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



Sustainability and stock

For FMCG/CPG companies, optimal retail stock levels is about maintaining enough stock at a retailer’s warehouse or at a store level to eliminate out of stocks in stores. For retailers, optimal retail stock levels is about maintaining just enough stock to eliminate overstocking in stores or at their warehouses.

However, optimal stock levels need to be about balancing the two – ensuring that consumers always find the SKUs they want at stores while eliminating overstocking. Due to complex demand patterns, dictated by customer buying behavior, this can be difficult to achieve.

Today we explore how sustainability and stock levels are linked and why it is imperative for FMCG companies to ensure they maintain optimal stocks and sell optimal volumes to retailers. Over the past 5 years, we’ve heard of several companies in the luxury sector disposing of their excess stock (burning them or sending them to landfill) and the adverse impact this has on climate change and the environment.

Many of us have not heard of FMCG companies doing this. However, those of you who are close to or in the FMCG sector know that packaged food is often destroyed once past the expiry date or given to farms as cattle feed.

While companies see this as a waste of money, this has even greater implications on sustainability. Not only does the production process consume energy and resources, but the destruction process is as energy intensive.

With sustainability becoming the epicentre for business strategy in FMCG/CPG companies, focus should not just be on sourcing, water utilisation, energy consumption and minimising waste in the production process. Managing stock and raw material write offs is an integral part of this.

Morrisons, one of the large supermarket chains in the UK, recently made the news when they announced that they were scrapping expiry dates on their range of own brand milk. According to Morrisons, Milk is the third most wasted food and drink product in the UK and 1 litre of milk can account for up to 4.5kg of CO2.

Personal care and cosmetics products have longer shelf life, but are also known to expire and either sent to landfill or destroyed. These are often mixed with coloured dyes to prevent reuse, if sent to landfill. And if you were wondering about the carbon footprint for personal care products and cosmetics, this may give you an indication. An average bottle of shampoo (c.30 hair washes) can account for up to 10kg of CO2. And when expired shampoo units are sent to landfill or burnt for energy, the implications are much worse.

Retailers and FMCG companies should be looking at data driven software that can model consumer buying behaviour to optimise stock levels at retailers, minimising write offs, and the resulting carbon footprint.