Weather Data is Transforming Consumer Demand Planning

“It’s tough to make predictions, especially about the future.” — Yogi Berra

For retailers and CPG companies, predicting what consumers will be needing and wanting, months into the future, is an exercise fraught with uncertainty and risk.

Complicating this is the realty that about one-third of consumer products and services (representing revenues of approximately $3 trillion in the US) have some degree of weather and climate variability.

Complicating this even further is the reality that the impact of weather on consumer behavior is increasing.

The combination of a changing climate and consumers that are more connected, more demanding and with more retail choices means that the effect of the weather (and the weather forecast!) on consumer demand is increasing.

This uncertainty is creating increased risk.

It’s also creating opportunity.

As I noted in a previous post, retailers have historically viewed weather as an uncontrollable and therefore unmanageable risk factor — what Wall Street analysts call the “weather excuse.”

That paradigm is now rapidly being turned on its head — rather than a risk, leveraging digital insights mined from weather data is creating opportunities to better serve customers, capture market share and delight shareholders.

An example of how this works is in demand planning — we know from benchmarking analysis done by colleagues at the IBM Institute of Business Value that a 1% increase in demand forecast accuracy yields $10M in revenue for every $1B in sales.

We also know, from work we’re doing with retailers in the US and Europe, that including weather forecast data in demand forecasts for seasonal product categories increases forecast accuracy 20% or more.

See: Just add Weather

When you do the math it’s clear that the value from integrating weather into demand forecasts is far beyond table stakes — in fact, combining weather information with other external variables will be literally transforming how consumer businesses are serving their customers.

And it’s happening now.

I’m looking forward to discussing this at the Climate City Expo on April 2d in Asheville next month.

CCX: Business

“Ensuring humanity’s future in a changing climate presents unique challenges and opportunities to drive innovation. CCx: Business is a cross-industry conference that convenes business executives, entrepreneurs, climate scientists, investors, and many more to explore solutions at the leading edge of climate resilience.”

If you’re coming to the event let me know. Would love to see you there.

If you’re not, here’s a short video that will give you a sneak peak of what I’ll be discussing.

Four Reasons the Polar Vortex will be a Boon for Spring Retail

As widely predicted the dreaded polar vortex is back and it has “seized the Midwest with the coldest weather in a generation.”

These kind of events — if they persist for weeks — can have huge negative impacts on consumer spending and economic activity.

For context, check out this article by Andrew Freedman on the 2014 Polar Vortex event:

“Frigid Winter Takes a Toll on the Economy

But the impact of short spells of bitterly cold weather, in the winter, typically don’t have a major long term impact on consumer demand and retail.

Why? Seasonality. It’s supposed to be cold in winter and retailers and consumer packaged goods companies generally plan for January and February to be, well, wintery.

Where the impact of colder than normal and extreme weather gets dicey for consumer businesses is when it persists for long periods into times where it’s supposed to be getting warmer (i.e. spring). It’s what happened last year.

See: Q1 / 18’s Big Retail Chill

The extreme and life-threatening cold we’re currently experiencing will certainly have a major short -term impact.

But the key here is short-term.

By this weekend and into next week the forecast is calling for an incredible warm up.

For example the temperature in Chicago is expected to increase 63 degrees (-22F to +41F) between tomorrow and next Monday (2/4).

Even with a continuation of these kind of volatile spells of extreme cold across the eastern half of the country in February, the negative impact on retail is likely to be minimal for the reasons noted above.

On the contrary, a cold late winter this year will likely contribute to strong and high margin early spring sales.

4 Reasons for a Retail Silver Lining this Spring

For most retailers in the U.S. the fiscal year starts in February with the spring quarter spanning February through April.

Along with the third quarter (August – October) the spring quarter is the most exposed to weather volatility and hits to profits.

Again, for context, last April was the 13th coldest in the US in 124 years of history.

That coincided with a very early Easter (week 5 March) and it had the effect of essentially kiboshing the normal first quarter Easter sales stimulus.

So there’s four key reasons the late winter polar vortex this year will likely be a boon for spring retail:

  1. An incredibly easy weather comparison to last year.
  2. Cabin fever. There’s still a lot of winter to come and the predictions are continuing to call for periods of very cold weather right into March. When the weather breaks consumers will be breaking out, and spending. It happens every year and it will likely happen 3 or 4 weeks earlier this year.
  3. A later Easter means a longer pre-holiday selling period with weather conditions that will be much milder than last year. More time to shop due to the earlier break to spring weather means more money in the cash register.
  4. The weather impact is greater than ever due to the combined effect of better forecasting, mobile access to more accurate forecasts, and the synergistic impact of social media (weather is nearly always a number one topic on social — it even trumps sex).

When you combine all four elements — easy comp, earlier break, later easter and the weather “forecast factor” — it’s adds up to a very silver lining for US retail this spring.

Weather a Hot Topic at the National Retail Federation Big Show

Had the opportunity to chat with my friend and former colleague (and self-described weather geek), CNBC Senior Economic Analyst Steve Liesman at the National Retail Federation Big Show last week in New York.

He’d just finished interviewing former Chairman of the Federal Reserve Janet Yellen and Kara Swisher, Host of the Recode Decode Podcast.

The topic of the panel?

Impact at scale: Leading in prosperous yet uncertain economic times

While the discussion wasn’t directly related to weather and climate, the spirit of the title at least was relevant to the uncertainty consumer businesses face every day as it relates to the volatility in consumer demand that is created by the weather and, by proxy, the climate.

See: “Climate is just a thousand little weather’s

An alternative title could have been framed as: “Impact at scale: Leading in prosperous yet uncertain climatic times.”

The combination of a changing climate and consumers that are more connected, more demanding and with more retail choices means that the effect of the weather (and the weather forecast!) on consumer demand is increasing.

The uncertainty is creating increased risk … but also increased opportunity.

See: Just add weather

As someone who’s been at the bleeding edge of the topic of weather integration into retail systems, I was very encouraged at the NRF show to see weather data integrated across nearly all IBM’s consumer offerings — from commerce and marketing to supply chain and block chain.

Weather data is now also showing up in SAP and JDA integration’s and the topic of managing consumer weather risk is no longer a curiosity — it’s becoming, dare I say it, mainstream.

See: The Effects of Weather on Corporate Earnings are Gathering Forc

Historically retailers have viewed weather as an uncontrollable and therefore unmanageable risk factor — what Wall Street analysts call the “weather excuse.”

That paradigm is now rapidly being turned on it’s head — rather than a risk, leveraging digital insights mined from weather data is creating opportunities to better serve customers, capture market share and delight shareholders.

It’s how the best retailers and consumer packaged goods companies and quick serve restaurants are, indeed, prospering in uncertain times.

To quote Sun Tzu (because, why not?) —

“Know the enemy, know yourself; your victory will never be endangered. Know the ground, know the weather; your victory will then be total.”

If you’d like to follow me or connect I can be found here on Twitter and here on LinkedIn.

Weather On the Money

A favorite part of my gig with IBM Services is that I get to travel around the world visiting clients and colleagues spreading the gospel of weather analytics integration.

One downside though: having a global role means that I’m often either somewhere, going somewhere or coming back from somewhere (often in a middle seat).

But this is a small trade-off to an awesome job. No complaints.

This weekend I’ll be traveling to Europe for a week of client meetings and won’t be available to do my regular Sunday appearance on The Weather Channel.

For this week I thought I’d re-post a video and accompanying article from an appearance I did earlier this year on CNBC On the Money (formerly the Wall Journal Report) with Becky Quick.

  • Quick side note: I’ve been doing periodic appearances on CNBC for at least the past 15 years and have known Becky the whole time. She reminded me the last time I appeared with her that I gave her a weather forecast for her wedding — I was right. For the record I’ll never do a wedding forecast again. Far too risky and I’m quitting while ahead.

You can read the article and watch the video via the link below.

Winter’s chill can take a big bite out of businesses, here’s how they cope

As the U.S. East Coast recovers from a weather system that dumped several inches of snow across the region earlier this week, bone-chilling temperatures are expected to drive the mercury to record lows this weekend.

Meanwhile, the big freeze that’s gripped much of the country is having another chilling effect—one that costs money.

“The entire Eastern half of the country is frozen right now, and with that the economy sort of slows down ,” Paul Walsh, a business weather analyst and meteorologist told CNBC’s “On the Money” in an interview.

“It doesn’t grind to a complete halt, but you can imagine that people are not out,” Walsh explained. “They’re not doing, or spending the same kind of money on the same kinds of things.” That aspect is important, given that businesses normally see brisk traffic immediately following the holiday season.

“People are basically hunkered down in their homes and not ‘out and about,” Walsh added. “If it happens for an extended period of time, it can have a direct impact on the ebb and flow of economic activity. It impacts the entire economy.”

The unusually cold weather has even impacted the normally balmy South. This week, it was so cold in Orlando, Florida that water theme parks—including Disney’s Typhoon Lagoon and Sea World’s Aquatica—closed amid temperatures hitting the 40’s.

“They’re going to be losing a lot of revenue in the times they’re shut down,” Walsh told CNBC, meaning that spending at places “like restaurants and travel, a lot of those are lost forever.”

Walsh, who is director of weather strategy at IBM Global Business Services, describes his niche as the “intersection of weather and consumer behavior.” IBM sells weather data directly to business clients, including major airlines and retailers.

“We now have the capability to not only predict the weather, but also to be able to sense how it’s going to impact consumers,” he said.

And weather means big money, particularly in the wake of a brutal hurricane season that saw catastrophic storms batter Texas, Florida and the Caribbean. The unpredictable nature of storm season means businesses have to find ways to calculate the associated risks.

“The interesting thing that’s happening now is that more and more companies are able to take the weather data, and use analytics and even use artificial intelligence and define from that data how the weather is likely going to be impacting what you and I are going to be needing,” Walsh said.

The next step is that data is being “pulled into retailers’ replenishment and forecasting systems,” he added. That information is then used to help select inventory, by estimating and anticipating future consumer buying demand.

“Retailers have been using weather data forever, but they’ve not really been doing it in a way that’s integrated and built into systems,” Walsh said. “That’s changing now in a really, really big way.”

On the Money airs on CNBC Saturdays at 5:30 am ET, or check listings for air times in local markets.

In Vino Veritas: On Wine, Weather and Climate

Note: this was first published on on March 25, 2014. 

“Give me wine to wash me clean of the weather-stains of cares.” ― Ralph Waldo Emerson

We all watch the weather.

Most of the time, we don’t think about what it means beyond the immediate concerns: do I need an umbrella today? A heavier jacket?

It’s automatic, and it quietly shapes our lives.

Winemakers don’t watch the weather. They live it. It’s the single most important ingredient in the quality and quantity of their product.

In fact, sun, wind and rain are the main inputs into an industry that adds an estimated $162 billion to the national economy annually and provides the equivalent of 1.1 million full-time jobs.

The success or failure of a vintage in any given season is linked directly to the vagaries of ridges and troughs, inversions and heat domes.

As with producers of all our agricultural products, winemakers are affected by weather in a way that most of us can only imagine.

Winemaker Meteorologist

I recently spoke with winemaker James Hall about the impact of weather on wine production. James is a co-founder and chief winemaker at Patz and Hall, one of California’s most highly regarded wineries — with a celebrated portfolio of single-vineyard Chardonnay and Pinot Noir wines.

James is also, for all intents and purposes, a meteorologist. Every day, he thinks about the weather in a more exhaustive and personal way than most forecasters.

Weather is that nagging concern that keeps James awake at night and consumes his daily planning decisions. For James, every decision about the wellbeing of his grapes and the profitability of his vineyard relies on weather.

Quantity is Made in the Spring

As with other crops, the planning for grape season starts long before the grapes are harvested.

Using what are known as Heat Summation Units (HSUs) — an index calculated based on daily average temperatures greater then 50 degrees Fahrenheit — winemakers can estimate when grapes will be ready to harvest based on the date of the bud break and the average accumulation of HSUs for the location.

With those two bits of information, they can estimate when they should harvest the crop and put together a strategy to maximize the quality and quantity of the harvest.

The timing of “bud break” is one of the most important issues to take into consideration when strategizing. If bud break happens early, the crop becomes exposed to the risk of frost damage. Early frost, then, could result in reductions in the eventual yield of the vineyard.

Because of these early risks, winemakers note that grape quantity is determined in the spring.

Playing Poker with the Weather

The weather in the last six weeks of a vintage is the most critical time in the grapes’ lifespan. This is when any careful winemaker watches the weather “like a hawk,” according to James.

During those six weeks, rain on mature crops can cause grape rot, and a late frost can damage the grapes on the vine.

It’s during this phase in the growth cycle that vineyards practice what James calls “playing poker with the weather.” They have to make the choice whether to harvest and take their winnings or to wait for the absolute best conditions and get a higher quality grape. Of course, this waiting leaves grapes vulnerable to the weather’s fluctuations.

To account for this unpredictability, James and many of his colleagues use a commercial weather service (Western Weather Group) to monitor weather conditions both at the macro and micro level: using weather satellites for a larger picture and vineyard-specific sensors for a more granular one.

The meteorological inputs they get from the ground and from satellite sensors and radars all help them make the “hold ‘em or fold ‘em” harvest call.

Ultimately, weather in the spring shapes the quantity of a harvest, but the final month determines the quality of the grapes.

Grape Expectations

Dr. Antonio Busalacchi, a professor at the University of Maryland, is a climate scientist with a twist. He’s also a sommelier.

In a recent article published in Science News, Dr. Busalacchi explains in detail the often surprising impact of climate change on the production and quality of wine. He says, “A number of wine regions around the world are in the sweet spot right now. We have been seeing places like Bordeaux, Germany and northern Italy, even California, putting together a string of very good and very consistent vintages as a result of climate.” (Read the full story here.)

In the case of Napa Valley winemakers, where weather is so much a part of daily decision-making, climate change is a huge concern.

As is typical of the optimistic spirit of American farmers in general, James sees a possible silver lining for California grape quality.

As inland temperatures continue to rise, the marine layer along the California coast will continue to moderate, moisten and cool the key grape growing areas in northern California. These are optimal conditions for the varietals that thrive in that area.

Bailed Out

The drought in California is having a significant impact on the state’s economy and on its large agriculture industry.

After two spectacular years for wine production in 2012 and 2013, this year’s vintage was at significant risk due to the lack of available water for irrigation.

It was touch and go coming out of the winter, and wine producers across California were facing what looked to be a very difficult year.

And then came the Pineapple Express.

The weather pattern changes in early February brought much-needed rainfall to northern Calfornia. According to James, the rains “bailed them out big time.” Now wineries in northern California are optimistic for another great vintage.

In vino veritas indeed!