Bryan Caplan notices that during a blizzard the name brand items sell out ten times faster than the same item from a generic brand. This puzzles him:
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?
The underlying question seems to be, why doesn’t shelf allocation better reflect actual demand? I can think of a couple reasons that this is the case.
The driving factor here is that the amount of shelf space devoted to a product has an impact on it’s sales. In marketing science they refer to this influence as space elasticity. One reason this occurs is because of exactly what Bryan observed: the more space you have, the less likely a product is not going to be there when you want it. More important than this though, is that more product space gets peoples’ attention, and probably signals something about the demand for that product. If there’s a lot of space devoted to a product that means a lot of people buy it, which influences people via social proof. There’s an interesting behavioral story here about why space influences demand, but for now suffice it to say that it does.
This explains why shelf space matters to sales of individual products, but why would a grocery store, who is concerned with overall sales, care about relative sales of name brand vs generic products? One reason is that many grocery stores have their own generic brands that they want to sell. Another reason is that manufacturers care about how their products are on the shelf, and often make explicit agreements about such things, including paying the grocery store for better shelf space allocation. In some sections of some stores, I am told they let the manufacturers determine how their products will be displayed on the shelf, so that manufacturers are essentially leasing shelf space.
The overall reason why demand alone does not determine shelf space is that shelf space influences demand, so that manufacturers have incentive to bargain to influence shelf space.