Back in March, many wondered why it was so hard to find toilet paper in local supermarkets and even online. These product shortages were attributed by many to COVID-19 fear-driven purchases by consumers as they hoarded everyday products and stocked their pantries. While these bulk purchases did play a small part in some of the shortages, the primary driver was consumers’ increased time spent at home during lockdown and work-from-home initiatives, and the resulting shift in consumption and demand for everyday staples products.
There are few categories within consumer staples that have more regular and steady consumption patterns than toilet paper. Most consumers are using roughly the same amount of toilet paper as they were before COVID-19, and yet those shortages evident in March have been stubbornly present through the summer and fall. Why? The channel in which consumers are using toilet paper has shifted materially from their offices (where companies generally buy unbranded, low-quality toilet paper) to their homes (where consumers generally buy branded, higher-quality toilet paper). So, while toilet paper demand in aggregate has stayed relatively consistent, this underlying channel shift has resulted in surging demand for branded toilet paper, while professional-grade toilet paper has neither had the product quality nor the route to market to service this demand. As a result, branded toilet paper suppliers have benefited from materially higher sales, pricing, and profits.
While toilet paper is one great example of the changes that have occurred due to COVID-19, a wide range of consumer staples categories have been affected. Several historically popular staples like makeup, razors, and even adult incontinence supplies have seen material declines in demand resulting from lower use due to increased time spent at home.
While the timing and trajectory of the recovery back to pre-pandemic norms is up for debate, it does appear that some of society’s altered habits will be structural. According to the Stanford Institute for Economic Policy Research, an estimated 42% of workers who were employed in early March have transitioned to fully working from home today.1 Importantly, while some of those workers will ultimately return to the office, a Federal Reserve Bank of Atlanta survey suggests that the share of working days spent at home is expected to rise structurally, by approximately 300% compared to pre-COVID-19 levels.2 So, the shifting channel dynamics and large demand swings, as a result of consumers spending more time at home, is unlikely to end in the near term.
These changes have and will likely continue to result in a more dynamic market for consumer staples, with increased dispersion of winners and losers. It is in this type of environment where fundamental due diligence and active portfolio management can significantly contribute to relative outperformance. We continue to see potential opportunities in those staples categories that have already benefited from pandemic trends, such as more time spent at home.
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