Post #63: Why is there no toilet paper in the supermarket?
Images of empty supermarket shelves whether in Manhattan, Manchester, Munich or Milan have become disturbingly familiar. For shoppers, it’s clearly much more frustrating if they are unable to purchase the most basic of consumer staples. And forget about online deliveries in many cities: good luck if you can even get a slot, let alone a guarantee it will come when you expect it to, with all the items you had intended.
So what’s going on? We recently had a conference call with a consultant and former employee of Amazon specialising in logistics. He furnished us with us some useful perspectives. The biggest problem facing retailers globally is that the arrival of COVID-19 has challenged the default ‘just-in-time’ operating model that has been increasingly deployed. Synchronised supply chains have been undermined. Panic buying has led to capacity constraints. Think about it like this: distribution centres are running low on stock because retailers are ordering more into their stores. And since they can’t transport it to supermarkets quickly enough, there is no spare stock in distribution centres.
Efficient supply chains are all well and good, but they are not what experts call ‘responsive.’ While they can deal with one-off incidents such as earthquakes, a prolonged crisis (compounded by lockdowns) is a much larger challenge. The issue is less one of there not being enough goods available; more one of having the capacity to get them delivered appropriately.
Anecdotally, sales of toilet paper and dried pasta have both risen more than 50% year-on-year in the UK during March. Some supermarkets have responded by closing fresh meat and fish counters in order to free up resource (i.e. its delivery network and staff) for more essential products. This, however, is just a short-term response. Longer-term, the new paradigm – already being explored by Amazon in the US – is to build ‘mothership’ fulfilment centres. These massive buildings – 3m square feet in size – would then supply much smaller and more localised centres, which in turn, would deliver direct to supermarkets. Such developments clearly play into the hands not only of players with scale but also owners of strategic industrial real estate. As we were told, “speed [of delivery] is important, but what customers want is certainty.”
Disclaimers
The document is provided for information purposes only and does not constitute investment advice or any recommendation to buy, or sell or otherwise transact in any investments. The document is not intended to be construed as investment research. The contents of this document are based upon sources of information which Heptagon Capital LLP believes to be reliable. However, except to the extent required by applicable law or regulations, no guarantee, warranty or representation (express or implied) is given as to the accuracy or completeness of this document or its contents and, Heptagon Capital LLP, its affiliate companies and its members, officers, employees, agents and advisors do not accept any liability or responsibility in respect of the information or any views expressed herein. Opinions expressed whether in general or in both on the performance of individual investments and in a wider economic context represent the views of the contributor at the time of preparation. Where this document provides forward-looking statements which are based on relevant reports, current opinions, expectations and projections, actual results could differ materially from those anticipated in such statements. All opinions and estimates included in the document are subject to change without notice and Heptagon Capital LLP is under no obligation to update or revise information contained in the document. Furthermore, Heptagon Capital LLP disclaims any liability for any loss, damage, costs or expenses (including direct, indirect, special and consequential) howsoever arising which any person may suffer or incur as a result of viewing or utilising any information included in this document.
The document is protected by copyright. The use of any trademarks and logos displayed in the document without Heptagon Capital LLP’s prior written consent is strictly prohibited. Information in the document must not be published or redistributed without Heptagon Capital LLP’s prior written consent.
Heptagon Capital LLP, 63 Brook Street, Mayfair, London W1K 4HS
tel +44 20 7070 1800
email [email protected]
Partnership No: OC307355 Registered in England and Wales Authorised & Regulated by the Financial Conduct Authority
Heptagon Capital Limited is licenced to conduct investment services by the Malta Financial Services Authority.
