State Of The Industry: 2011 Economic Outlook
The real question is whether our industry will maintain its relevance in the minds of consumers. Thus, mindshare is more important than market share to the long-run profitability of our industry.
December 22, 2010
The recovery remained lackluster in the third and fourth quarters of 2010, with GDP (gross domestic product) growth coming in at around 2.0 percent. We should, however, start to see the economy begin to reaccelerate in 2011.
Consumer spending is expected to regain momentum as long as the increases in employment that are expected actually come into fruition. Housing should start to respond to record-low rates and exports and equipment spending are expected to remain strong. On net, real GDP is forecast to rise 2.5 percent in the first quarter and move back into the 3 percent range in the second quarter. Again, as I have said before, this will be a slow recovery but hopefully a smarter recovery this time around.
Two Lifestyles During Recession
One very interesting outcome of the Great Recession is that it has divided America into two groups that are roughly the same size yet experience very different economic downturns. For the narrow majority of Americans (55 percent) who are referred to as "those who lost ground," the recession brought a mix of hardships, such as unemployment, missed mortgage or rent payments, shrinking paychecks and shattered household budgets, according to a recent survey by the Pew Research Center. But for the other 45 percent of the country ("those who held their own"), the recession was largely free of such difficulties.
Among "those who lost ground" and disproportionately experienced economic hardships during the recession, more than half (54 percent) say they are just getting by or fall short of meeting their monthly expenses. More than four in 10 say the recession forced them to make "major" changes in the way they live.
In contrast, eight in 10 of "those who held their own" during the recession say that they're "living comfortably" or that they have money left over each month after paying their bills. But unlike their less fortunate counterparts, not a single one says the recession has forced major lifestyle changes.
Differences Between The Groups
It's not surprising some people were harder hit by the recession than others, or that people who, for instance, suffered a spell of unemployment also had trouble making their rent or mortgage payments. What is striking, however, is the fact that the groups are roughly the same size, yet the differences between them are so great.
For example, nearly one in five (19 percent) of "those who lost ground" during the recession say they had to increase their credit card debt to pay their bills, compared with 4 percent of "those who held their own." Nearly three quarters (74 percent) of those who suffered the most during the recession say they had to cancel or cut back on vacation travel, compared with 36 percent of "those who held their own."
"Those who lost ground" are twice as likely as "those who held their own" to have cut back on the amount they saved during the recession (61 percent versus 30 percent) and are significantly more likely to say they cut back on spending (74 percent versus 47 percent). When both groups were asked whether their total amount of personal debt in the form of credit card bills, mortgage loans and other types of loans increased or decreased during the recession, "those who lost ground" were more than four times as likely to say they owed more during the recession than before the downturn began (19 percent versus 4 percent).
More than half (53 percent) of homeowners "who lost ground" during the recession say the value of their home declined in the past 2½ years, compared with 43 percent of "those who held their own." While only 13 percent of all homeowners say their home increased in value, "those who held their own" are slightly more likely to report that their house is now worth more than it was before the recession (15 percent versus 10 percent).
Implications For Your Business
All of these statistics serve to validate what we in the green industry have been surmising for a while: For some, not much has improved since June 2009 (the month the National Bureau of Economic Research officially declared the end of the recession). For others, life hasn't changed that much. Interestingly, their level of income has not been a perfect predictor of which group folks fell into, either.
As we consider the plight of consumers in the future, to me it matters less about how much more they save or how their purchasing behavior changes. We already know some of them will be more frugal and some will be more risk averse, but they all will incur greater search and acquisitions costs. That is, they will spend more time evaluating big-ticket purchases and be more carefully weighing product features and benefits before they purchase.
To me, the real question is whether our industry will maintain its relevance in the minds of consumers. Thus, mindshare is more important than market share to the long-run profitability of our industry.
Without a doubt, the entire green industry in 2009 and 2010 continued to exhibit patterns of a maturing industry, with a slowing growth in demand generating more head-to-head competition for market share; a greater emphasis on reducing costs and enhancing service offerings; a reduction in industry profitability as reflected by tighter margins; and a number of mergers and acquisitions among former competitors, driving the weakest firms out of the industry and producing even greater industry consolidation, in general.
The economy certainly took its toll on the greenhouse sector in 2010 (in spite of the recovery being underway), although its effects were not felt evenly among growers. For example, bedding plant growers had a fairly good spring (until bad weather hit in several key areas of the country and slowed sales down), but potted plant and foliage growers still had a tough year, for the most part. Several well-known firms that offered high-quality products and services are no longer in the industry.
Those firms that have competed successfully in the midst of the economic downturn were those that: 1) shaved even more costs out of their value chain (maybe through implementing lean flow principles); 2) tweaked their existing value proposition in order to further differentiate themselves in the marketplace; and 3) had access to adequate levels of working capital to ride out the economic storm. I'd say this would continue to be a good strategy to carry on into 2011, as well.
Charlie Hall is the current chairholder of the Ellison Chair in International Floriculture at Texas A&M University. You can reach him at email@example.com.