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“Panic buying harms us all”

The scramble for toilet paper and pasta is leaving supermarket shelves empty. The coronavirus pandemic is having a huge impact on people’s purchasing behaviour, notes Alexander Hübner. The businesseconomist who teaches at the Technical University of Munich has a critical view of panic buying and explains how basic supplies are also safeguarded in the current crisis.

“Panic buying harms us all”, says TUM School of Management Professor Alexander Hübner. (c) Mick Haupt

Professor Hübner, how do you explain the panic buying currently seen in retail stores?

Alexander Hübner: Our environment is dynamically changing in the coronavirus pandemic. What was inconceivable yesterday is now reality, and will already be outdated tomorrow. In terms of grocery shopping, the current panic buying is a phenomenon that is to be expected. After all, everyone is trying to secure their basic needs in uncertain times. But panic buying has negative consequences for logistics and the population.

Why is panic buying problematic for people?

Alexander Hübner: Panic buying leads to a situation in which not everyone may have equal access to basic supplies. This is especially problematic for those occupations that are presently committed to the service of our society far beyond the normal extent. People in these occupations may only be able to shop in the evening and find that many products are no longer available. This situation calls for solidarity, and retailers have also meanwhile introduced rules that only allow normal quantities of goods to be sold to each customer. In households, there is the risk that food spoils. We don’t automatically consume more. In the case of perishable goods like fruit and vegetables or diary products, we can expect that panic buying will lead to many of them ending up in the bin.

Particularly fresh meat, as well as fruit and vegetables are almost impossible to store for any period of time, in order to absorb bottlenecks. Will these goods soon disappear from stores?

Prof. Alexander Hübner; Profesur für Supply Chain Management am Campus Straubing
(c) Andreas Heddergott

Alexander Hübner: Here, there are many decentralised and local businesses. So, although coronavirus infections may lead to some production losses, nationwide supplies can be provided by the other businesses. It’s also important to keep an eye on how transport capacities develop. The travel restrictions for Eastern European drivers could have negative effects in the short term.

What effects do the current border closures have on international trade?

Alexander Hübner: Although there are restrictions in the near term, they will be lifted again at some point. We shouldn’t forget that, every year, more than 170 kilograms of food per person are thrown away in the EU. So even with shortages, there would be enough reserves.

Are the empty shelves at the moment a sign that food and goods will become scarce in the future?

Alexander Hübner: No. Stores have been well and truly overwhelmed in the current coronavirus pandemic. This will level off again in the next week or two. In Germany, the federal government has also prepared reserves of food and resources in sufficient quantity which may be used in an emergency. But we are far away from scenario in which we’re compelled to resort to these supplies.

What safety measures are in place to maintain food supplies?

Alexander Hübner: Food supplies will continue to be secured by retail businesses and the state. Even in the current crisis, for the next weeks and months there’s no need to worry that basic needs will no longer be met. First of all, food production and trade are among the systemically vital sectors that will be maintained even in the event of further restrictions. And secondly, retailers have also shown in the past how they are able to compensate for complete failures – such as during strikes or delays to warehouse openings – by supplying branches from other key warehouses.

How are retailers actively countering the risk?

Alexander Hübner: For instance, with separate shifts. What’s more, they are working intensively on further emergency plans which they can activate if the need arises. Today, many activities in warehouses are performed fully automatically. Compared worldwide, German food retailers run highly efficient logistic operations. This will help to deal with the present difficulties.

What negative effects does panic buying have on the entire supply chain?

Alexander Hübner: Supply chains and their planning systems are designed for normal weeks. For example, there are automated disposition systems that result in optimised shelf availability and low logistics costs. The calibration of these forecasting and planning tools is pushed off course by extreme situations. Needs therefore tend to be overestimated – both by people and artificial intelligence. As a result, larger order quantities are sent from the branches to the retail warehouse. These fluctuations are compounded over the various points of the supply chain and lead to even greater uncertainty due to the rather unpredictable demand along the supply chain. This phenomenon is known as the “whip effect”. A slight jerk at the start of the supply chain results in major fluctuations at the end of the chain. Special shifts are then run at food producers, even though there may not be customer demand for this.

How will the food retail sector change in general?

Alexander Hübner: We can now see the effects of globalisation with the pandemic. I believe that this will have the effect that people will return to regional value creation. More and more regional as well as sustainable supply chains will emerge. This can already be seen in the extreme growth in online food retail. Before the coronavirus, this accounted for less than one percent of the market in Germany. This will increase considerably. Online retailers are reporting growth rates in the high double digits. We can also assume that there will be an increasing number of collection points. This model has already become established in France, where more than 3,500 drive-in stations already exist.

 

Prof Alexander Hübner (born in 1978) is Professor for Business Administration at the Technical University of Munich (TUM), where he holds the Chair for Supply and Value Chain Management at the Straubing Campus. His research focuses on the organisation of sustainable supply chains. His work encompasses the development of decision-making tools in the fields of transport, inventory management, capacity management and assortment planning with special applications in retail trade, the consumer goods industry and in healthcare.

The post “Panic buying harms us all” appeared first on Technical University of Munich – School of Management.

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