With climate change influencing all consumer sectors, integrating sustainable practices becomes paramount for risk reduction and resilience building. Amidst this, phenomena like El Niño pose additional challenges, altering consumption patterns and sparking new demands, especially in Latin America. This region houses a substantial number of corporations recognizing sustainability as crucial for bolstering corporate resilience.
In 2023, El Niño re-emerged in the tropical Pacific, altering climate dynamics. It brought heavy rains and floods to Peru, Bolivia, and Ecuador, while causing intensified droughts and elevated temperatures in Colombia and Central America.
Extreme weather impacts prices and sales in beauty and health
The wetter weather in Peru, Ecuador and Bolivia propelled Zika virus, dengue and chikungunya epidemics, resulting in a sustained demand for analgesics, mainly acetaminophen. Floods in those countries and in Chile also meant drinkable water shortages and, thus, more intoxication than usual. The demand for digestive remedies also grew significantly to cope with those illnesses.
As consumers affected were heavily disrupted in their routines and most of them “lost everything”, mental health became a priority, for which they were looking for sleep aids, and any other remedy helping with anxiety and depression. Relaxing properties of dietary supplements came to the forefront of claims.
Floods also resulted in infrastructure damage, and scarcity pushed beauty and personal care products up over inflation while volumes consumed at the time were reduced.
Warming winters: A challenge for clothing retailers in South America
El Niño's climate impact disrupted seasonal trends, affecting apparel and footwear industries. Chile, Argentina, and Colombia saw reduced volume of hosiery, accessories, and outerwear due to unusual heatwaves during winter. Demand shifts towards rain protection wear hindered interest in winter garments like coats, heavy jackets, scarves, base layers, and boots.
In the apparel industry, businesses are compelled to place stock orders at least six months in advance to align with the upcoming seasons. This poses a significant challenge in predicting climate variations for effective inventory management.
76% of apparel and personal accessories corporates plan to invest in supply chain resilience in the next five years
Source: Euromonitor International's Voice of the Industry: Sustainability Survey 2023
Furthermore, it not only results in reduced profit margins due to the necessity for aggressive promotional strategies to clear excess stock but also leads to additional costs related to storage, as many players choose to retain excess stock until the next season.
El Niño will significantly impact agriculture-dependent countries
In the case of food, El Niño will have effects on both supply and demand. From the supply side, there will be price increases due to shortages caused by floods and droughts in some foods, such as rice in Peru.
79% of food and beverage corporates mentioned climate change will affect their supply chains
Source: Euromonitor International's Voice of the Industry: Sustainability Survey 2023
From the demand side, changes in temperature and rainfall will impact on climate-sensitive categories like ice cream, chocolate confectionery, and soup. While rice, coffee, sugar, and cocoa brace for surging costs.
Nations heavily reliant on agriculture will face significant challenges due to El Niño's impact. Brazil, a major cereal exporter, grappled with excessive September rainfall affecting maize and wheat crops in Rio Grande do Sul. Chile anticipates heightened rainfall, potentially leading to floods and landslides. Meanwhile, Argentina endured unexpected delays in rainfall until September, negatively impacting wheat crops. Colombia expects elevated temperatures to disrupt fruit and vegetable cultivation, a trend observed during the 2018 El Niño event.
New needs arise for home and tech categories
In countries affected by shifting weather patterns, consumer focus is shifting towards heating appliances and air conditioners. Unusual cold spells are driving the demand for heating appliances, while countries like Colombia anticipate a surge in air conditioner purchases due to rising temperatures. Additionally, this heat may escalate energy prices as water reservoirs are strained by droughts.
With most countries in Latin America having their energy matrix based on hydroelectric power, the decrease in water levels will make energy more expensive, with potential rationalisation coming onto the scene. Given that scenario, it is expected that consumers will be prone to having energy efficiency as one of the important claims in their purchase decision-making process.
42% of Latin Americans mentioned they will use more energy-efficient products to positively impact the environment
Source: Euromonitor International's Voice of the Consumer: Sustainability Survey 2023
Another concern is the surge of mosquito-spread diseases. More rain will lead to a larger mosquito population, making consumers purchase more home insecticides.
How is the industry reacting?
Rising prices and diminished consumer purchasing power amplify the impact of natural disasters, prompting a shift in priorities towards essentials like food and personal care over discretionary spending.
When disasters strike capital cities, their repercussions extend nationally, placing a heavier burden on economies. Simultaneously, these events trigger heightened mental health needs, with phenomena like El Niño contributing to issues like sleep disorders, depression, and anxiety among consumers.
The future holds opportunities for claims, not only in health but also in weather-related sectors. Peru's Alicorp pioneers this trend with "Bendito Clima" ("blessed weather"), a hair care collection tailored for Peruvian women in Lima's humid climate, considering the unique hair characteristics of Peruvians—thick, straight, and dark.
Source: https://amaras.pe/productos/bendito-clima-de-lima
Companies must understand the implications of phenomena like El Niño and climate change for their business. Learn more about how they define, manage and communicate sustainability as a whole, in our report Voice of the Industry: Sustainability Survey.