Section 1: Getting to Know Weis

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Section 1: Getting to Know Weis

Founded in 1912 by Harry and Sigmund Weis, Weis Markets started out as a small neighborhood store called ‘Weis Pure Foods’. The first and only store at the time was located on Market Street in Sunbury, Pennsylvania until a second store was opened in 1915 in Harrisburg, PA. From there on out Weis began to expand rapidly anchoring the central Pennsylvania region as well as spreading into parts of New York, New Jersey, Maryland, and West Virginia. The once small, in town markets, had now thrived and grown into a large chain of Weis supermarkets.

By 2012 Weis Markets had expanded into a total of 163 stores across the northeastern seaboard. As more Weis Markets began to be built and they took in more stock, they also accrued more expenses. Operating 163 stores does not come cheap; every year Weis has to pay Operating Expenses for each store that it owns. In fact, in 2012 Weis’ total operating expenses came out to around $615,521,000 (Figure 1). Generally, these expenses are equivalent to what one would pay when owning a home just on a larger scale. Electricity, pluming, maintenance, and other operation expenses are crucial for the markets to run efficiently. Labor, one of the largest operation expenses for Weis, is a crucial operation expense for Weis; in 2012, Weis spent approximately $370 million, or about 60% of the total operation expenses on labor alone (Figure 1).

From basic necessities such as dairy products, eggs, and bread to pharmaceutical services and gasoline Weis Markets sells a variety of products to keep up with the demands of the public. In 2012 total sales for Weis topped off at $2.7 billion dollars or 16 million per store (Figure 1), while cost of goods sold reached nearly 2 billion dollars. With so much inventory moving in and out of the store, shipping and spoilage¹ takes its toll on the stores total sales.

Shipping is crucial for the products to circulate through the stores and cost of shipping in 2012 was $58 million of which $7 million alone was spent on diesel fuel for the truck making these shipments. Perishable products in these shipments as well as throughout the store are bound to spoil and become lost product and simply another hit on the stores total sales. In 2012 spoilage costs amounted to nearly $6.5 million. Factoring in all of these costs and general others total net profit for Weis Markets in 2012 was approximately $82.5 million dollars or $500 thousand per store.

FIGURE 1

FY 2012 Figures		(Approximate $) Amounts
Total Sales		2,701,405,000
Total Net Profit		82,511,000

Per Store Sales		16,573,036,81
Per Store Net Profit		506,202.45

Cost of Goods Sold		1,958,852,000
Spoilage Cost		6,471,460
Shipping Cost		58,765,560
Fuel(Diesel)Expense		7,178,659
Shipping + Spoilage Cost		65,237,020
Total Operating Expenses		615,521,000
Labor Cost		369,312,600
ACTUAL WEIS MARKET FIGURES 2012

Total Expenses	615,520,914
Labor Expenses	434,269,926
Fuel(Diesel)Expenses	7,178,659
Spoilage	56,489,020
Total Cost of Goods Sold	1,958,852,024

General costs and expenses such as those in Figure 1 are ones that all supermarkets, no matter how big or small, are going to take a hit from year in and year out. Weis Markets has been attempting to cut down the expenses by finding new and efficient ways to ship goods, preserve electricity etc… For example Weis Markets upgraded their lighting systems in their stores; they installed skirts on their trucks, and started to recycle waste products more. However, there are some expenses that are harder for Weis to cut down on. These expenses do not come with much warning and can wreak havoc on any business. These expenses come as a result of weather phenomena impacting Weis market locations along the northeast seaboard.

Section 2: Knowing the Local Climatology

Before a proper weather index can be created, it would be beneficial to know the local climatology within the store location coverage. All Weis Markets stores are located in the Mid-Atlantic region of the United States with their main warehouse and distribution centers located in Milton, PA. This region of the United States is known for having a very diverse climate with harsh winters and sultry summers.

For Weis Markets knowing how each season is going to affect their business can give them an edge on the competition with regards to sales and inventory.

In the spring, the Northeast starts to thaw out of the freezing grasp of Old Man Winter. Average high temperatures in the region warm up to between 55°F and 65°F during the heart of spring. These higher temperatures, a welcome relief to frigid air and precipitation, can spur customers to want to spend more time outside and enjoy a nice picnic. Weis can prepare for this winter thaw by stocking essentials for cookouts, including snacks, bread, and meat.

Spring isn’t only a time of rising temperatures; it’s also a time of rising river levels. Areas around Weis Markets stores typically see 3 to 5 inches per month during springtime. Along with snow/ice melting from wintertime, many of Weis’s stores could lose profit during this season due to flooding from saturated rivers and streams.

Spring is always perceived as a time of rebirth. This belief is still true when it comes to thunderstorms in the Northeast. After a quiet, winter slumber, the chance of thunderstorms rise again as the warmth of spring fuels these powerful weather systems. Thunderstorms can bring beneficial rain to crops around the area, helping farmers sell more crops and stores sell produce at lower prices; however, thunderstorms can cost Weis profit under the right conditions. Thunderstorms bring the chance of high winds, lightning, and flash flooding. Each of these weather events can cost a business thousands of dollars if the business isn’t prepared.

Spring signals a rise in customers as people start spending more time outside due to higher temperatures. Due to these higher temperatures, Weis can prepare their stores with more snacks and meat to supply people who are hosting more outdoor activities, including picnics and cookouts. Holidays are great for customers and store owners alike; holidays, like Easter and March Madness, see a rise in customers rushing to stores for supplies for these social holidays.

As temperatures rise, farmers prepare for the upcoming growing season. With the start of the growing season, Weis Markets can start selling produce at lower prices as more fresh produce is shipped toward its stores. Spring may cause a rise in produce sales; however, it causes winter-only item sales to plummet. Items like shovels, rock salt, and antifreeze are either tossed or sold for a loss as temperatures rise across the Northeast.

Summer signals the return of long, sultry days for much of the area around Weis Markets stores. Despite the looming threat of heat waves and pop-up thunderstorms, Weis can still expect a high volume of people buying snacks and meat for outdoor activities, including cookouts and trips to the beach. Weis can also expect higher volumes of customers during certain holidays, including Memorial Day and Independence Day; however, higher temperatures doesn’t always equate to more customers. Heat waves, combined with the dog days of summer, can keep older customers homebound due to the hazardous heat conditions.

Fall signals the end of summer vacations and the start of a new school year. In terms of weather, fall signals the end of hot and humid days of summer and the start of a cooling trend for much of the area. Cooler temperatures signal the end of the growing season; grocery stores can expect a fall in produce sales as temperatures plummet. Finally, stores have to sell summer-only items for a loss due to lower temperatures.

Although fall isn’t associated with snow, there is a rare chance that it can get cold enough to snow. Snowstorms, although rare in fall, can cost businesses thousands due to power outages and flooding due to melting snow and leaves clogging drainage systems.

Winter is a tough month for grocery stores; although grocery stores see a flood of people buying food during Thanksgiving, Christmas, and New Year’s, grocery stores can also see empty parking lots during cold snaps and snow squalls. Winter harbors the lowest temperatures of the year. Snow makes its return in the winter, a nuisance to both customers and store owners alike. Even with a light coating, snow can keep customers off the roads and away from Weis’s stores.

Section 3: Weather that Can Bite Back

Overview

Weather is a powerful and destructive force in the Mid-Atlantic region of the United States. The region is often plagued with harsh winter storms, summer floods, and even hurricanes and tornadoes. These phenomena can have a large impact on business and can add to the expenses the markets accrued over a year. With each new season comes a new weather risk to the business and can cost Weis Markets tens of thousands of dollars. Because the markets are located in such a relatively small region a large enough storm could impact the entire Weis infrastructure.

The Hazards

Winter storms – The more costly storms to impact the Mid-Atlantic region. Winter storms tend to impact the northeast region of the United States from late November through early March with the height of the storms occurring in mid-January and early February. While there is less of a chance of seeing large scale snow storms/amounts in the late stages of fall and mid spring records have indicated it happening in the past. Large weather events like winter storms on average occur 2 to possibly 3 times per year and can cause dangerous travel conditions, structural damage, and possible injury due to low visibility, high winds, slick roadways, and heavy snowfall.
Hurricanes and tropical storms - While less common in the region, they still pose a great risk. In the Atlantic, hurricane season starts on June 1^st and lasts through November 30^thand can pack quite the punch if they impact the Mid-Atlantic. High winds, heavy rains (flooding), lightning and even tornadoes can wreak havoc and cripple the entire region for weeks and cause billions of dollars in damage. Hurricanes can directly impact a region for days because of their large size.
Thunderstorms - More common in the spring and summer months. Large lines of thunderstorms can quickly pass through the region and can cause flooding, structural damage, power outages and produce tornadoes. They have a smaller time scale than Hurricanes and Winter Storms generally lasting twenty to thirty minutes.

Effects on Business and Actions to Be Taken

Before – Before large scale weather events such as winter storms or hurricanes business will pick up rapidly within days of the storms approach. People will rush to stores to stock up on essentials like milk, eggs, water etc. Events such as thunderstorms do not tend to have a real impact on business before the storm.
- ACTION
  - Winter storms – Plan shipments to come in earlier than usual and overstock on essential items (water, milk, eggs etc.). Place winter related items in plain sight. Prep the sidewalks and parking lot with rock salt and brine solutions to prevent slippery conditions. Be sure to have hired snow removal crews to clear the parking lots/sidewalks. No need to put on too much staff and flow of costumers is generally steady.
  - Hurricanes/Tropical Storms - Plan shipments to come in earlier than usual and overstock on essential items. Be sure to have working generators as power outages are quite possible during the event. Put on more staff these days because customers tend to flood into the stores before these events. Begin preparations to reduce damages to the building.
  - Thunderstorms - Have generator ready for possible power outage.
During – During large scale weather events such as hurricanes and winter storms there will be little to no business. Roadways shutdown.
- ACTION
  - Winter Storms – Depending upon conditions and thus safety consider putting on less staff and/or closing early. Assure that parking lots and sidewalks are clear/not slippery, to the best ability. Assure that proper equipment and services such as for snow removal are in place as conditions intensify.
  - Hurricanes/Tropical Storms – EXPECT CLOSING OF STORES. Make sure the proper precautions have been made to reduce damages and generators ready for power loss.
  - Thunderstorms – Have generators ready for power loss.
After – After large scale weather events expect business to be very slow and roadways to be shut down as cleanup process begins. Expect damages to property
- ACTION
  - Winter Storms – Assure clean up and snow removal put into action. Plan business day depending upon state of the roads and consider putting on less staff.
  - Hurricanes/Tropical Storms – CLOSE STORE until conditions are safe again and cleanup as begun.
  - Thunderstorms – Unless very severe (i.e. hail, tornado, high winds) no action needs to be taken after the storm passes through.

The before, during, and after effects of any weather phenomena will be the basis of the weather index. Actions to be taken will be determined based off the rating assigned to the weather phenomena using the weather index created. Much like how regions can be put on alerts and action during hurricanes like Sandy, each store can be told whether to be on alert or take action based on what how the weather index says the storm will impact certain areas.

http://www.mediabistro.com/tvnewser/files/2012/10/actionmap.jpg

Storm Expenses

2012 Weather Expenses

Building (Roof):	312,200
Equipment:
Trailers	30,837
Generators	208,588
Other	76,005
Supplies:	68,618
Shipping/Fuel:	25,063
Services:	306,016
Inventory:	716,124
Totals:	1,743,451
Totals w/o Sandy	143,451
Note: Damages of $1.6M were reported from Hurricane Sandy

**Received $1.69M from insurance companies to cover these costs

Weather expenses over the course of a year for Weis, and for any business, can accumulate up to millions of dollars. The following table shows Weis Markets 2012 weather expenses. In 2012 total weather expenses for Weis Markets were more than $1.7 million. These expenses came from thing such as building repairs, necessary equipment, supplies and services, even costs such as shipping and fuel are can be a weather expense.

However, what is interesting about the data from 2012 is that a majority of the total weather expenses resulted because of a single weather event. . In late October of 2012 Hurricane Sandy barreled through the Mid-Atlantic region causing tens of billions of dollars in damage. For Weis Markets, Sandy caused an estimated $1.6 million in damage. Without incorporating the expenses from Hurricane Sandy into the total for 2012, the weather related expenses only added up to $143,451. Over 90% of the weather related cost for 2012 came from just one weather event. These figures not only illustrate how much the weather can impact Weis over the course of a year, but how one storm alone was the cause for nearly all of their weather related expenses. It is numbers like these that show how important meteorological knowledge can be to not only Weis Markets but to all businesses.

If Weis Markets can have a basic understanding of the meteorlogical past of the region its stores are located in then they can take the proper precautions to help business, cut back on expenses, and keep employees safe. However, Weis Markets will have the aide of a weather index to help them better prepare their stores to reduce these expenses. The up to date forecasts that will be provided in the weather index will allow Weis to cut down on costs. Giving Weis sufficent warning time based off the weather index will allow them to prepare all the supplies, equipment and services they will need to make it through the storm without taking a large hit in the expense column. By making sure that Weis uses all supplies, equipment, and services efficently and by helping them prepare before the storm we will be able to cut down on some of these costs. If Weis can know ahead of time how their stores could be affected they can make the proper prepartions to reduce damages and cleanup after the storm.

Section 4: Improving Weather Forecasts

Over the years, as advancements were made in technology, the power/skill to create an accurate forecast increased. With better computing power forecasts are not only able to be made days in advance but their accuracy continues to increase. The graph below illustrates how the Operational Forecast Skill, that is the accuracy of forecasts, has increased since 1955. The Method used in determining this uses what called this S1 method. The S1 in the formula is essentially the error between what was forecast and what actually occurred. Above 70 percent the forecast is nearly perfect while below 30 the forecast is considered to be useless. The changes in the systems used for the forecasts are also noted on the table and it can been seen that in less than 30 years forecasts were able to be made 72 hours out ontop of the standard. While both the 36 and 72 hour forecast skill started out quite low as time went on and new systems were put in place the accuracy of each forecast increased creating a positively sloping trend in the data. Both the 36 and 72 hour forecasts will be near perfect come 2015 if this positive trend continues.

Increasing forecasting skill is good news for companies like Weis Markets. It provides sufficient warning time for them to make the proper preparations and map out their own plan for the approaching storm. The future looks very bright for forecast accuracy. As technology regarding computing power and satellites increases the accuracy of forecast can only get better.

The plot below illustrates the error (in miles) of yearly hurricane tracks for the Atlantic basin. The different colored data points represent a forecast 24, 48, 72, 96, and 120 hours out as the hurricane continues to develop. The point of these forecasts is to try and pinpoint what the hurricanes track will be and when/where it will make landfall.

Looking at the data in the below graph it can be seen that as time progressed on the amount of errors produced in each forecast have decreased. The negative slope in the data is no doubt a result of advancements in technology and computing power. This corresponds perfectly with the trends in forecast accuracy since 1955. The positive sloping of the forecast accuracy should mean that there are going to be fewer errors in these forecasts which are evident in the data below.

http://www.aoml.noaa.gov/hrd/tcfaq/nhctrackerr.jpg

Section 5: Saving Weisly

FY 2012 Figures	(Approximate $) Amounts
Total Sales	2,701,405,000
Total Net Profit	82,511,000
Number of Stores	163
Per Store Sales	16,573,036
Per Store Net Profit	506,202.45

Cost of Goods Sold	1,958,852,000
Spoilage Cost	6,471,460
Shipping Cost	58,765,560
Shipping + Spoilage Cost	65,237,020
Potential Savings	a) 617,401
Per Store Potential Savings	b) 3,787

Total Operating Expenses	615,521,000
Labor Cost	369,312,600
Potential Savings	c) 369,312
Per Store Potential Savings	d) 2,265

In Summary…

Total Potential Savings	a+c) 986,714
Per Store Potential Savngs	b+d) 6,053

Good news for Weis Markets is that with the increases in technology and thus forecast accuracy combined with the information given to them in our weather index they will be able to save quite a bit of money. The following table consists of the potential savings for Weis Markets if they could decrease labor costs by just 0.1%, spoilage by 5%, and shipping by 0.5%.

By reducing labor costs by just 0.1% Weis can potential save approximately $370,000. Also, by reducing spoilage costs by 5% and transportation (shipping) costs by just 0.5% Weis can save an addition $617,000. The reduction of these costs could potentially save Weis Markets and grand total of approximately $987,000.

The goal of our weather index is to assist Weis Markets in making these savings. By using our weather index and increased forecasting technology Weis Markets will be able adapt their transportation routes and times to prevent trucks from trucks and product from being damaged in transit and even cut down on fuel costs. We will be able to give Weis a jump on the storms so they can dispatch their trucks earlier to make necessary deliveries with spoilage and transportation costs. Without the index trucks could be damaged or stuck in the storm along with the product which will then spoil. Weis Markets would also be able to prep their trucks for inclement weather and only bring in necessary products they know they will be able to sell. By giving their shipping the green, yellow, or red light in our weather index we will be able to save Weis approximately $400,000 in transportation, inventory, and spoilage costs.

Labor is another major expense Weis Markets has every year. Our weather index will allow Weis Markets to regulate the amount of staff Weis puts on certain days before during and after an impending storm. By telling Weis through the index to put on or take off staff during certain weather events we will help them regulate the amount and thus the cost of staffing a store. By putting Weis and their staff on alert of approaching weather phenomena we will be able to save them $300,000 annually.

By referring back to Section 3 part IV we discussed how we could help Weis Markets cut back on their weather related expenses. By giving Weis sufficient warning time to make proper preparations for the approaching weather we will be able to save them an additional $50,000 annually in equipment, supplies, and services. If Weis can be prepared then they can cut back on their expenses and this is what we aim to do with our weather index. Overall Weis Markets can expect to save approximately $750,000.

Section 6: The Index

In order for Weis Markets to be successful, our Weather Index “StorCon” needs to be implemented into their day to day activities. StorCon places a value to the weather forecast, allowing the quantified value to be simplified enough to make easy yet significant decisions when dealing with certain items of stock, labor times, snow removal, and other issues when handling storms. Once certain variables we feel greatly affect the company are taken into account (ran through a created equation denoted later), a value between 0-50 will be calculated. That value is then incorporated into the chart below, signifying where the company is at greatest risk when dealing with weather (Category 1 – No effect, Category 5 – Significant effect).

Each category is then represented by certain processes that should be taken by the company in order to continue making a profit despite the weather in the region. Category 5, the category that should warn Weis the most of significant weather, includes taking drastic steps throughout the company including (but not limited to) stocking up inventory, snow removal, increased employees the days prior to the storm, etc… Category 5 should not be taken lightly; consequences will ensue if action is not taken to prevent the storm from greatly impacting the company. As the category values decrease, so does the effect of weather those days on the markets, category 1 being no hazards during the timeframe.

As mentioned before, variables are taken into account in order for these several categories to be reliable. These variables include temperature, snowfall amount, rainfall amount, wind speed, and day of the week. Temperature and precipitation play a huge role in both the grocery and travel industry business, because of this they are heavily weighted when calculating the StorCon for that timeframe. Other variables also taken into account are wind speed along with day of the week. Research was done by timeuseinstitute.org depicting grocery shoppers visit the stores most (on average) on Saturday, then Sunday and Friday respectively; if a storm hits or is projected to hit that day/days before, this is taken into account.

Medium Range (7-14 Days)

Each variable with their own specific rating is then placed into the StorCon equation shown below after predictions for each day are forecasted. The averages of several model runs (GFS, NAM, EURO) are utilized and their temperature/precipitation value according to their 00z/12z runs respectively. The day of the week is also present as V₅with its own rating as it is also an important entity in the grocery business. The rating is then calculated from a value of 0 to 50 and placed in its respective category from the 5-category chart above.

30° (Average 46 °)
An example of how StorCon is run is shown below; beginning with the process of giving each value a certain rating, entering them into the equation shown above, and retrieving a value. The example shown below is related to a category 5 scenario where drastic steps must be taken in order for the Weis markets to still succeed throughout the entirety of the store

The short range StorCon model is run every day, twice a day, once in the morning after all the 00z run model data is released and another in the afternoon after the 12z runs are completed. Once finalized, steps are taken depending on the categorical value given throughout the equation and process. The same variables & ratings are utilized for medium-range runs and will be done once a day after the 12z model data is out. Weather is an ever-changing way of life, in order to be prepared for any scenario; one must keep up with recent data in order to succeed. An example of a StorCon forecast map is shown below, this would dictate drastic measures should be taken throughout much of the region as most, if not all, Weis markets would be affected. A storm like this could CRIPPLE other grocery companies, but Weis markets will be able to stay ahead of the game and not fall behind.

Not only is the short/medium range important for the grocery industry, specifically Weis Markets, monthly data allows stores ahead of time to see what could possibly occur in the future. Both precipitation & temperature data are modeled by the CPC (Climate Prediction Center) which can be used to accurately predict if the following month will be above/below normal temperature & precipitation wise. Monthly data can aid the industry by allowing them to advertise for certain products they know will make a profit for them throughout the oncoming month. If, for say, the temperature will be above average (depending on the season), the markets can set out those items they have for warmer than average conditions and even place them at the front of the store for everyone to see. Not only with locations inside the store will advertising help the business, social media is a booming feature in our technological age, and using certain entities of social media is another use the markets could utilize. The trend “#MakeTheWeisChoice” could spread the word to the public of oncoming weather and tell them to save themselves the hassle, and save on certain items on sale they’ll need throughout the time frame.

#MakeTheWeisChoice

A

B

A map of the CPC data can be created just for the region in order to better estimate how drastic the steps are to be taken along with the future monthly (weather) outlook for the company. As done with the short/medium range forecasts, the monthly outlooks can also be placed into a categorical risk (as shown below). This allows for CPC maps to be quantified and denotes the steps the company should take for the future month. This process should be done every time the CPC maps are updated as weather is an ever-changing variable.

Monthly Temperature Anomalies

Category 1

Above Average

Below Average

Category 3

Category 2

Category 1

The same can be done for precipitation data as the CPC also prints out an above/below precipitation amount for the following month. This denotes the fact that category 3 values should be with extreme caution as the future month could be very much above/below average, causing for possible drastic changes in rise/falls of the grocery store industry business. Not only can the individual markets be affected, trucking & shipping routes can be as well. Weather can hinder their ability to stay on time with respect to spoilage and inventory of the markets. The above chart is color coded to fit the precipitation plots as the charts below correspond to precipitation map.

Monthly Precipitation Anomalies

Category 1

Category 2

Category 3

Below Average

Above Average

Category 1

Category 2

Category 3

B

A

In order for both Weis Markets and our business, the Three Weis Men, to work successfully with one another and to reach a compromise, a certain price allotment needs to be made to keep our services running. Our StorCon Index runs not only throughout the short range (1-7 Days) and medium range (7 – 14 Days) but also monthly keeping Weis industries always one step ahead of the weather. Our prices listed below increase in conjunction with the timescale of how long Weis markets would like to utilize our services. All 3 ranges can be purchased give the time ranges provided or individually throughout the month/3-month/year time period. We only wish to suit Weis markets needs best and what is best for the company as a whole and are willing to work with whatever needed to get the job done.

Monthly:

Short-Range: $15,000
Medium-Range: $15,000
Long-Range: $10,000
TOTAL: $40,000 PER MONTH

3 – Months:

Short-Range: $45,000
Medium-Range: $45,000
Long-Range: $20,000
TOTAL: $110,000 FOR 3 MONTHS

YEARLY (BEST VALUE):

Short-Range: $150,000
Medium-Range: $150,000
Long-Range: $50,000
TOTAL: $350,000 YEARLY

In order for Weis markets to make their highest profit possible during times of rough and inclement weather they must utilize StorCon from the Three Weis Men. We will give Weis industry the best chance to make the most profit; in order for this to happen you must follow the Three Weis Men as we shoot for the stars.

References

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