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Why CPG Businesses Need to Pay Closer Attention to the Weather in 2018

 

Based on research by the American Meteorological Society, current U.S. economic output varies by up to $630 billion a year (about 3.4% of 2016 gross domestic product) due to weather variability. While there is general recognition of weather’s impacts on results, relatively few businesses effectively translate this general awareness into actionable business insights.

Consumer-based businesses, in particular, should be paying greater attention to the weather as about 5% of their total annual revenue directly impacted by the weather, with much higher sales variability in seasonal categories.

Many businesses only tend to focus on the weather when major events such as hurricanes and snowstorms occur. While these events dramatically alter consumer purchasing patterns in individual markets and at specific times of year, the reality is that over 90% of a business’ annual weather-driven sales come from day-to-day changes in temperature and precipitation. These everyday variations in weather influence shopping lists and, ultimately, the composition of consumer baskets.

Planalytics, a demand analytics company that addresses the impact of weather on the global retail and consumer product industries, has joined Nielsen’s Connected Partner program to help businesses unlock weather-driven consumer insights and manage its impact. Planalytics provides a metric called Weather-Driven Demand (WDD) which measures how much the weather alone increases or decreases demand for a product. WDDs are derived from multi-year, category-level analyses of sales data and the corresponding weather data by time and location. WDD calculations can be compared to the same period last year or versus “normal” weather conditions for a specific location and time period. WDDs are provided as percent or unit changes.

This past year’s hurricanes Harvey and Irma illustrate just how much Mother Nature can have an effect on sales for specific product categories in specific markets at specific times. While weather is just one factor at play, it is interesting to note that there were significant lifts in demand in the week leading up to and following the storms.

According to Nielsen data:

Houston saw an increase in demand for canned goods such as Baked Beans, which saw a 82% lift the week leading into Hurricane Harvey.
Houston saw up to 10% increases in demand for Cleaning Supplies in the weeks following Hurricane Harvey.
Tampa experienced a 60% increase in demand for Tortilla Chips in the week leading into Hurricane Irma.
Tampa saw Flashlight demand jump 640% in the week leading into Hurricane Irma.

It should be noted that with this data, actionable steps can be taken for 2018. For companies in this category + region, the spike in Baked Beans sales in Houston from Harvey needs to be removed when planning for 2018. If it is not accounted for, a demand plan will presume that a storm of Harvey’s strength will repeat next year at the same time and in the same markets – a scenario that is extremely unlikely to occur. Using weather-analytics, businesses should project that weather-driven demand for Baked Beans in Houston for the month of August 2018 will be down -15% to last year. This downward adjustment for the month is correcting for the weather-driven increase the category saw leading up to Harvey’s arrival.

This process of removing historical impacts from weather during the planning process can drive up to 50% improvements in forecast accuracy annually across individual categories. Across an entire enterprise, these more accurate demand plans can result in significant improvements to profitability every year. The benefits are widespread, including increasing market share, right-sizing inventory, and enhancing relationships with customers and suppliers.

Major weather events like hurricanes provide a vivid example of how dramatically sales of a category can disrupt consumer purchasing in a given market at a given time. However, paying attention to typical temperature and precipitation changes that occur throughout the year is even more important for most businesses.

Bottled Water, a product that is on the shelves year-round, highlights the importance of everyday weather-driven sales volatility. Weather has distinct influences on consumer demand for bottled water throughout the year as well as by market. Weather sensitivity – the percentage of sales that are directly influenced by weather during a specific week or month in a specific market or region – can play a big role in these fluctuations. Businesses need to understand these values to better gage true performance of the business.

As an example, the Bottled Water industry in Nielsen’s xAOC channel in the U.S. experienced an increase of approximately +1% in May 2017 compared to the prior year. Evaluating performance for the category would lead to a conclusion that the business performed well. However, when factoring in the impact of weather, demand for bottled water in May should have driven a category increase of +3%. When considering the impact of weather in May to actual performance of the category, overall sales would have declined without the more favorable weather. Demand for Bottled Water, of course, fluctuated by market and by week throughout the month. May is the most weather-sensitive month of the year (the month with the greatest percentage of sales directly attributable to the weather) for Bottled Water. This translated to +9% WDD in Philadelphia and +7% WDD in New York compared to May 2016. For a high-volume, everyday product like bottled water, these are very significant sales swings.

The increase in sales in May did not extend into June. Overall, Nielsen xAOC channel sales for the category in June 2017 was -8% compared to the prior year. The weather impact in June 2017 was -3% on a year-over-year basis. While many were caught off guard to the results, businesses should not have been surprised. The decline was well projected as the comparable year, June 2016, was one of the warmest on record. Said differently, approximately half of the decline in sales in June was attributable to weather. Having this fact-based insight, businesses can investigate and identify other reasons for the decline (i.e. brand changes, competitive trends, etc.)

Weather analytics enables businesses to better understand and evaluate their true performance and this “weather-corrected perspective” enhances communication and planning both internally and externally.

CONCLUSION
Businesses can now leverage analysis of Nielsen demand data powered by Planalytics. Weather-based analytics helps business understand historical impacts, move inventory to meet demand changes, and support planning activities for next season. Measuring AND managing the impact of weather allows for businesses to meet consumer demand trends and exceed organizational goals.

To learn more, visit http://sites.nielsen.com/connectedpartner/partner/planalytics/


About Planalytics
Planalytics, Inc. is the global leader in Business Weather Intelligence. Through advanced weather analysis technologies, planning and optimization solutions, and industry-specific expertise, Planalytics helps companies assess and measure weather-driven impacts and effectively manage the never-ending variability of weather. Leading retailers, food and beverage companies, and consumer goods/services companies use Planalytics to “weatherize their business,” taking advantage of opportunities to increase revenue while deploying strategies to reduce costs and protect margins during periods of risk.

Planalytics has analyzed over 10 trillion sales transactions across thousands of merchandise categories. Planalytics leverages this deep experience to provide companies with Weather-Driven Demand (WDD) indices that quantify how much demand increases or decreases due to changes in the weather. Planalytics’ modeling process isolates weather’s impact on sales from other factors and provides a business-friendly number (e.g. percentage change vs. last year or normal, etc.) companies can utilize and action.

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