April 24, 2021
Our team recently had the opportunity to sit down with the Global Director of Enterprise Weather and Climate Strategy of IBM, Paul Walsh. Paul was part of the team that built a fundamental technology at The Weather Channel to forecast consumer behavior by analyzing when, where, and how often people check the weather. That technology was later acquired by IBM as part of a deal valued at $2-Billion. Paul has frequently appeared as a guest on CNBC, Yahoo Finance, Bloomberg and others. Paul and I discuss how weather intelligence has become tightly integrated into business planning for innovative companies over the last 5-10 years and how these planning techniques have recently become part of the status quo and how smart investors are betting on companies that don’t gamble on the weather.
We focus on some of Paul’s favorite anecdotes where businesses flipped bad weather into good business.
Weather Drives Dollars – Euros – Yen – Dogecoin
Well, maybe Dogecoin is a bit of a stretch but weather certainly affects production and consumption in every economic sector. The American Meteorological Society estimates $485-Billion of annual economic activity in the United States is directly linked to variations in the weather.
From very local short-term decisions about whether or not to pour concrete on a construction project to broader decisions of when to plant or harvest a field, to the costs of rerouting an airplane around severe weather, to predicting peak demand electricity generation in response to extreme heat, or to forecasting early season snow for a bumper ski season in Colorado, drought in the Midwest, or wind-fueled wildfires in California, weather can have positive or negative effects on economic activity. U.S. Economic Sensibility to Weather Variability by Jeff Lazo (et. al.) in the Bulletin of the American Meteorological Society.
Our team estimates today’s global manageable costs and revenues linked to snowfall alone at $10B in the private sector and $80B in the public sector. We estimate approximately $70 Billion of climate risk currently manageable in the United States. These aggregate effects are made up of highly local impacts including businesses big and small.
For example, a rainy Los Angeles December in 2016 dropped business by 50-60% for carwashes. A single rainy day at a golf course in Kansas washed out sand traps and eroded greens causing significant damage and leading to unplanned expenses of over $100,000. On the flip side, the dry summer of 2018 at a country club in Missouri evaporated reservoirs on their property and forced them to buy water from the local municipality for irrigation which cost hundreds of thousands of dollars. Finally, all the way to your household budget, a spokesman for Duke Energy said the weather is the biggest factor in higher utility bills, especially in cold winter months.
Paul tells the story of the Weather Company teaming with Pantene and Walgreens in 2013 to measure the impact of weather on sales for different types of shampoo in different parts of the country. Shampoo for frizzy hair is different from shampoo for oily hair and advertising the best shampoo on the worst hair-day is big money. The data-driven advertising campaign increased Walgreens sales of Pantene by 10%.
Then, sometimes, it’s the weather forecast, rather than the weather itself that drives supply and demand. The business problem for a large grocery chain was stocking prepared foods, specifically prepared chicken when a hurricane was coming. This is all about the threat of where the hurricane would hit. Paul’s team worked with the VP of Supply Chain who needed a few days of lead time to order and ship chickens in from Arkansas.
“When a hurricane threatened, people would rush in the grocery store and buy all of their prepared foods. So we were predicting,a couple of days in advance, where we thought that The Weather Channel was going to send Jim Cantori. Because as soon as people turn on the TV, and they see Jim Cantori, they say, “oh shit I gotta go get some food because, it’s gonna be it’s gonna be the end of the world.”
You can’t control the weather but the impacts don’t have to be a dice roll. We commonly call this concept “resilience.” Climate resilience is really just acting on the weather that you can see coming in order to save money or make money. It’s about being ready for the weather’s impact at the exact location and at the exact time where a business can control the financial outcome.