Special Report: Montgomery's Spring Recap & Analysis (Part 1)
We present a special report with analysis on Spring 2009 from marketing consultant Jerry Montgomery. This week, in the first of three parts, Montgomery focuses on the individual performances of the box stores and independent garden centers he's vis
November 23, 2009
Retail is where we find the most valuable information relative to industry trends because the trends are dictated by what happens here, not in the greenhouse or the nursery as it was in the past. The era of "grower in charge" has long passed, and we now reside in the era of "retailer in charge," dramatically changing the market dynamics.
At retail you can see grower performance, retailer performance, price trends, size trends, the impact of marketing programs, brand activity, as well as the impact or lack of impact driven by grower performance.
To this end, I visited 972 retailers in 2008 and 494 since April 1, 2009, covering 20 markets in most regions of the country, including the West Coast, Northwest, Midwest, Northeast, Mid-Atlantic, and Southeast. The only major area we missed in 2009 was the Southwest.
The purpose of these visits is to gather information regarding retailer performance, vendor performance, price trends, size trends, merchandising, new products, marketing programs, brand activity and packaging. Vendor performance is broken into a number of categories, including, merchandising, plant size, amount of color, packaging, branded programs and product assortment.
Arguably, Walmart made more vendor changes before spring 2009 than any other national retailer, with impressive results in a number of markets. I thought their performance, as well as their vendors', showed marked improvements.
Both Home Depot and Lowe's performance was variable depending on the performance of their vendor in each market. Retail performance in green goods is more closely aligned with vendor performance than any other category. Word on the street indicates Lawn & Garden was one of the few categories that had increased same-store sales in the home center sector.
Home Depot is more dependent on branded products than their competitors and promotes the Proven Winners and Viva brands. High-input-cost programs are far less profitable even for high-performing vendors because of the increased margin pressure. High-cost inputs have greater fiscal impact when discarded.
Exclusive branded programs only sold to a given retailer also present challenges when the sales velocity does not move the inventory. The vendor has nowhere else to sell the product. Branded programs with marketing fees and high-cost packaging also challenge the profitability of the vendors, because they must pay the marketing fees and packaging fees even if the plants are discarded. In some cases, the brand manager will refund marketing royalties for unsold packaging materials.
It's hard to imagine why a brand would need a different container for every product. Clearly, I believe there needs to be more levels of the supply chain involved in "pay by scan." What's more profitable - a branded product with an input cost of 65 to 85 cents or the cost of another brand, Wave, with a 15-cent plug cost?
Maybe it's time for the breeders and the brand marketers to participate in "pay by scan."
Lowe's performance is highly dependent on their vendors' performance, and in the areas they have high-performing vendors they do well and are market leaders. Lowe's has a totally different strategy relative to branded products using its own Garden Club Select house brand as the primary vehicle for its premium annuals and perennials. The only other brand I saw consistently across the country in Lowe's was the Wave brand that is clearly the No. 1 branded plant product in North America. Lowe's has a number of value-added marketing programs that appear to be very effective:
- Colors of coleus
- Color of Caladiums
- Yellow & Strawberry Petunia
In observing Walmart stores across various regions, the "narrow and deep" product concept seems to be working well with improvement in overall product quality and merchandising.
Walmart took more advantage of the new Calliope geranium launch than most other retailers. It built programs around larger sizes using a 12-inch hanging basket and a 12-inch patio pot that were in most cases really well grown. Calliope rarely looked good at retail in smaller pots but was awesome in baskets and patio pots.
Walmart made significant vendor changes for the 2009 season and, for the most part, there was major improvement in vendor performance. I would guess Walmart had a great year in green goods.
With a totally different strategy than the other national retailers, Costco always looks for extreme customer value. When the vendor delivers, it is amazing how fast products move through the store.
From my travels, it appears Costco needs more high-performance vendors. It clearly has the ideal retail venue for weekend-oriented plant sales, but the stuff must say "wow."
This is a great venue for selling large-format items, especially patio pots and hanging baskets in the $15 to $25 range during the weekends. When you see the right products with the "wow" effect, they sell like "hotcakes." If not, the product sits there.
Independent Garden Centers
After visiting a number of the top independent garden centers over the past two years, it seems to me they fall into three categories:
1. Up-Market Retailers. Retailers that work the high end of the market and offer the widest arrays of products, including green goods, patio furniture, patio accessories, gazebos and a wide selection of gift items. They often have birding items. Some have retail flower shops and pet supply departments. These retailers are typically on the higher end of the price spectrum. They have well-trained employees that go out of their way to engage the customer.
2. Outdoor Living Centers. Along with a wide selection of green goods, this group has a major focus on all items that pertain to outdoor living that include furniture, barbeques, fountains and statuary. Many have landscape design and installation services and are staffed with well-trained and outgoing employees who are always friendly and outgoing.
3. Plant Sellers. These garden centers are driven by the sales of green goods and have the highest percentage of their revenue derived from this category. They, in most cases, have the widest selection of sizes and varieties, and many offer branded plant programs that are not available to the national retailers like Stepables and Rock Stars.
Most of these retailers are most interested in selling themselves as the brand and only use highly touted brands like Wave or brands that are not available to the mass market. This group also has highly trained knowledgeable plant experts who can answer any question the consumer might have.
From what I have observed, the well managed independents have some common traits:
- Well-trained, friendly employees
- Plants that have the "wow" effect
- Understand the value of each customer
- Loyalty programs
- Informative websites
- Create an environment that provides a great shopping experience
- Have given the consumer a clear-cut reason to stop: they're a destination.
All three categories can be profitable depending on how well each is managed. The really well-run independents clearly understand their strengths and the strengths and weaknesses of their competitors. We have not yet encountered and independent that is going head to head with the national retailers on price alone.
About the author: Jerry Montgomery is a 40-year veteran of the floriculture industry and has worked for distributor companies, breeders and large growers specializing with a focus on sales and marketing. As an industry consultant, he works for large growers, distributors and breeder/producers. His focus is to understand the market dynamics from breeder to consumer through intense retail travel, visiting almost 1,500 stores since January 2008.