Sunday, October 25, 2020

The Upcoming Bust of the Hand Sanitizer Market

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Hoping to clean up in the hand sanitizer business, a horde of entrepreneurs have upended the category by attempting to capitalize on an opportunity driven by the COVID19 virus.  In a buying frenzy, product flew off of store shelves creating massive demand.  A simple formula and a ready supply of ingredients has allowed many small businesses to manufacture product for sale and distribution to consumers.   As traditional manufacturers attempt to increase inventories including an increasing number of ad hoc opportunists, oversupply seems highly likely.

Considering the sheer number of online offers for product one might expect a glut on the market.  On Amazon alone, we found 310 listings for “hand sanitizer” selling from $11,543 for a 265 gallon container ($2.94/oz.) to $7.00 for a bottle with a single ounce.  By contrast, Dollar General Stores sells a 2 ounce bottle of hand sanitizer for as little as $1.00.  These wide variations in pricing create much confusion for the public as they attempt to secure a continuing supply of the product.  However, the demand appears undiminished.

The government estimates that the hand sanitizer market will grow to $5.1BB by 2024, a 600% increase.  The product’s growing demand brings some big players into a once fragmented market. Exxon/Mobil announced the production of 160,000 gallons of hand sanitizer in their Louisiana refinery with a plan to donate to local and national health care providers and first responders.  And, they are not alone in this endeavor.  Many major distillers including Anheuser Busch and Bacardi are currently manufacturing hand sanitizer to donate to facilities in their local communities.

Major retail discounters like The 99¢ Store, Dollar General and others including Walmart and Target currently sell hand sanitizer at low prices.  Even though the demand is through the roof, retailers and discount store prices are stable with no indication of substantial increases.  It raises the question, with so many producers of hand sanitizer, will the market become oversaturated?

The supply chain indicates a growing demand for hand sanitizer but there are other issues like the shortage of plastic containers and their perceived effect on the environment.  FDA requires that the only pharmaceutical grade ingredients are used in the manufacture of sanitizer and these components are in short supply.  Many manufacturers indicate that they have a reduced capacity because of supply chain interruptions.  The fear is that the market will be unable to meet the growing demand.  However, this fear has not materialized.

In the Consumer Packaged Goods category, the number of SKUs should diminish as the pipeline is filled by traditional manufacturers.  The 300 plus sellers on Amazon will face a dilemma when the demand for high-priced product disappears.  Among this group and others attempting to cash-in on COVID19, fear they may have priced themselves out of the market.  They face the choice of reducing their pricing to competitive levels or absorb a large amount of unsold inventory.  One might expect that with so many producers, an eventual oversupply may develop.  However, we can expect COVID19 to become a continuing reality that may well extend into the distant future.  The supply chain takes time to fill the pipeline but we can expect this product to be around for a long, long time.

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