the weekend of panic buying of toilet rolls is only the tip of the iceberg as far as the impact of Coronavirus on the retail sector is concerned. Put bluntly, the current crisis is about to test the supply chain management foundations of omni-channel retail as never before.

The rapidly-evolving health scare was always going to trigger certain predictable consumer behaviors as people stocked up on food and other items. That in turn would inevitably lead to empty shelves in supermarkets. It’s also already led to rationing of certain items. For example, Tesco, the UK’s largest supermarket, is limiting the amount of antibacterial gels, dry pasta, UHT milk and some canned foods that can be bought at any one time.

Fear of infection was also likely to lead to an uptick in online shopping and a late February increase in activity - and in order size - has indeed been reported by a number of brands. But of course those increased orders need to be fulfiled. Inventory needs to make it to distribution hubs.  As we’ve noted before, the shiny interfaces and enhanced functionality of e-commerce retail platforms is all good and well, but if the warehouses at the back end hit problems, then there knock-on effect is nasty. We saw that with ASOS last year and most notably with online grocer Ocado, where a major fire severely hurt operational ability and took its tool on the bottom line.

Ensuring that the supply chain is in good health is critical. That’s a mantra that omni-channel retail champions like Target have been preaching for years. It’s one that’s going to be put to the test as the Coronavirus crisis continues to spike - and there will undoubtedly be those retailers that are found to be wanting. Avoiding being among that number is currently a top priority.

For example, in the UK, The John Lewis Partnership, parent company of grocery chain Waitrose, reckons it has its ducks in a row. Patrick Lewis, Executive Director of Finance, says:

We’ve got planning very firmly underway. We are meeting every single day, working right across our supply chain, across changing customer needs and also how we work with partners within the partnership to make sure we get the right choices for each stage of where we are. We have seen growing demand across food and growing demand though an online channel as you might expect. We believe there is a move to businesses that customers really trust. We think we’ve been picking up trade because of that.

For our online business, we’ve made sure that we talk to customers in advance and if they are in a 14 day isolation that we can still deliver to them and let them collect it from outside their house. Our plans are - looking after our customers, then looking back down the supply chain, working very hard with our suppliers to make sure that we’ve got continuity of supply. We’ve invested a lot over decades in making sure that we’ve got very strong supplier relationships, so that we can be agile in exactly this sort of situation.

In France, it’s a similar story from Alexandre Bompard, CEO of retail conglomerate Carrefour:

It’s [been] a major concern over the last few weeks for us, with two major concerns, different concerns, one from the other. The main concern is the health condition of our staff and for our customers we are working…Another concern is the securitization and the control of our supply chain. Over the last few weeks, we have been involved in following the consequences of the logistical flows. We have a number of products coming from China to us. And over the past few weeks, we have imagined alternative solutions, alternative roadmaps. And this type of work is done by all the merchandise teams and the work is being carried on following several scenarios adjusted to the daily development of the virus.

Consumer behavior

In the US, CostCo has been one of the retailers shoppers have flocked to to pile up their shopping carts with the result that CFO Richard Galanti cites a big uptick in sales that he directly relates to Coronavirus concerns:

Members are turning to us for a variety of items associated with preparing for and dealing with a virus, such as shelf stable dry grocery items, cleaning supplies, Clorox and Bleach, water, paper goods, hand sanitizers, sanitizing wipes disinfectants, health and beauty aids and even items like water filtration and food storage items.

We're doing our best to stay in stock on these and other items. We're getting deliveries daily but still not enough given the increased levels of demand on certain key items. It's been a little crazy this past week in terms of outside shopping frequency and sales levels and not only in the United States. In terms of placing quantity limits on what a member can purchase. We are doing that in some instances. It tends to be at all locations but may differ regionally based on supply levels. 

The firm does rely on China for some sourcing, but to date this hasn’t caused major disruption, he adds:

In terms of supply chain, closures of many manufacturing facilities extended well beyond the typical one week Chinese New Year holiday, which was the last week in January. In many cases factories over there were closed for one to two additional weeks. That's now improving each week….about three weeks ago, just polling some of the buyers that deal with the factories, they felt there was a rough number of 20% to 25% production levels, moving up to 40% and now as high as 60% to 80%. But again, it's improving and this still has a little ways to go.

Another retailer with a strong interest in China is Walmart. At last week’s UBS Global Consumer & Retail Conference, CFO Brett Biggs insisted that the impact to date hasn’t caused problems:

It does feel like China is starting to kind of come back to work, which will help from a factory standpoint. And we’ll just have to keep monitoring it day-to-day, week-to-week…the complexity that we deal with on a normal daily basis given the size and scale of our company means that we have people that are really good at challenges and how they work through problems, and I feel confident about what we’re able to do.

He also argued that President Trump’s threatened tariff war rhetoric last year had paid an unintended dividend:

I do think in ways, the work that our merchants did around tariffs over the last 12 to 18 months helped us think about some things differently that are probably paying off some now and how you think about supply chain differently.

On the other hand, at Krogers, CEO Rodney McMullen says the firm hasn’t got a great reliance on China, a sentiment that would undoubtedly appeal to the White House:

From a business preparedness standpoint, we’ve established an internal task force that has activated our pandemic preparedness plan with a focus on our customers, associates and supply chain. We generally believe that we have limited supply chain exposure in China as the majority of the products we source is domestic.

But he acknowledges that the situation is moving too fast to make hard-and-fast predictions about what might happen:

If you think about a lot of the basics and things that people would need to be able to keep and maintain their health and those things, it’s so early in the process in the United States and the only pattern that we would have any idea on how to look at it would be China, because it’s the most far developed in terms of going through the impacts. All of our teams, our stores, our supply chain team, our procurement folks, are incredibly focused on making sure that we stay in stock on those critical items and partnering with CPGs and our own supply chain to replenish that.

Plan ahead

It’s all going to come down to effective planning, argues Target CEO Brian Cornell:

We’ve been continually planning for weeks with our vendors and team members both here in the States and overseas. We have a highly sophisticated sourcing and supply chain organization. We're tracking this by category and by factory, even at the PL level, to ensure we’re on top of it and able to plan accordingly. We feel confident in our plans to manage through this situation.

We’ve been working closely with our overseas vendor partners. Both our own brand partners and our national brand partners understand the state of play. We’ve set up a team over the last month that’s literally meeting daily to monitor POs, to understand the state of production in China, to understand the rate of workers returning to work, understanding the state of the ports.

So we’ve been looking at this from all possible dimensions. Certainly from a merchandizing standpoint, we know that we’re going to see some periodic delays. We’re out in front of that making changes in our assortment and our promotional and presentation plans…We’ve also been working very closely with some of our domestic vendors as we see some growing demand in categories like household essentials and food and beverage to make sure we are supporting that with the right level of inventory. So it’s an ongoing process and it’s very dynamic.

My take

I’ve yet to witness any of the fabled toilet roll punch-ups personally, although I did speak to the manager of a Lidl supermarket in the UK at the weekend who confirmed that there had been scuffles in his store, as well as a line around the block to get in first when the branch opened on Friday morning. On the other hand, my local Morrison’s is fully-stocked with toilet rolls, to the extent that the store staff were setting up a promotional offer at the front of the store last night. But in a sign of what is happening - and only likely to get worse - I attempted to do an Ocado shop online last night only to find that the next available delivery slot on offer in my area is next week.

Panic buying is inevitable given the level of media hype and hysteria that’s being pushed at consumers worldwide. As the crisis goes on, supply chains are going to be tested to breaking point and within a few weeks all the ‘we’re confident we can cope’ messaging coming out of leading retailers may come to sound rather hollow.

Another challenge to the retail sector - and the online marketplaces in particular - is already emerging as that of price gouging and profiteering if the supply chains struggle to get goods to the shelves and the delivery centers. We’ll pick up on that problem - and what regulators and legislators need to do about it - tomorrow.