Beer, Beards, and Batteries
Leveraging Weather to Maximize Profitability
By Rosemary Yeilding Radich, Senior Research Analyst, AccuWeather Enterprise Solutions
Rosemary Radich is a Senior Research Analyst for Esri partner AccuWeather. She works in AccuWeather’s commercial services division, AccuWeather Enterprise Solutions, where she leads statistical analytics and develops predictive modeling to support commercial clients globally. In her role, Rosemary identifies market-place advantages and insights to increase client revenues and profitability, applying comprehensive analyses and application of robust data sources that inform predictive models.
You can catch Rosemary at the Esri Business Summit this July 18–21, 2015 in San Diego, Calfornia. She joins more than 20 speakers from many different industries including American Modern Insurance, General Motors, the Kroger Company, Interstate Batteries, JPMorgan Chase, Twitter and Walgreens. Learn more and register at esri.com/bizsummit.
We’ve all been in situations where we were forced to make small talk with strangers, searching for topics to avoid awkward silences. How many times have you used the weather as a conversation starter? Everyone can relate to the topic because everyone is affected by weather.
The weather affects our mood and our behavior, as individuals and in business. People wait for nice, sunny weather to grill outside because, unless you are an extreme grill master, most don’t view grilling as a winter activity. Weather also affects what we buy and when we buy it. Why purchase a brand new grill during the dead of winter? Most people wait until the weather is conducive and reminds them of the need for the grill.
The nature of the relationship between weather, human behavior, and businesses varies not only by weather conditions but also by geography. For example, 80 degrees Fahrenheit is considered nice weather in Florida, but in Seattle, 80 degrees is a heat wave. Because people’s reactions to weather vary by geography, spatial analytics is key to understanding the impact of weather on business.
Using AccuWeather’s historical weather database, national sales data, and Esri’s ArcGIS software, we found the sale of three very different types of products — beer, men’s shaving products, and batteries — in the United States were all impacted by weather in particular ways.
Measuring Beer and Beards
When we viewed average sales of light beer, stout beer, and men’s shaving products over time, we saw several spikes at holidays for light beer and stout sales. This included holidays such as Memorial Day, Labor Day, Thanksgiving, and Christmas because there is a strong correlation between family gatherings and alcohol consumption.
For stout beer sales, the biggest spike of the year is on Saint Patrick’s Day. Looking at the overall trend, light beer and shaving products had higher sales in the summer months, and stout beers had higher sales in the winter months.
To view how this relationship varied by location and over time, we mapped beer sales by date and location and viewed the change in sales over time through Esri’s time slider function in ArcGIS.
For most of the United States, light beer sales increased in the summer months and stout beer sales increased in the winter months. We can conclude that this is because during summer months, when higher temperatures are more keenly felt, a lighter beer is thought to be more refreshing and keeps up with the body’s lower metabolism rate, while during colder months, a stout beer is more desirable because heavier foods and drinks serve to increase the metabolism that accompanies colder temperatures.
After testing various weather metrics, we found a strong correlation between the cooling degree days (CDD) index and light beer sales. CDD is calculated by averaging the high and low temperatures for the day and subtracting 65 degrees from that number. For example, if San Diego and Atlanta both have a high of 80 degrees but San Diego has a low of 70 degrees and Atlanta experiences a low of 60 degrees, the CDD for San Diego is 10, but Atlanta is only 5.
Most locations in our research showed a strong correlation between CDD and light beer sales, but in a few areas like southern Florida, there was no relationship. Even among areas that showed a strong correlation, the thresholds for seeing a change in sales varied. For Seattle, having a CDD of 1 increased light beer sales, but in Dallas, it takes a CDD of more than 16 to increase light beer sales.
Severe Weather and Battery Sales
In addition to everyday weather, severe weather can have a strong impact on businesses. When viewing a snow and ice index with battery sales during the winter storm of 2014, the impact was found to be significant.
Battery sales increased days before the winter storm hit, and for some geographical areas, the effect could be seen days after the storm. Areas in the Southeast have lower snow and ice index levels than areas in the Northeast, but battery sales in the Southeast increased more than in the Northeast during severe winter weather events.
We know weather affects businesses, but how can this information be used to increase profitability? First, the weather-to-buying-habits relationship must be modeled correctly. That requires taking into account geographic differences as they relate to buyer perceptions of average weather and leveraging the most accurate weather information possible, with indexes such as CDD and RealFeel Temperature.
Once the relationship between an accurate weather assessment and your specific business needs is established, strategies can be implemented to maximize the lift and minimize the compression of weather effects. That vital business intelligence can be used both in advertising and in inventories to make the most of revenue opportunities.
Knowledge is power, and getting the most accurate and advanced knowledge of coming weather conditions — week to week or season to season — and then cross-referencing with geographic variances allows your enterprise to stock up on the right items at the right time and maximize your profit potential.