Why we panic buyThere is a serious information gap regarding the extent of gravity of the pandemic as well as the realistic capacity of the market.
Despite the government authorities’ repeated exhortations to reassure the consumers that there is no immediate risk of supply shortfall of daily essentials, the consumer’s confidence still remains extremely low. This has ultimately resulted in panic buying, mainly in urban markets. Major organised retail outlets such as Bhatbhateni, Saleways etc. had reported peaks in their sales along with traditional grocery shops. There are several underlying causes of demand-supply asymmetry in the market during the crises. First is the trust deficit of the government and lack of credibility of its commitments to ensure unhindered supply in the market. Consumers are taking the government's assurances with a pinch of salt in light of the past experiences of acute scarcity, for example, during the earthquake followed by the economic blockade in 2015. As such, it is natural for common citizens to secure more purchases given continued apathy and complacency of the government. This is amply demonstrated by the fear among the common public which is causing them to stockpile essentials ever since the lockdown.
Second, there is a serious information gap regarding the extent of gravity of the pandemic as well as the realistic capacity of the market. As such, misinformation rules the roost and gives rise to uncertainty and thereby panic. Third, the consumption decisions and priorities of buying consumers, in general, are often based on rumours and whims which have a snowball effect on price distortions.
The Nepali consumer market has three major pillars. Publicly owned natural monopolies like the Nepal Oil Corporation with the help of privately operated outlets sell petroleum products. There are enough loopholes for hoarding and adulteration for the private profiteers in the market which more often than not causes supply disruptions. With a limited market share, the government relies on the Food Management and Trading Company Ltd for basic food supply. But, recent data released by the government stating 25,000 metric tons of rice and 20,000 metric tons of paddy in the stock suggests inadequate preparation by the government in a country with 29 million population.
Second, lately, Nepal is gradually but firmly entering the organised retail market with the entry of the Bhatbhateni superstore along with a number of new entrants specifically in the urban areas. Some studies have suggested that these organized or semi-organised stores spread over ten major urbanized districts of Nepal have about 22 percent market share in daily consumables. These outlets are easy to monitor and less likely to indulge in unfair market practices. But during the current crises, they have reported having largely run out of stocks of many fast-moving consumer goods and replenishment of the inventory is proving challenging.
The third and the strongest pillar in the Nepali market chain is the informal economy. Meaning small privately owned stores that sell everything from cosmetic to agriculture produce. Their limited investment makes it difficult to ensure smooth supply of goods when the demand shoots up during times of crisis.
The principles of marketing and economics suggest a simple course correction measures to remedy such market irregularities. Timely monitoring and effective market surveillance become critical whenever there is a supply-demand mismatch in the marketplace. Anything that puts sellers in a commanding position to fleece customers has to be prevented at any cost. Going by the native psyche, as long as local consumers continue to stockpile for security reasons, Nepali sellers create artificial shortage and make more money during times of emergencies like this.
Research provides an explanation for this hoarding motive through the consumer behaviour lens with the help of a theory generally called ‘psychological ownership’. This refers to ‘a deep attachment to possessions’ that acts as a powerful motivation for hoarding mentality and disorder. ‘Risk aversion propensity’ on the part of consumers also offers a potential rationale for this hoarding mindset. Whenever people anticipate and apprehend an impending shortage, they resort to stockpiling in an attempt to safeguard their economic interests from their future transactions and dealings in the market.
Supply-side disruptions are natural fallout of any kind of panic buying. When only a meagre four out of twenty-two borders that Nepal has with India are open, the essential commodities that generally enter into the country are bound to get drastically curtailed leaving an immediate impact. This psychological fear of blockade especially after India announced a 21-day lockdown is one of the compelling reasons for heightened shortages that fuel panic buying among the masses.
What is often not analyzed is the way marketers and retailers cope with and manage these unexpected disruptions in the marketplace. Retailers could also explore the possibility of maintaining ‘speculative inventories’ to manage such crisis situations. Formal and organised retailers can also take advantage of ‘retail analytics’ so that they can come up with more realistic predictions using sophisticated forecasting techniques in VUCA (volatile, uncertain, complex, and ambiguous) times resulting from the coronavirus crisis-like situations. In addition, one can think of streamlining and strengthening the existing supply chain mechanisms as a coping strategy such as the opening of fair priced shops.