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



Can a shift in power balance help the FMCG sector?

Years ago, the power balance between manufacturers (suppliers) and retailers was skewed towards the former, but with consolidation in retail and the formation of large players like Tesco & Walmart, the power balance favours retail currently.

Imbalance driven by low fragmentation in the sector

In the UK, the large grocers/supermarket chains (Tesco, Sainsbury’s, Morrisons and Asda) had ~67% market share in 2021 according to a survey by Kantar Worldpanel. This collective share is a key driver of the imbalance.

The largest UK grocer

The power dynamic has been shifting since the 2007-08 financial crisis, which saw the rise of discounters and launch of private label brands by the grocers. In 2020/21, the landscape changed yet again, driven by the acceleration in online sales and in sales through on-demand grocery delivery companies. However the change has not been significant enough to balance the two sides.

Zero sum game: Retailer margins or FMCG company margins?

The large grocers and FMCG companies have effectively locked themselves into a zero sum game.

Grocers have been charging their suppliers (FMCG companies) listing fees and slotting fees to ensure they deliver margin growth, while at the same time promoting and selling own label brands (significantly cheaper) alongside their suppliers’ branded products.

This has led to large FMCG companies boycotting certain grocers, which in turn has lost the companies large swathes of their market.

Not surprisingly, the result is a win-lose situation with any moves by either side impacting the other negatively.

While this strategy has previously enabled the grocers to source brands at low costs and provide consumers with a wide range of SKUs at competitive prices, the reliance of FMCG brands on overseas suppliers and of the grocers on just in time ordering to keep costs low, has given rise to unprecedented levels of stock outs in stores, with everyone, including consumers ‘losing’ in this game.

Data as the new battleground

More recently, data has emerged as a key battleground for both players. Retailers these days have a wealth of data around sales, which they currently do not share on a realtime basis with their suppliers. This is usually because sharing data is not part of the retailer’s company culture and they fear a rebalancing of power.

As communication between retailers and suppliers is usually very transactional, even point of sale data for each of the SKUs that the supplier sells the retailer is not shared.

However, the Walmart/P & G collaboration that was launched in 1988 is evidence that data transforms this relationship from a perceived zero sum game into a win-win situation. The collaboration was instrumental in growing the retail sales of P & G brands at Walmart from what was $350 million in value in 1986 to $10 billion in 2017 (interview with Tom Muccio, the ‘father’ of this collaboration, on valuecreator.com). This has also resulted in a better and closer relationship between the two giants.

All Good Diapers launched exclusively at Walmart by P & G

Why is this important now?

Sharing the latest retail data on sales and inventory levels helps suppliers/FMCG companies plan for sales much better, which in turn drives their plan for raw materials and production runs, leading to accurate stocking at warehouses.

This then ensures that any purchase orders placed by retailers are fulfilled in their entirety, eliminating stock outs at retailer warehouses. This collaborative approach can lead to the slow demise of the current supply chain crisis that has gripped the world since 2020.

Collaborations between retailers and suppliers can ensure that the retailer is always in stock, ensuring a win-win situation for all – FMCG companies, supermarkets, their employees and consumers.