Beverage companies need normal temperatures to maintain consistent sales of their products. 

"The extremely bad weather in northern Europe during the second half of the year 2000 was a strong challenge to us. It affected not only our main domestic markets but also sales in England and Poland. In Poland especially, the market collapsed in the second half of the year leaving us with losses at the double-digit million level." -- German Brewery 2001

Sales forecasts are used by beverage companies to manage expected production, inventory, and cash flow levels.  These forecasts are usually made from seasonal historical demand trends that are based on "normal" or average seasonal temperatures.  If the temperature is higher or lower than expected, so is the demand for beverages.  When the weather risk (above or below average seasonal temperatures) is not managed properly, sales can either drop below estimates or demand can surpass expected production and inventory levels. 

"Assuming average weather conditions, we expect total sales on the Dutch beer market in 2001 to at least equal the 2000 figure." -- German Brewery 2001

The combination of market-mature products, low annual price inflation, and severe price competition causes many beverage companies to experience minimal annual growth.  By managing weather risk, beverage companies can gain a financial and competitive advantage.  Research has shown a high correlation between beverage demand and temperature.

The weather hasn't been very nice in the summer over the last few years. That has a big effect on the beer consumption." -- German Brewery 1998

Beverage Weather Risk Scenarios

• Sales decrease due to lower temperatures
• Not enough production or inventory to meet increased demand due to higher temperatures
• Sales peak and then decrease as the temperature reaches such high extremes that people remain indoors and away from thirst inducing situations (exposure to temperature, sports, etc)
• Increased sales due to above average temperatures can substantially increase cash flow for that year but does not carry benefits to "average" years

Benefits From Managing Weather Risk

• Limit of financial exposure when sales decrease due to temperature extremes
• Normalization of seasonal cash flow
• Competitive advantage