Memories of panic buying may be fading here in the UK but have resurfaced elsewhere1. The near constant threat of another wave of Covid-19 may yet prompt another round of hyper demand. Whilst there is little hard evidence to determine the underlying drivers of panic buying2, there are numerous theories that the retail industry may benefit from exploring.
Feroud Seeparsand, dunnhumby's Senior Consumer Psychologist, outlines some likely theories to explain the 'why' behind the 'panic buy' and some implications for retailers to prevent it reoccurring in future.
1. Loss Aversion
Nobel Prize-winning economist Daniel Kahneman stated that 'loss aversion' was his and Amos Tversky's single greatest contribution to decision-making theory3.
We feel the pain of loss more than an equivalent gain. In other words, losing £100 hurts more than the joy of winning £100. When applied to panic buying, we fear for the loss of a product we could otherwise have had. Perhaps more to the point, we would normally have had access to a variety of products. Relative to this normal point of reference, the relative loss of not possessing a product helped lead to panic. As customers would normally possess a certain product, the relative loss of it created pain.
A curious detail is that small numbers can make big differences, a concept called 'diminishing sensitivity'; winning £200 does not double the joy relative to winning £100. In other words, even small numbers of a valued product can have a significant effect on one's decision making. It is because of this diminishing sensitivity customers may lean towards zero risk aversion, in other words not to risk missing out on a product; if you see it, buy it!
Implication for retailers: Use the new reference point that past panic buying did not stop most customers obtaining products.
2. Social Norms
Another Nobel Prize-winning economist, Richard Thaler, and his colleague Cass Sunstein highlighted numerous heuristics to nudge behaviour4; one of these is social norms or copycat behaviour. We are perhaps all guilty of assuming restaurants with longer queues have superior dishes or assuming that the more popular films, plays or books are worth consuming. When applied to retail, if a customer sees another purchasing a particular item, the odds are that they will follow. This can easily be exaggerated through social media and news reports.
It does not matter if this perception is factually inaccurate; perception will still hold sway. If customers do cause products to sell out as a result, this is likely to lead to a scarcity effect, where those products are valued even more than before. This can be further exacerbated if such products are perceived to be potential life savers, like hand sanitisers or medicine.
Implication for retailers: Highlight how most people are not panic buying. Foodstuffs North Island and South Island, in New Zealand, got out ahead by introducing their 'Shop Normal' campaign, which encouraged customers to 'shop normally and be kind in supermarkets'. Tesco in the UK also ran a 'Together we can do this' campaign in national media to encourage people to 'shop normally together'.
3. Uncertainty Breeds a Desire for Control
Sometimes the actions that can save lives, such as hand washing and social distancing, are simply not enough to regain a sense of control5, as they are too dependent upon the goodwill of others. Therefore, there remains a need to reduce anxiety. Stockpiling or buying more, as a form of retail therapy, is a manner for regaining control.
Scientists have found uncertainty leads to the consumption of utilitarian products (such as cleaning agents and cooking ingredients), i.e. products that give you something to do6. Shoppers are less likely to be interested in the latest fashion trends. When one adds to the mix a virus that demands hygiene, the hyper-demand for particular products can be better understood. The same scientists explore the concept of 'displaced coping', where shoppers purchased items that are of no direct relevance to their uncertainty. This may go one step to explain the recent insatiable worldwide desire for toilet paper.
Implication for retailers: Provide customers with products that may provide a sense of control, such as gardening, DIY, crafts, puzzles.
4. Game Theory
Whilst behavioural economics and nudge theory assume irrationality, game theory (which also can claim a Nobel Prize by John Nash, as featured in the film A Beautiful Mind), assumes rationality.
In the same way panic buying exists, customers may panic and create a bank run, where customers take money out en masse which then collapses a bank. In one study, it was found that asking participants to recount a time when they felt fear was found to increase the likelihood of a bank run in the form of a game format7. There was some evidence that inducing sadness was less likely to create a bank run. Given the emotion of fear led to bank runs, it is of little wonder that the fear of a pandemic may have led to panic buying.
Implication for retailers: Influence emotion to avoid fear (e.g. through in-store media and music).
5. Personality Theory
A recent global survey addressed toilet paper hoarding through personality traits8. It was found that customers who felt more threatened by the pandemic, possessed greater emotionality and greater conscientiousness (i.e. planned more) led to more toilet paper hoarding. This study may suggest that appealing to higher values2,9 (ie encouraging responsible behaviour) may not help to avoid panic buying.
Implication: Encourage long term planning and purchase of long shelf life products, to ease supplies if a second or third wave returns.
6. Concluding remarks
This is not an exhaustive causal list, but instead focuses on theories that could have at least some practical application to limit panic buying. The theories covered include areas that assume irrationality, such as behavioural economics and nudge theory, or rationality such as game theory. Other theories may sit more on the fence.
Whatever the drivers for panic buying this is a topic that retailers need to address. Even if panic buying does not reoccur within the Covid-19 pandemic, it is likely to return in some future event whether it be a natural disaster, climate change, strikes or supply shortages.
2. Lunn, P. et al (2020). Using Behavioural Science to Help Fight the Coronavirus: A Rapid, Narrative Review. Journal of Behavioral Public Administration Vol 3(1): doi: 10.30636/jbpa.31.147
3. Kahneman, D. (2011). Thinking Fast and Slow. Penguin
4. Thaler and Sunstein (2008). Nudge. Improving Decisions About Health, Wealth, and Happiness. Penguin
5. Taylor, S (2019). The Psychology of Pandemics. Cambridge
6. Chen, C.Y. and Pham, M.T. (2018). Affect regulation and consumer behaviour. Consumer Psychology Review 2(1): 114-144
7. Dijk, O. (2017). Bank Run psychology. Journal of Economic Behavior & Organization 144: 87-96.
8. Garbe L., et al (2020) Influence of perceived threat of Covid-19 and HEXACO personality traits on toilet paper stockpiling. PLoS ONE 15(6): e0234232.
Covid-19 has fundamentally changed shopping behaviour in a short space of time with shoppers visiting fewer stores less often, but leaving with bigger baskets. Ecommerce sales have near tripled, leaving some Retailers struggling to meet demand and cannibalising in-store margins. What's more, these changes are anything but transitional, with lockdowns and social distancing of some variety likely to dominate society for the foreseeable future, or until a vaccine is released.
With price sensitivity likely to resurface as a recession kicks in, continued disruption to supply chains, and a potential price war in the making as cash-rich retailers fight to retain newly acquired Shoppers and market share, the implications for CPGs and their retail partners are varied and potentially vast.
This report explores how CPGs can maintain a collaborative, win-win relationship with Retailers in the face of changing shopper needs.
Lessons from the field amid the spread of the coronavirus
All over the world fresh food, grocery, drug retailers and their suppliers are working tirelessly to support their Customers and their communities to provide essential services as the coronavirus pandemic impacts everyone's daily lives.
We are in a time of unprecedented challenges for these retailers, their employees and their Customers. But even in these uncertain times, it has been heartening to see so many of these businesses put the Customer first and meet their most important needs, by listening to and caring for them, and adjusting their strategy and operational execution immediately – be it opening hours, services, pricing, product assortment or store experience. But in this time of crisis, it has also been crucial that retailers focus on those serving on the front lines of Customer engagement: the store and distribution colleagues. By recognising their contribution and making their lives simpler and easier, they can help them continue to serve Customers every day.
Alongside our local teams supporting many retailers and suppliers directly, by analysing changes in Customer behaviour and using data to help make decisions, we are also assessing learnings and sharing retailer responses from across our global network where retailers are at different stages of the pandemic, and some locations where social distancing has been in place many weeks.
Here are some of the learnings and highlights of responses in food retail we are seeing so far:
Learnings from China
The Chinese government implemented many practices in January and early February to control the coronavirus (during sales peak season of Chinese New Year, already a huge challenge to retailers) – extending the national holiday, suspending school and entertainment, limiting transportation, and reducing human contact with strict community-management measures.
Customer behaviour has changed over this period as more time was spent in the home and as we look at the pre vs post isolation period we are seeing a number of things:
- Customer spend is up across all customer segments as supermarkets take on the role of "take home" services with restaurants, coffee shops, and quick service restaurants being closed. There has also been a move away from traditional wet markets to more hygienic modern trade.
- Customer spend per visit has grown significantly whilst frequency of visits is overall much lower.
- Many new customers or infrequent customers have reassessed their local stores, with small supermarkets seeing the highest rise in sales and visits as a result of customers shopping in their nearest store.
- There has been a significant increase in online grocery especially in fresh food – ten times the average in sales before the outbreak. This has been driven not just by consumer demand, but the wider distribution of stores offering home delivery.
- Consumption patterns in several categories have been changing, including:
- Daily-meal related categories and instant food showing greater importance and strong growth as consumers chose to cook more at home and stock up on food.
- Significant increases in personal hygiene and household cleaning as customers became much more health conscious
- Chinese white wine, nut, and gifted products, saw much lower demand, often popular during Chinese New Year, as most consumers cancelled family gatherings.
Implications for other retailers
There's much to learn from the data coming from China and other impacted regions. And while it is too early to fully quantify impact and trends, we do have early indications of the massive consumer changes underway.
First, Customers have prepared themselves for lockdowns by stocking staples, baby and pet care. Fear-hoarding is going hand-in-hand with urgent shopping of basic hygiene products. Much of this short-term, "long-life" pantry loading will likely see a significant lag in future consumption sales, such as medicines, household, and canned food.
Second, Customers are doing fewer trips as "social distancing" and quarantine restrictions change habits and encourage nearby shopping. In doing so, consumers are trading up to larger packs, and more "full shop" missions not always typical in those smaller local formats. Sales per visit is increasing by up to 20% in these stores.
Third, Customers are shopping more online. Most grocers are reporting record sales through ecommerce, causing some retailers to scramble to keep their websites up, maintain inventories in line with their orders, and fulfil the demand for delivery and pick-up. Interestingly, we've found that fresh food is no longer reliant on offline retail, which could cause a breakthrough point for ecommerce expansion. As consumers' online shopping behaviour becomes more developed, with convenience and quick service as advantages, we expect online basket size and full grocery shops to help drive this channel expansion further even after the pandemic subsides.
Fourth, Customers are also adopting healthy living by being more conscious about personal hygiene and household cleaning. Though there are regional variations, prevention through improving hygiene practices is seen across the globe.
None of these challenges are trivial. It puts pressure on retailers to act immediately, with both clear strategies for Customer adaptation and operational agility. That said, to varying degrees of commitment, the world's top retailers are adopting three principles:
- The paradox of "Customer First": especially in times of crisis, it's all about is putting the employee first. Recognise and reward your store teams for their super-human responses in the face of crisis. Review attendance and sick-pay policies.
- A better way of embracing Customer loyalty. Understand that employees are the best loyalty-building team. They are members of the community, reflecting the values of their neighbours, speaking for their friends and families, and serving as the voice of your company back to the community. In the U.S. and other regions where the coronavirus is prevalent, they are also seen as belonging to one of two professions that are deemed as "essential" (the other is healthcare). Retailers must think about growing employee loyalty to grow Customer loyalty. Winning Customer loyalty begins with helpful, well-trained, and motivated employees. Your Customers are watching.
- More than ever, it's about the retail basics, and serving and protecting your local community. Getting back to a solid basic level of service and dealing with demand is paramount for everyone who has just faced severe panic buying. Stock shelves with the most important items, continuity of supply is all that matters. Hard decisions need to be made to peel back the shopping experience to the most simple offer, to enable staff to get the basics done. This means trade-offs, with a long list of activities to be paused in store to make employees lives easier and get to a good basic service level.
Retailers who do this rapidly and best will help their communities though these difficult times and win trust with the most Customers, today and in the ever-uncertain future.