An Entirely Qualitative Assessment of Four Key Pandemic Consumer Goods Based on Weekly Target Runs and Predicting the Future for Said Goods
Since COVID-19 shutdowns began in mid-March, I’ve been making weekly runs to Target to pick up various goods. One of the things I’ve also been tracking is the availability of and selection of four pandemic related products: hand sanitizer, disinfecting wipes, masks, and toilet paper. All four share the characteristic of experience demand spikes due to COVID-19, but aside from this similarity, they are incredibly different markets/industries.
I’ll explore these differences in more depth later on in this article, their implications for the strategy of competitors, and my own projection of what the industry will look like post-COVID. But first, let’s explore the demand and supply dynamics for each of these categories (mostly looking at the US market and for consumer demand, not B2B).
First, let’s approximate the unconstrained demand for these four products starting from the beginning of 2020 to 2023 on a quarterly basis.
This chart tells the following story about the demand for each of these products.
- Hand sanitizer and disinfecting wipes experienced a surge in demand that will likely remain elevated for the foreseeable future as many more consumers make these products a regular part of their lives.
- Masks surged initially and even had a later increase due to new government regulations. I don’t foresee the demand for masks being that elevated in the future once COVID goes away, even the best ones are not comfortable and disrupt your life way more than a quick hand sanitizing squeeze.
- Toilet paper spiked as households stocked up but will return to fairly normal levels of demand in the future. There may be more hoarding behavior to bump demand up slightly in the short-term, but you can only use so much toilet paper…
Toilet Paper Thought Experiment
This is a fun tangent to estimate the increase in toilet paper demand which != consumption. Let’s say there are 330M people in the US who use 1 roll of toilet paper per week. Multiply by 52 weeks and total consumption is ~17B rolls of demand per year.
Consumers don’t buy toilet paper on a just-in-time basis though, they stock up, and pack sizes offered in stores reflect that tendency. Let’s assume that the average consumer keeps 7 weeks of stock in their household at once. The pandemic triggered panic buying and possibly some long-term effects in the weeks-of-stock that consumers on average choose to carry in their homes. We can then perform sensitivity testing on the level of safety stock and the impact in overall demand for the year. I’ve chosen 14–21–28 as the potential intervals to look at but it can be anything in-between.
Regardless of the scenario, the increase can be seen as a one-time occurrence unlike hand sanitizer and disinfecting wipes. At some point, you just have too much toilet paper stocked up in your house and have to start using it and COVID-19 didn’t really change the amount of toilet paper anybody uses (though it may have shifted from workplace →home). For the long-term, demand is unlikely to be significantly increased once everyone obtains their desired safety stock level(which I think is occurring now).
Now let’s take a look at the supply side of the equation along with some of my observations at Target (+Costco for good measure) over the last four months.
- Hand sanitizers were impossible to obtain in March. In May, I could finally find limited supplies of random brands — the first time I saw any back in stock was when Target had mini 3oz bottles of Germ-X (limited to one only though :(). In August, the aisles were full of all different brands of hand sanitizer in many sizes (but no Purell as they focus on B2B) to the extent that I think there is an oversupply.
2. Disinfecting wipes continue to be hard to come by and if I saw any at all at Target the brand options were #1 Clorox #2 Up and Up (Target Private Label). I’m able to find these probably only 1/4 visits per month and am always limited to only one purchase.
3. Masks were a relatively unknown specialty medical item and not very well stocked at stores before the pandemic (if they were even stocked at all), so supply was scarce to start with. Around the end of April, I finally found some at Target that had really attractive packaging, though upon opening them and using them I found they were trash. This week, I purchased masks from Costco from 32 degree and they were 100x better.
4. Toilet paper was tough to find at first and the minimal stock I typically saw in April was private label brands, but over the summer it seems like branded manufacturers were able to ramp capacity up, and now you can find Charmin and Bounty on store shelves. The shelves look barer than pre-COVID and retailers are far less promotional, but it is there.
Here’s a quick summary of the supply side of these products in the form of a line graph. I could probably overlap this with demand but I was lazy :)
Now that we’ve established a baseline understanding of the supply and demand situations of these products we can turn to develop our understanding of #1 barriers to entry and #2 characteristics for each product category. This will ultimately inform the competitive implications for players (or players to be) in these spaces and can give some insight into what these categories will look like in the post-COVID world.
The chart below is the complete comparative framework for thinking about these product categories.
We’ll continue with a deep dive into each of these categories.
Barriers to Entry
Hand sanitizer isn’t particularly hard to make at an industrial scale and can be even made DIY in a pinch. Alcohol companies, in particular, were one of the first industries to changeover their production lines to produce hand sanitizer at scale but many other companies big (including Big Oil!) and small have also stepped up to meet demand.
The FDA relaxed regulations on hand sanitizer to make it easier for manufacturers to bring them to market, though that seems to have allowed some dangerous products to make it to market.
As far as distribution goes, from what I can tell it seems like the channels selling hand sanitizer (grocery, general merchandise stores, etc.) remain the same although shelf space and unique SKU count have increased significantly across the board.
I admit that my thoughts on this have changed drastically over the last few months. Initially, I had believed that hand sanitizers were a commodity, it didn’t really matter which one you used as long as it worked. I was a fairly consistent user of hand sanitizer before the pandemic and purchased many different brands (Purell, Amazon Solimo, Whole Foods, Walmart/Target brands, among others) without noticing too much of a difference between brands.
However, my view has changed significantly after purchasing a few more brands that I didn’t see before the pandemic.
Some of these products are truly awful, with key offending characteristics being the following:
- Horrible smell (either too much fragrance or alcohol smell). The natural essentials one above makes my whole car smell with just a few droplets…
- Drying/non-moisturizing. Makes a huge difference because you don’t want to have sticky or dry hands afterward.
- Actually toxic and recalled.
I suspect that newer entrants in the space don’t actually have the capability to make quality hand sanitizers, they can make one that “works” from a medical perspective for the short-term but it will much harder to make one that consumers will prefer once more traditional brands are more readily available.
From a brand perspective, I think there is only limited opportunity here for any kind of luxury play. Consumers are looking for a product that works well with good “effectiveness” branding as opposed to a fancy one.
So what does this all mean for the future of hand sanitizers?
- The alcohol companies, perfume companies, and other less-related industries will mostly not continue to be in the market in the long-term as their product quality and cost structures will be inadequate. A quick google search shows some of the newer entrants are already sitting on too much inventory and will not be able to make up the changeover costs. This is especially true for smaller-scale operations who may not have good distribution channels. Could be a classic case of the bullwhip effect in action.
- Manufacturers who can make a good product at scale will win, whether it be a branded good or generic. There will be many more of these given increased demand and shelf space.
- Retailers will expand brand offerings in the short-term to test what sticks with consumers but will cut back as they begin to identify winners.
- Branding will be focused on product characteristics from both a feeling and a hygiene perspective.
Barriers to Entry
Making these takes a very specialized process, equipment, and needs specific raw materials that are not easy to obtain. TLDR, it’s hard to make. Slate has a good article on the details behind the supply shortage.
Unlike hand sanitizer (or masks for that matter), you can can’t changeover production lines easily to make wipes. Therefore, the supply response so far has been from the existing set of limited players in the market (Clorox/Lysol/private label manufacturers) increasing production and planning to increase capacity, which is a very slow process.
Unlike hand sanitizers, I think there is significantly less room for product differentiation here as you don’t use it on your body (I guess you could, theoretically). Yes — the wipes from Up and Up I bought at Target I would say are marginally worse than the Clorox ones as they were “drier” but it’s not as noticeable as the difference in hand sanitizer quality.
From a branding perspective, there’s even less opportunity as it isn’t even a product that you would use in a public space.
Long-term I think there may be an opportunity here for well-capitalized new companies to enter this market and be successful. There is a significant demand that isn’t being met but it takes $$$ and resources to try and meet that demand.
There may be more manufacturing innovation here in the short-term as well as companies try to figure out how to maximize supply with the resources they currently have.
Another interesting aspect of this market is the game theory component, every player is trying to independently forecast future demand to make decisions on investments in capacity. Whether a collective under-forecast or over-forecast can have significant implications for players. It’ll be interesting to see how this market plays out in the future! Contractual guarantees of purchases can likely be done on the B2B end to minimize risk, but B2C will be significantly more volatile.
Barriers to Entry
Anyone can make a mask, it’s even easier than hand sanitizer. Etsy and sellers of handmade masks have seen enormous success in Q2 being the main factor for a record doubling of revenue. Apparel manufacturers from The Gap to UnderArmour entered the fray relatively later as they ramped up their supply chains to meet the demand to produce masks. Factories making clothes can be easily repurposed to make masks.
For non-medical masks, the regulation is much more limited compared to hand sanitizers and wipes. I don’t foresee that changing in the near-future.
Masks also have significantly broader distribution channels, namely driven by apparel retailers and brands that have swiftly entered the market.
Masks are highly visible in public when you wear one, much more so than any of the other products discussed which are more “hidden”. This may present a limited branding opportunity as consumers may want to signal (more than virtue) by wearing a nice one.
You also use masks for a more extended amount of time, which makes comfort a key differentiator and one that should be top of mind for manufacturers and brands as they work to meet consumer demands.
The “effectiveness” of masks in terms of filtering germs (outside of the N-95 category) doesn’t seem to be a key marketing message, especially among apparel brands. Part of the reason for this could be due to regulation (higher standards for advertising medical benefit) but I suspect that most consumers may not particularly care about this aspect. They’ll wear to meet whatever laws are in place but may prioritize comfort vs. effectiveness.
I think this is a short-term opportunistic play for apparel manufacturers and brands, especially ones with expertise in technical fabrics that they can turn into comfortable masks (see Uniqlo). This won’t make up for the decline in sales most of these folks are seeing, but it is something.
Luxury brand opportunity is likely more limited as even though masks are highly visible I suspect that because of their hopefully short-term market nature people will not invest. Masks are also seen as an inconvenience runs contrary to luxury brands image/lifestyle-focused marketing.
Etsy and homemade masks, meanwhile, may have already peaked and will see their demand decline as masks become increasingly available in traditional channels. There will be niche demand from some consumers who want a personalized/homemade product, but those who were buying on the channel for lack of better options will likely look elsewhere.
Barriers to Entry
Toilet paper is pretty complicated to make and almost impossible to “make at home” unless you resort to some very desperate measures. You need some fairly complicated equipment to manufacture effectively at scale and likely far more expensive to start making vs. hand sanitizer.
I could see in certain instances where you may be able to shift something like a newspaper factory to make toilet paper, but I imagine it would take a significant amount of investment.
I’ll leave it at that — there isn’t too much to discuss here.
Everyone has their favorite toilet paper…2 ply 3 ply texture etc…not much discussion needed here. The toilet paper you use at home though is probably better than the one you use in the office :)
I think most manufacturers realize the absurdity of the sudden spike in demand and while they will ramp up production and utilization by running double/triple shifts in the short-term but it is unreasonable for them to significantly increase new capacity given the temporary situation that we’ve described above. Toilet paper consumption has a cap. This market will likely remain unchanged.
There may be a shift though in the quality of toilet paper on the market, so competitors that can easily swap from making basic 2 ply to soft 3 ply may be at an advantage as they chase the WFH home crowd.
I hope you enjoyed this article and did not take it too seriously, I admit it lacks rigorous research and data but I think many of the conclusions will probably hold with additional evidence.