Saturday, February 6, 2010

The Blizzard and Off-Brand Goods

Bryan Caplan ponders:
A blizzard is about to hit DC. As reports of its magnitude spread yesterday, people unsurprisingly rushed to grocery stores to stock up. Stores unsurprisingly failed to raise prices to cope with this sudden demand shock. By the time I got to the grocery store last night around 11 PM, many of the shelves were unsurprisingly empty.

Many, but not all. They were out of milk and bread, but there was still plenty of cheese and chocolate. That was easily explained - people knew they could shop again in a few days, so they only needed to stock up on staples. But the more I looked around, the more puzzled I was.

Here's what I noticed: For any given type of product, the most popular brand always sold out first. There were no Eggo waffles, but plenty of Wegmans brand waffles. All the national brands of hot dogs and sausages were gone, but there were plenty of obscure sausages still on the shelves. If you broadened the categories, the pattern remained. In produce, all the bananas were gone, but there were still plenty of apples.

You might say, "What's the puzzle? Of course the most popular stuff sells out first." But that's a feeble explanation. After all, if X is ten times more popular than Y, then you'd expect stores to simply carry ten times as much X as Y. Why would X sell out faster in a blizzard if stores have already taken its greater popularity into account?
I think the answer to Professor Caplan's question is that grocery stores keep up with demand by using the just-in-time inventory system -- as inventories run down, they replace them. As long as trucks can bring in more shipments to replenish the most popular goods, the system works well. But, given severe weather, a grocery store's inventory remains static. Thus, the most popular items run out first, leaving only off-brand supplementary goods. And plenty of cheese and chocolate.

When there's enough notice, like with an impending hurricane, stores often stock up on the most popular wares, like bottled water, bread, and canned goods. But the severity of this year's blizzard was only evident just before it hit. Thus, Professor Caplan was stuck with Wegmans brand waffles, instead of Eggos.