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The Great Toilet Paper Shortage

Of all the supply chain problems we've encountered over the last 20 years, one of the most remarkable ones has been the empty shelves of toilet paper in America starting in March of 2020 from the Coronavirus. We have seen gas price swings, port strikes, fruit & vegetable shortages, and dozens of other issues, but the Great Toilet Paper Shortage ranks #1 in our opinion of most interesting CPG problems in recent memory. We can't answer every issue, but we've done some work on understanding the problem.


DEMAND ISSUES?


What in the world caused so much Demand? Some baseline facts help. Prior to the Pandemic, more than 7 billion rolls of toilet paper were sold yearly in the United States. Americans typically use 141 rolls a year which is equivalent to 28 lbs. The average American household uses about 400 rolls per year. Needless to say, we use a lot of TP! But what happened at the beginning of the 2020 Global Pandemic, was truly remarkable. While a perfect picture of the demand/consumption isn't known, what is known is that suddenly America's toilet paper revenues grew by over 60%. This also wasn't a uniquely American phenomenon. In Italy, the same study estimated a 140% increase! While there are many theories as to why this happened, what we knew for sure was that customers bought a lot more TP and that store shelves were clearly impacted.

SUPPLY ISSUES?


So why couldn't the supply meet the demand? That question is a bit more tricky & requires an understanding of the manufacturing of toilet paper.


More than 90% of all toilet paper that is bought in the US is also made in the US, and it is produced by three main brands. There are three big players in the US toilet paper industry:

- Georgia-Pacific which makes brands Angel Soft and Quilted Northern

- Kimberly-Clark which makes brands Huggies, Kleenex, and Scott

- Proctor & Gamble which makes brands Charmin, Bounty, Pampers, and more


From these 3 manufacturers, toilet paper is distributed to consumers from a variety of retail & website chains (too many to list). You can read; however, about some of the specific shortages at key supermarkets here (if you truly didn't see them yourself). Costco, Sam's Club, and even Amazon all had significant shortages. This background is helpful, but it doesn't answer why Supply couldn't keep up with the Demand? Was the spike too severe? Wy couldn't the supply chains absorb what seems like any of the spikes in demand (stores were out & stayed out for weeks). Was there any safety stock strategy? In trying to answer that, we found some information that anecdotally helps explain a bit of what happened and how manufacturing tried to respond. Here were the 3 biggest bullets.


- During the shortage, 350 Georgia-Pacific mill employees were working at 120% capacity, producing roughly 40,000 rolls of toilet paper each hour, in a 24-hour period that's 960,00 rolls or 160,00 packs of six. Our understanding is that this was peak production to try and catch up. Georgia-Pacific owner Eric Abercrombie said in an interview: "the demand for toilet paper made for home usage is up a whopping 40 percent".


-Similarly, Kimberly-Clark also reported extreme increases in demand, and are working 24/7 in their factories. As well as "simplifying" their production lines to speed up manufacturing time.


- Proctor & Gamble had the same story. Their largest production center in the US, located in Pennsylvania, is currently manufacturing products are record-breaking rates due to the influx of orders caused by the pandemic, while also trying to keep their employees safe. In addition, and this was a key learning for us, Proctor & Gamble began producing more of the products in higher demand and focused less on producing a wide selection of products. The plant also delayed non-critical planned downtime on the equipment and channeled alternate supply systems for raw materials to help increase production.

WHO'S AT FAULT?


It's obvious that the demand for toilet paper for home use increased and supply did its best to catch up but simply couldn't. Many of us also saw on social media / heard from friends stories of irrational buying (panic buying/hoarding) which makes us think that customer behavior is likely a big factor. Putting on our supply chain hats, we came up with what we think is a better working theory: that there was a "consumption shift" which was not matched with any national redistribution effort. During the Pandemic, Americans and others around the globe still used the restroom (obviously) - just at home much, much more (not so obvious). Our hypothesis is that with this demand shift to people using significant more toilet paper in their homes vs outside their homes resulted in an imbalance of supply & demand that left a lot of unused toilet paper everywhere. Here's why:


First, nearly overnight, 70% of the US population of the country received stay at home orders or were encouraged to quarantine. This was a change in customer behavior and not a true change in demand. People who would ordinarily use toilet paper outside their home for some of their needs at work, school and other venues now were ONLY using toilet paper in their homes. This meant that the need for the average homeowner increased while the need for toilet paper at jobs, schools & other venues dropped to zero.

Second, the supply of toilet paper could not be strategically allocated to where it was now needed. It was simply not possible to take all the toilet paper destined to jobs, offices, schools, etc, and make that available for grocery stores. There were both logistical challenges & inventory management issues to try and divert that demand. All of those other commercial buildings like airports, businesses, and Starbucks that are now either closed or empty are now full of unused toilet paper.


Third, toilet paper is a high-volume low-value product, which means its industry runs on efficiency. Increased shifts at mills & manufacturers only work with steady demand. So if suppliers tried to flip the switch and use commercial toilet paper for retail it would be a complete disaster. This is because commercial toilet paper and retail toilet paper are very different products. Commercial toilet paper, which is used in public restrooms and businesses, is sold in bigger rolls and stored for shipping in large pallets. It would be more than impossible for suppliers to sell commercial toilet paper in stores for everyday consumers.


WILL THIS HAPPEN AGAIN?


It's hard to be sure, we can hope that toilet paper supply chains have learned and adapted from these circumstances. What was fascinating to us was that this wasn't even the first even toilet paper stock out in US history!


"Those who cannot remember the past are condemned to repeat it."

-George Santayana


In 1973, the stock market dipped and lost over 45% of its value, and people everywhere freaked. A rumor of tissue shortages in Japan was leaked by a Wisconsin congressman in a press statement saying:


"The U.S. may face a serious shortage of toilet paper within a few months...we hope we don’t have to ration toilet tissue...a toilet paper shortage is no laughing matter. It is a problem that will potentially touch every American."


The rumor spread like a wildfire, it was all anyone could talk about, radio host, TV, newspapers, people everywhere began hoarding toilet paper, and for four long months, toilet paper was a rare commodity. But by February of 1974 people came to their senses and realized that there had never been a shortage, it had been artificially created by a pop culture frenzy and over-dramatic consumers.

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