The Economics of Toilet Paper

(Photo: Chris Waits)

You never know what kind of useful information will turn up in your in-box. From a reader named Darin Haselhorst:

Steven and Stephen,

Thought this might be right up your alley.  An analysis only a true cheapskate could love.

I get very frustrated trying to compare prices on “paper products” at my local supermarket, Safeway.  They have various marketing terms meant to confuse the average consumer, regular, double, mega etc., making nearly impossible to compare prices on the spot.  So, I threw together a little spreadsheet (attached).

The price as Safeway was not all that surprising until you compare it to the price for which Amazon is willing to deliver it to your front door.  The Amazon Subscribe and Save program is about 30% cheaper than going to the store.  Not too bad.  If you have Amazon deliver 5 items on automatic delivery, they will take an additional 20% off the entire delivery.  A deal any true economist simply cannot pass up.

Its surprising to me that Amazon is willing to deliver to your door for approximately half the price Safeway has on their shelf.

There must be a story out there about the rise of places like Amazon and Walmart.com attempting to replace your local vendors for everyday items.  I know Walmart is toying with same day delivery and Amazon is testing delivery to neighborhood 7 Elevens for pickup. The infrastructure investment these companies are making must be incredible, just to bring me cheaper toilet paper.

Keep up the good work.


BatterB

I think the analysis fails fully recognize the number of rolls purchased. To get to a point of savings, you have to buy three times the number of rolls than at Safeway. Buying in bulk is normally cheaper wherever you do it. There are hidden costs in 48 rolls, like storage space.

Joaco

This is spot on.
All companies would buy in bulk if it was actually as cheap as it sounds. There is a breaking point where (bulk (48 rolls) + storage) > 16 purchases x(3 rolls).
This was a concept developed by Toyota [TPS: Toyota Production System] (also refered to in Lean Manufacturing).
The idea came when the Japanese came over to the US to see how they were producing products for mass consume in the western world (specifically US due to the large population and density). When they went into the supermarkets they saw how 'efficient' the repository system was. Everytime a shelf was emptied, there was an employee who went back to the storage and filled the shelf with products again.
What if you could keep a constant flow (or adjustable) to the flow of output.
Instead of "pushing" my product out of my factory, produce by "pulling" that is by what the market requires.
Yes, producing 150 for $5 is cheaper for you, but unless you sell those 150, you are not gaining an advantage by buying materials in bulk. You will be paying around 10% of the item price in storage, so the 5% discount you got buy incresing your production from 120 to 150 you lost it at storage.
This is more severe when the storage requirements are more strict, like frozen food or perishables, for example meat, yoghurt, surgical instruments, computer components (dust free atmosphere).

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Kdogg

It would be interesting to see how Amazon compares to Costco. Similar to GasBuddy, I think there needs to be a TPBuddy.

James

The other factor is the amazing amount of price markup most supermarkets seem to have. I do most of my grocery shopping at a western US chain called WinCo, mostly because they have a) an amazing amount of things in bulk bins, like about 20 different kinds of flour; and b) no effing Muzak! But after comparing their prices to other places (even WalMart) I can only conclude that either the other places are raking it in, or they're a secret money-laundering operation.

Enter your name...

I think it's going to depend on:

* where you are (Amazon will beat most brick-and-mortar prices in high-priced areas)

* how much storage costs you (if you've already got the space, or if you'd be buying it in bulk anyway, then it costs nothing extra to fill it with a huge box of toilet paper from Amazon)

* what brand/type you prefer

* whether you carefully watch the sales (the local store's sale price might beat Amazon's everyday price)

Kevin

Another consideration here, as was mentioned with previously with bulk savings and the hidden cost of storage, is the fact that selling in bulk is a form of price discrimination. It allows each consumer to reveal their willingness to pay based upon purchase method and price.

Cinderella

Another hidden cost to consider, when thinking about these two methods for obtaining toilet paper, is the environmental aspect, specifically the CO2 footprint of transporting the toilet paper. Assuming one would continue to shop at their local store for other products, the toilet paper ordered through Amazon’s “Subscribe and Save” program has a much larger CO2 footprint than that from the local store. By purchasing toilet paper through Amazon, one is not only continuing to produce their typical carbon emissions while driving to the store, but is also responsible for the massive amounts of CO2 emitted when transporting their personal order of toilet paper from a random Amazon warehouse directly to their house.

J1

I'm not convinced carbon footprint is an issue here. Your Amazon delivery isn't the only thing the delivery truck (normally UPS, at least on my orders) is delivering, so there is greater efficiency there. The delivery truck would probably create a lower carbon footprint than driving your car to the store regardless, and many delivery trucks are hybrids or run on natural gas, both of which are much cleaner than your car (even if it's a hybrid itself).

Philo Pharynx

Well put, J1. In addition, there are fewer trips. For the grocery store, there is a trip from the supplier to the grocery chain's regional distribution center, then another trip to the sotr, then a third trip to your house.

With Amazon, there's one trip from the supplier to the regional distribution center and then another trip to your house.

RZ

Part of the reason for price discrepancy also has to do with the type of consumer. Someone who is stocking up ahead of time can order toilet paper from Amazon on a flexible schedule, whereas someone who waits until they are out or almost out of toilet paper will make a supermarket run to get some more. That's why Safeway can charge more - they are catering to the group of consumers who need the product quickly.

Paul in VA

The Problem with buying so Many rolls is not only the storage space, it CASH FLOW and Opportunity cost. Buying so many rolls so far in advance ties up your money, and prevents you from having money for other things.

This is something that all businesses have moved away from in the past 10 years or so. Any amount of "inventory" is actually "money" sitting on a shelf. This is why so many places have gone to various versions of just-in-time manufacturing and Just in time delivery. The somewhat higher cost per piece is off-set by huge advantages in cash flow, and lower overhead cost for warehouse space, etc..

Steve Cebalt

Hi Paul: Excellent point, even if this is on a very micro level (toilet paper). When investing in a large quantity of an essential product (toilet paper, essential supplies for a business), opportunity cost must be weighed against savings. I consider it an investment to pay my office rent a full year at a time in exchange for no rate increase and a 5% discount. That's a guaranteed 5% return on investment, without putting my money at risk in the market.

Sal's Dad

Your ROI might be closer to 10% (annual): you are paying your rent 6 months in advance - on average.

Aaron

I take the point about the opportunity cost of money, but with savings rates (in the UK at least) being so poor is that really a factor? If I get 1% PA on my savings then the opportunity cost of a 6-month supply of paper is going to be maybe $10.00*0.01*0.5 or 5 cents. Not a huge amount. (Obviously this depends on paper use rates, and it also assumes you're digging into savings to buy, not borrowing more expensive credit on storecards or credit cards.)

Kas

Another problem. Our family (2 adults, 1 child) would never use 48 rolls in a month. More like 16 rolls at most so we could never keep up with the monthly recurring order. We'd have to enlist neighbours to share the mega pack and that's getting kind of personal where TP is involved. Finally, shopping the sales in Canada at the supermarket or drug store will enable one to buy a 24 roll pack for around $6-7 so all these prices seem very high.

Seminymous Coward

You can subscribe at longer intervals.

Ross

This is a quote from the Wikipedia entry for Sears:

"Richard Sears knew that farmers often brought their crops to town, where they could be sold and shipped. Before the Sears catalog, farmers typically bought supplies (often at high prices) from local general stores. Sears took advantage of this by publishing his catalog with clearly stated prices, so that consumers could know what he was selling and at what price, and order and obtain them conveniently. The catalog business grew quickly. The first Sears catalog was published in 1888."

The mail order business has existed for over a hundred years, yet brick and mortar stores still exist. Amazon is just the latest mail order business. The names change, technology evolves, but the business models remain the same. Will we see Amazon stores dotting the country in 25 years?

I also can't resist pointing out that the Sears catalog was sometimes used by those farmers as TP. So in a sense, Amazon is really a step backward ;-)

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david

I do buy 48 rolls of toilet paper at a time from Amazon. To counter the storage cost option, yes I have to store a box of toilet paper. I have unused space in my basement. What I do gain is I don't have to think about purchasing TP for over a year. This means I can do my shopping for groceries at the best store for groceries, not the price of TP.

RGJ

Grocery stores are just convenience stores writ a little large. The incredible overhead of that huge building and all those bodies and heat and trucks moving in and out. Makes sense for perishables, but with time and gas? Heck yeah, deliver my stuff! That model was popular with a lot of consumers when it started coming in some years back and COST money, with "pickers" running around taking your items off Shop-Rite (or whatever) shelves.

If you are going to use 48 rolls of TP over the next six months, what model makes more sense? Send an 18 wheeler 12 times to my huge heated, lit up box palace with tons of no value-add employed bodies so I can drive back and forth, burning gas and wasting a dozen hoiurs of time? Or have them shipped here once and toss them in the basement?

Kathryn

What I've never been able to get is the HUGE variety in toilet paper available in this country. I lived in England and was able to easily compare toilet paper prices because toilet paper was toilet paper. Sure, you could pay more for extra extra thick, extra extra soft , or extra extra brand name, but just about all products were similar, and we found the extra extras were not up to much. Here, we find we may end up buying something that requires 5 sheets to do what two of another brand might accomplish, and the sizes of sheets differ between brands now too. As if the consumer won't notice that several millimeters have been shaved from the length or width, but they'll save masses (And I'm sure that their consumer research indicates that the public prefer smaller sheets for the same price, just like they prefer 12 oz boxes of pasta for the same price as the 16oz box: it's so much more convenient.....) I find myself wanting a sample sheet before I commit myself (because I buy bulk). I've found myself asking receptionists what brand of loo paper they stock in their lavatories if I think it's decent. My abiding sadness is that Costco, who did a brilliant paper in the UK, supplies a rubbish one here.
So even with the handy spreadsheet, comparisons are difficult. Sheet per sheet is only one issue.

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Philo Pharynx

I'm the kind of person that generally buys store-brand or generic products. However I agree that for some products it make sense to get a specific brand for specific qualities. However, you can make a comparison between a store and Amazon for a specific product. As Amazon doesn't have a private label brand, they are supplying the same products you'd find in the grocery stores.

Seminymous Coward

Amazon has AmazonBasics ( http://www.amazon.com/b/ref=sr_1_1_acs_h_1i_2528919011&node=2528919011 ), though they don't offer toilet paper.

Meg

I dont believe that the carbon footprint is an underlying issue here in this article either. An Amazon delivery isn’t the only thing the delivery truck ships out, so there is greater efficiency there. The delivery truck would probably create a lower carbon footprint than driving your car to the store because its making multiple stops to deliver goods and not just the one to yout household, also most delivery trucks are tranisitioning to being more gas efficient.

Steve Cebalt

I applaud Darin's efforts to use a spreadsheet to help differentiate among products. I find it impossible to buy paper towels (I buy the toilet paper I like regardless of price, but paper towels are something I care less about). 2- ply, 4-ply, # of sheets per roll, # of square feet per roll, brands vs. generic, and many other variables designed to make price shopping impossible. It's like the way diamonds are sold, use the "4 C's," so a gullible groom (and aren't they all gullible?) is an easy mark in the jewelry store. So I admire Darin's dilligence but I am not frugal enough; I just grab some rolls randomly and go....I figure random is as good as any other analysis given the variables and my available time and energy to analyze the variables. But I always feel like I am getting hosed.

michaeljc70

I've seen this mistake before. You cannot compare to based on sq ft, rolls, etc. Some sheets are much thinner than others forcing you to use more. I have to compare based on weight, and they don't put that on the packaging generally!

Luka

I wonder how many other products are overpriced...

Timmy D

I think this is a typical example of false saving, you are going to spend more time and resources figuring out which toilet paper is the cheapest then you are every going to save as a family.

It reminds me of these "super-coupon" people who put as much effort into collecting and using coupons as they would on a full time job. Sure you can save a couple hundred dollars a month doing it but if you put the same effort into a job you would be making a couple thoasand dollars a month.

TruthTeller

You're comparing the price of a 12 pack at Safeway to a 48 pack on Amazon?

Not even close to apples to apples...

Keep it honest.