Heatwaves – Making the most of demand

We are only just past halfway through 2022. However, this year has already been extraordinary in many respects, one of which is the record breaking number of heatwaves we’ve seen so far across the world. For those interested, this Wikipedia page lists all the heatwaves in 2022 to date.

Impact on sales

A comparison of sales in the 12 weeks to 10 July 2022, to sales in the 12 weeks to 11 July 2021, shows mixed performance across grocery stores in the UK, with discounters gaining the most, due to consumers switching to them to minimise their grocery spend in light of soaring inflation.

However, despite current inflation rates, BRC-KPMG retail sales monitor for July 2022 showed that total sales increased by 2.3% during the month, bringing to an end three consecutive months of decline.

Ice cream, beer, water & barbecue ingredients sales benefitted the most from the heatwave, while sales of barbecue grills themselves rocketed during this time despite fire hazard warnings. Outdoor furniture sales also benefitted, as more people planned to spend time outdoors in August. Clothing retailers also benefitted during this time.

Gelato & ice cream brands and vendors benefitted all through Europe, as people consumed them in a bid to cool down.

US grocery sales, in the meantime, also benefitted from this, albeit in a different way. Online grocery sales saw the most increase at 17% vs prior year in July, as more consumers sought to avoid travelling outside during this time.

On the overall, US supermarkets benefitted from increased demand during this period, with Albertsons companies benefitting the least at 10% growth vs prior year.

However, some delayed impacts of these heatwaves are yet to come. Typically, for regions that have high humidity levels, heatwaves bring with them increased demand at a later date for anti mould and anti fungal products. Also, shampoo, conditioner, anti frizz hair products and shower gel sales increase following heatwaves as people use these more frequently during heatwaves than they usually do.

So how can you best prepare your store for these heatwaves?

Keep an eye on weather forecasts by reputable agencies. When a heatwave, storm, cold wave or any unusual weather event is expected, look at temperatures expected, humidity levels etc and consider how these, in combination, will impact human behaviour.

For instance, a heatwave is declared in the UK anytime the temperature rises above 25℃ or 26℃. When temperatures are between 26℃ & 32℃, people plan to and are likely to go out, and enjoy the warm weather outdoors. So sales of certain products like beer, wine, water, picnic essentials, barbecue ingredients etc are all likely to increase a few days ahead of these heatwaves. Sales of these products continue to stay elevated during the heatwave as some consumers maybe more impulse led than others. During this period, depending on humidity levels, sales of anti frizz hair products and brands may also increase.

However, when temperatures increase beyond 35℃, sales of these products may not increase as much, as some people may prefer staying indoors where it is cooler. Also, impulse sales will not be as high at stores, and may move to quick commerce channels, as more people want to avoid the heat outside.

When a heatwave is expected, looking at humidity and dust levels is important when considering what and how much to reorder as they impact demand for shampoos, conditioners, moisturisers, home cleaning products and laundry products.

Sound complex? That is because, it is

Impact of changes in weather can be difficult to predict when looking at things in isolation. So consider not just weather forecasts, but also the demographics of consumers around your store location. People from different countries behave differently when it comes to weather. So if your store is located in a cosmopolitan area, consider how people from different backgrounds may react differently to these changes.

If you’d like to learn more about how to prepare for unexpected weather events and maximise sales during these times, email me on veena@salesbeat.co

Heinz & consumer centricity

The iconic glass Heinz ketchup bottle was a staple in family kitchens around the world. But did you know that H J Heinz pioneered glass bottles in the Ketchup sector? This was primarily to show consumers that there were no nasties in his bottles of Ketchup. Nasties in Ketchup bottles? Really?

Yes, at one point Ketchup did not contain even one tomato. It has its origins in the East and was a fermented mix of Yellow Fish, Shark & Mullet. For more info on this, check out the article here.

Cookbook author, Pierre Blot, used the words “Filthy, decomposed and putrid.”, in 1866 to describe ketchup brands that were available the.

At a time when no one cared about what went into ketchup, H J Heinz was obsessed with purity in his product. He put his ketchup in glass bottles so consumers and shoppers could see how pure the product was.

57 Varieties labelling

You maybe surprised to know that 57 Varieties of Heinz is a work of pure fiction. That is not to say that there aren’t/weren’t 57 Varieties of Heinz. At a time when there were more than 60 varieties of Heinz, HJ Heinz went with 57. There are several sources that claim different reasons one. One claims 57 was H J Heinz’s favourite number. Another claims, 5 was H J Heinz’s favourite and 7 was his wife’s favourite. Yet another source claims that H J Heinz simply liked the look of the number.

But what all these sources agree on is the reason behind placing this at the neck of the bottle. This label was a signpost. Instead of whacking the ketchup bottle on the back of the bottle as many did, which usually did not result in much ketchup, consumers were meant to whack the bottle where the label was placed to get ketchup out.

As you can see, probably not the best solution, but better than whacking the bottle on top.

EZ Squirt launch

Malcolm Gladwell, in his book, What the Dog Saw, described the trigger for the research that went into launching squeeze bottles. Heinz had commissioned several studies into how Ketchup was consumed and the consumer persona that consumed the most ketchup. So it was well known that children were their biggest consumer group and one of these user group sessions was a turning point for Casey Keller, a former manager with Heinz.

He was at one of the household observing how people consumed Ketchup. “I remember sitting in one of those households,” Casey Keller, who was until recently the chief growth officer for Heinz, says. “There was a three-year-old and a six-year-old, and what happened was that the kids asked for ketchup and Mom brought it out. It was a forty-ounce bottle. And the three-year-old went to grab it himself, and Mom intercepted the bottle and said, ‘No, you’re not going to do that.’ She physically took the bottle away and doled out a little dollop. You could see that the whole thing was a bummer.” 

Heinz

According to Keller, this was the moment of truth. The average 5 year old consumed 60% more ketchup than the average adult does. And the problem was that the products biggest consumers did not have access to Heinz Ketchup whenever they wanted to consume it. Parents decided how much ketchup their children consumed.

Heinz launched the EZ Squirt bottle as a result. In homes where Heinz in EZ Squirt was used, sales of ketchup increased by 12%.

According to Keller, the innovations in the ketchup space by Heinz “have driven category growth while increasing Heinz’s ketchup sales (by) approximately 7% annually over the past two years, giving the brand a record 60% market share.

“It’s obvious that innovation is the name of the game in this category.”

Launch of the upside down squeeze bottle

However, the Heinz team identified that people were still finding it difficult to get ketchup out of the EZ Squirt plastic bottle.

They often got too little ketchup, but they would just make do with what they had instead of continuing to squeeze to get more. Also, residual bits of ketchup would gather around the nozzle clogging the nozzle toward the end. The Heinz team noticed that consumers often stored their Heinz bottles upside down.

Heinz & consumer centricity

So Heinz launched the upside down squeezable bottles with a valve fitted inside to get the most of the ketchup inside the bottle.

“The upside-down bottle has it all,” said Heinz brand manager Melissa Hill. “It gives an instant flow of ketchup, with no more shaking, complete controllability, and no messy residues on the cap. Squeezing is believing. The valve literally sucks ketchup back up the very instant that squeezing stops.”

As a result, according to CNN, sales of Heinz ketchup in that year rose by 6% when the category itself grew only by 2%.

Heinz continues innovating to meet changing consumer preferences

In November 2021, Heinz announced that they were collaborating with Aptar Food & Beverage to incorporate a new recyclable valve system in their range. As recently as in May 2022, Heinz announced that they were launching their ketchup in a paper bottle made entirely of sustainably sourced wood pulp.

Heinz & consumer centricity

The next 12-18 months will tell how well these changes have been received by Heinz consumers.

If you’d like to read more about how other FMCG companies have approached customer/consumer centricity, check out our blog on this topic.

Promotions – Evaluating & implementing them

The last few weeks, consumers have been switching to less expensive brands and those that they perceive as better value. This includes consumers switching to low priced brands and products on promotions.

During times like these, i.e economic recession combined with decreasing disposable income, companies often turn to promotions as a means of increasing revenue. However, as more companies turn to promotions and the number of promotions in stores increase, consumers begin to factor in these lower prices.

They get so used to it that they become reluctant to purchase products at the regular shelf price. This also results in margin dilution. However, promotions can also attract new customers, boost sales volumes and generate awareness, if planned and executed effectively.

‘If planned and executed properly’ is key, as according to a paper by promotion optimisation institute, 72% of promotions do not break even. Not only do 72% of promotions not break even, but 22% of them also perform worse than if no promotion had been implemented at all.

Lets look at why

Most promotions run year after year, with only slight changes, if any, to the promotional mechanics. Given the fast changing times we live in, it can be dangerous to assume that the same promotion will be effective year after year in the same store.

This assumes that socio economic factors and the demographics around these stores do not change and competitors will react the same way as they did previously. And we all know that this is rarely the case. We have all changed jobs, houses, where we live, the restaurants we frequent, the brands we buy, when and where we shop and in general, our life routine.

So why do we assume everyone else remains the same when we analyse promotions for effectiveness? I have been a victim of this thinking as a commercial finance person, early in my career, too. We assume the same conditions and uplifts as the year before when assessing promotional effectiveness for future periods. Also, we assume that all consumers react the same way regardless of the neighbourhood and their socio-economic make up. Again, this is rarely the case.

Example, a 50% off promotion for a consumer staple generates a lower sales uplift when implemented in an affluent neighbourhood than in others. This is either because consumers would have bought the product without the promotion anyway or because a lower price is unlikely to motivate them to switch from competition. So it is key to understand the demographic and socioeconomic make up of shoppers at each store or each cluster of stores (stores can be categorised for socio economic make up) when promotions are evaluated. As this changes over time, it is important to re-visit the calculations and assumptions each time a promotion is considered.

Store level data needs to be considered

Companies should review store level data to understand the best promotions to implement. 

Other factors such as store level weather forecasts, social media sentiment/mentions, traffic data and so on, influence the effectiveness of these promotions. So take these factors into account too, to evaluate promotional effectiveness. For example, the overall revenue uplift from implementing a promotion for a beer brand when it’s raining will be far lower than when implemented when its warm, sunny and dry. Weather conditions around each store may vary and so need to be evaluated individually or in clusters. In fact, in this case, consumers are far more likely to stock up for a warm sunny day anyway, which means you lose a full price sale in the future.

The promotional uplift often results in fewer sales in the days that follow. Finance and sales teams at companies often consider cannibalisation of other SKUs that the company sells, during these promotional periods. But they rarely consider how the promotion impacts full price sales of the same product in the future.

Timing of promotions is another important variable to consider. Most companies know they should run promotions for special occasions like Black Friday or Back to School month. But in some countries, pay week is a very important time. If your target consumers are cash-constrained, then receiving a pay check means it is “shopping week”. That’s when promotions make a big impact. 

Evaluate promotions over a longer period than just the promotional period

When looking at promotional uplifts and incremental value generated, look at both the specific promotional period and the impact across the next 6 months. Also, the incremental volume from these promotions should ideally come from competition or through increasing the category volumes. 

If the aim is to reduce stock levels or deplete stocks that are close to expiry, you may not need to look at this. However, it is still important to know the impact of the promotion implemented to understand what you can expect in the next few weeks and months. 

In the next few months, an increasing number of brands and supermarkets will be rolling out promotions on their SKUs to meet customer expectations of value. When evaluating promotions, check to see which quadrant they fall into.

Stay away from the red quadrant! If you are seeking to drive volumes to get rid of excess stock or stock close to expiry, the orange quadrant is the place to be as promotional initiatives in this space drive volumes at the expense of profitability. However, if you are looking to increase value for the business, the right hand side is the place to be (the two green quadrants for those who are right/left hand side challenged, like I am!).

It goes without saying that the top right hand corner is the place to be and is home to the winning promotional mechanic(s).

If you have any questions or comments on how promotional initiatives should be evaluated or would like to learn how store level evaluations can be done at scale, email me on veena@salesbeat.co.

Climate change and FMCG sales

Climate change in the form of extreme heat, hurricanes, flooding etc. presents an inherent risk to FMCG companies. It disrupts raw material supply and logistics (roads buckling, flights unable to take off and ships tossed about), resulting in price increases.

British Retail Consortium and NAACDs published studies that establish that every one degree change in temperature results in a 1% fluctuation of sales. However, companies and retailers are still not prepared for this.

The recent heatwaves in Europe and the resulting out of stocks and overstocking of certain SKUs at stores, are proof that inventory management technology has not yet caught up with the problems of today. So how exactly does climate change impact demand?

Obvious examples of climate change impacting sales

Ice-Creams, beer, white wine, rosé wine, chilled carbonated beverages, barbecue ingredients and products, picnic food, sunblock and sunscreen are the obvious ones that retailers stock up on when there is a heatwave.

According to Majestic Wine in the UK, during this last heatwave in July, Rosé outsold white and red wines by more than 172,000 bottles in that week alone. One bottle of Rosé wine was sold every 12 seconds!

Research firm Kantar said, ‘Sun care sales were up 66% and ice cream 14% in the four weeks to 10 July’.

During cold waves, pasta, pasta sauces, soups, baking ingredients, red wine, spirits, lotions for dry skin, flu medications etc experience increased demand.

Regions at risk of experiencing tornadoes, cyclones, hurricanes or storms, or where there are flood warnings in place, are likely to see increased demand for basic necessities like tinned & frozen food (incl. vegetables), packaged soup & pasta mixes, toilet paper, soaps, shampoo and household cleaning products.

Some not so obvious ones

However, there are a few not so obvious SKUs that experience increased demand as a result of unseasonal weather. The impact is not immediately seen and so maybe masked by other factors.

For example when both temperatures and humidity levels are high, there is a delayed increase in demand for anti mould & anti fungal products, shampoos, body soaps, conditioners, anti frizz hair products etc as consumers use more of these up at home during this time.

Another not so obvious one is a (delayed) increase in demand for allergy medications following a period when the weather is hot and humidity levels are low. Pollen count and dust levels impact demand of this product too.

Planning for unseasonal temperatures and weather events

While inventory teams and FMCG sales people may be making plans for barbecues and outdoor picnics when these heatwaves hit, several times, they do not translate this into their work lives.

And, when they do, they need to make guesstimates of the right levels of stock of these products at stores. This is because their demand planning system is unlikely to have taken this heatwave (or cold wave/other weather event) into account.

However, you know what you do as a consumer. It is not a stretch of the imagination to assume others are likely to do the same. Use this knowledge to help prepare your supermarket/FMCG company to ensure there is enough stock of impacted SKU to meet demand/delayed demand.

Follow the weather and ensure you do not order too much of one SKU assuming seasonality still holds. An example is ordering a container load of red wine in December assuming robust Christmas sales, when warmer, unseasonal temperatures are expected for Christmas.

Also, check out our blog on how you can anticipate changes in demand in a VUCA world.

If you have any questions or would like more information on how you can better prepare for demand changes driven by climate change, contact me on veena@salesbeat.co