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!
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.
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 email@example.com