Climate: Big freeze, big profits

It marks the first time that the service has decided to make this kind of blanket prediction for an upcoming season and reflects its confidence (albeit expressed as a two-thirds probability) in the weather signals it has detected.

The fact that we are halfway through the winter period, yet the Siberia-style 'big freeze' has largely failed to materialise, has not stopped the media weighing in with regular doom-laden updates. Even the fact that December was slightly warmer than average has not dampened the predictions.

Met Office commercial manager Jonathan Hearth points out that even in especially cold winters, one month out of the three will see temperatures climb above the average.

But chilly weather conditions - and the public perception of their imminent arrival - has proved good news for a variety of business sectors. Although some lose out (see box, page 26), the warning to batten down the hatches has prompted one of the ever-rarer instances of consumers parting with their cash en masse.

The challenge for these companies is to be able to predict the weather sufficiently well to arrange the right supplies of appropriate goods to enable them to meet consumer demand - and to be able to hold down their own energy costs in order to maintain commercially viable margins.

Energy suppliers

The energy sector is one of the most weather-volatile business categories.

Gas is likely to be in particularly high demand if the mercury plummets because most homes in the UK use the fuel for heating. Demand for gas also rises because one-third of the country's electricity-generating stations are run on gas and more electricity is used in homes to heat ovens and light rooms when people stay inside for longer. During the final two weeks of November 2005, when temperatures barely managed to rise above the freezing mark, demand for gas and electricity was between 3% and 5 % higher than the same period the year before, according to the National Grid.

In the opposite way to most markets, wholesale gas prices rise as soon as demand increases. The consumer gas firms have passed these hikes on to their customers over the past year; a bad winter would only increase this price pressure. The gas firms face the dilemma of how much of their margins to protect by raising prices - too much and they lose customers, as British Gas discovered last year.

The situation is complicated by the fact the energy prices can also be influenced by the prediction of bad weather, as well as its reality. Oil traders, for example, will increase their holdings in the oil futures market if a cold spell is predicted, which leads to higher prices. Many observers suspect that the prospect of a bad winter also provides a handy excuse for gas and electricity firms to raise prices to consumers.

'There are often suggestions that suppliers have taken advantage of the forecasts,' says Steve Dorling, sales director at weather forecasting company WeatherQuest. 'They are always quick to raise prices because of the higher demand caused by severe weather, but are slow to drop them if the weather changes for the better.'

Automotive services

Breakdown services do well as a freeze sets in. A spokeswoman for the RAC says that a significant proportion of its members sign up at the side of the road after they have broken down. She adds that many weather-related breakdowns are caused because consumers are getting progressively worse at regular maintenance checks. 'People tend to rely on the lights coming on on the dashboard.'

Car-care retailer Halfords benefits as drivers stock up on products such as de-icers and antifreeze - the chain has already boosted its order of winter packs that contain such products, and has created point-of-sale material to remind consumers of the need to prepare for a bad winter.

Clothing stores

No surprises that warm clothing flies off the shelves when the temperature falls. Sales of men's thermal underwear at John Lewis were up by 427% in the final, freezing week of November compared with the same week the year before. Gloves sales rose by 150% and scarves by 110%.

Independent outdoor retailer Ellis Brigham has also registered similar hikes in sales of cold-weather gear. The company's snow sports clothing buyer, Dave Whitlow, says that the predicted bad winter weather can only be a winner for the company. This season is its best period anyway because it sells winter sports gear, and it is relatively easy for the store to increase its order of these types of products as it retains options at distribution centres. 'A cold winter would represent a thick layer of icing on an already fat cake for us,' he says.

Part of the reason for the sudden, dramatic rise in sales can be attributed to the unseasonably mild autumn, which meant that many people delayed making their winter clothing purchases. It also meant that the arrival of wintery weather came as a shock, and had a more marked effect than usual on consumer behaviour.

A spokeswoman for the British Retail Consortium believes that, on balance, most clothing retailers simply sold in the last two weeks of November the stock they had failed to shift earlier in the month. But she adds that the link between cold weather and clothes shopping is not always so clear-cut. 'If the weather is cold but fine, retailers benefit. If it is snowy or wet, people tend to stay at home, or shop locally.'

Electrical retailers

Currys was taken by surprise in November when heater sales doubled in the final freezing fortnight. It is now stocking up on these products in anticipation of a chilly February, and has sourced extra cold-weather products such as boot warmers.

Indoor entertainment

As staying in seems so much more appealing than going out in cold weather, DVD- and video-rental companies do especially well. Blockbuster product director Steve Napleton says this effect is particularly pronounced when strong rental titles are available.

Grocery products

Demand for many grocery products is strongly linked to the weather. Research by the Met Office has found that leg wax is the most volatile; its sales can shoot up 1400% if the weather gets particularly hot, leading women to go bare-legged. Demand for toilet roll rises in cold, muggy weather when more people suffer from colds and use it instead of tissues.

Traditional cold weather products saw predictable sales rises at the end of November. Boots reported that sales of hot-water bottles and electric blankets in the week to 22 November were up 92% on the same period in 2004. Lip balm sales rose 150%.

Premier Foods revealed last week how its sales are strongly linked to the weather. The unusually mild October meant that sales of brands such as Ambrosia Creamed Rice and Birds Custard suffered; once the colder weather hit, however, sales rose.

Sales of fresh soups in Waitrose climbed 33% in the week ending 26 November, compared with the same week in 2004, while Asda enjoyed an even stronger rise, with its total soup sales up 117% in the week to 22 November. Heinz recorded a sales increase of 10% for its soups across the whole of November.

The challenge for stores is ensuring the right supplies of weather-reliant fresh products. 'The supermarkets are healthily paranoid about availability, particularly with highly weather-dependent products. For any other product, if you over-order then it can sit in a warehouse or go into a bin by the door and sell eventually,' says an Asda spokesman. 'But with the fresh products your predictions can't be out by 20% or you'll waste a lot of money.'

ESSENTIALS - HOW MARKETERS WORK WITH FORECASTERS

Few companies are unaffected by the weather, whether they use it to predict likely levels of demand for products or for planning staffing levels.

Companies whose fortunes are particularly dependent on the weather tend to have a contract with either the Met Office or one of the many private forecasting firms that have sprung up in recent years.

The Met Office has expanded its commercial service in an effort to boost its revenue. It ran a seminar for its business customers last autumn, after announcing the prediction of a colder than average winter, to explain the science behind the forecast and add context.

Its biggest clients are in aviation, insurance and retail.

It works with supermarkets on models to link eating patterns with the weather, using local predictions for each 12km2 of the UK to help individual stores plan supplies.

The Met Office has also been working with the NHS to predict the number of patients likely to present with cardiac and respiratory problems in very cold weather so hospitals can plan staffing levels.

Some firms employ their own forecasters. The RAC has its own weather forecaster as it needs to be as accurate as possible in working out how many non-branded recovery trucks it needs on the roads in addition to its branded fleet. More call centre operators are needed in severe weather. And as weather can change dramatically in a small area, it needs to ensure that its forecasts are highly localised.

Asda has a team of weather forecasters who work with the buying and marketing teams to maintain appropriate supply levels and plan promotions to capitalise on weather changes. This often involves examining historical data to see how a given store's customers have responded to weather events.

CHILL FACTOR

- Forecasters believe this winter's weather will be particularly cold because it is likely to be more influenced than usual by the winds from the European continent. British winters are usually made 5 deg C milder than other parts of the globe at this latitude because we are warmed by the Gulf Stream moving across the Atlantic.

- The average temperature in November, officially the last month of autumn, was 6 deg C. This made it the coldest November since 1998.

- The coldest January of the past 50 years was in 1963, when an average temperature of -2.3 deg C was recorded. The most recent sub-zero January was in 1979.

ESSENTIALS - INDUSTRY LOSERS

The insurance sector is one of the biggest losers once a big freeze sets in. The industry lost £620m after the last severe winter in 1995-96. Claims were double the average £3000 because many pipes burst over Christmas when people were away, causing more damage than if they had been able to deal with the leak at once.

Norwich Union is considering launching an advertising or PR campaign later this month to advise homeowners how to avoid damage associated with burst pipes, hoping that this might reduce the number of claims. 'It's certainly something we're concerned about,' says a spokeswoman.

Other business sectors that lose out in the freeze tend to be those that involve going outside. Anecdotal evidence suggests that theatre bookings fall if the winter weather turns particularly cold or snowy, according to Paul James, commercial manager at the Society of London Theatres, although the degree of deterrence is impossible to measure accurately.

Restaurants bookings tend to be relatively unaffected by cold, according to Toptable managing director and former Conran Group sales and marketing director Chris Wood. However, they plummet in the presence of snow or serious rain. 'Once the snow comes down, it's cancellations galore,' he says. 'People just want to get home.'

This article was first published on Marketing