Checking In With: Color Spot
Founders Michael Vukelich, Jr. and Jerry Halamuda share what it takes to run the largest greenhouse operation in our industry.
June 11, 2008
Michael Vukelich, Jr. and Jerry Halamuda
When Color Spot Nursery's founders Jerry Halamuda and Michael Vukelich Jr. were on our cover 12 years ago, they were on the verge of an aggressive consolidation strategy that would lead to acquiring 15 greenhouse and nursery operations in California, Oregon, Washington, Arizona and Texas. The dust has since settled with Color Spot firmly planted in 10 locations in California and Texas.
For 30 years, Color Spot has been the West Coast leader developing merchandising and service programs for the mass market. Vukelich and Halamuda were in their early 20s when they started and have been involved in every aspect of production and sales. Vukelich's father, Michael Vukelich Sr., is 78 years old and still visits all the nurseries and offers advice.
Color Spot may be owned by outside investors, but there still is a family feel. "Although we happen to have a large equity partner, we're hands-on, fingernail managers," Halamuda says. "My daughters and Mike's son, brother and nephew all work here. Our children and family are smart people and perfect for their jobs." Vukelich notes that we are talking five or six employees out of 2,200. Color Spot Nursery is a very large company, ranking at No. 1 on our Top 100 Growers list.
Q: Would you say the service programs Color Spot pioneered have become the norm for growers today?
Vukelich: When you go coast to coast, each box store is still doing its own thing. Some use third-party merchandisers. Some do not. Some replenish inventory through computer systems. In some of our stores, we do the merchandising for them. While Home Depot has merchandisers from coast to coast, Wal-Mart has no merchandisers. Lowe's uses a different system depending on the part of the country.
Thirty years ago, when we started providing merchandising services, we realized that quality, freshness and presentation sell plants. About 75 percent of the sales are on impulse. Just like in a produce section in a supermarket, you have to have quality, fresh product presented well.
Halamuda: When we started, nobody was doing it but us. We found that the more we did with the retailer - taking out cold product - the more sales took place. Other retailers saw what needed to be done. Remember, every one of the large retailers has vendors on the inside of their stores. They just don't spend as much time throwing products away. It's much easier on the inside.
Q: What level of service/dedication is required?
Vukelich: The customer is key. They dictate to us the service program they want and we help them implement it. Early on, when we were pioneering something new, we showed them the metrics and said, "Let us do it and we can turn the merchandise 25 to 30 times a year. Your people don't have time to do this."
Halamuda: It takes time and attention and also expertise. Customers have rapid turnover in their managers and employees and not much time is spent on training. We can come in with our people and help them in the garden shop.
Q: What were the lessons learned during Color Spot's acquisition phase?
Vukelich: You can't outrun your money and you can't outrun your people. It takes a very strong balance sheet to integrate facilities and make sure management can run things.
Halamuda: Everyone talks about growth and acquisitions, but what comes first is the customer partnership. The customer wants to see you grow with them and then you have the green light. Then comes the balance sheet, manpower and having talented managers.
Q: How has Color Spot's business model mirrored the marketplace?
Vukelich: The marketplace today is much different than 30 years ago. It's very much consolidated. There are fewer independent garden centers and small chains. We have three dominant national chains and a few large chains in different regions. At the beginning, we provided service to a diverse base.
Halamuda: Our service model and every type of component we think of is always focused on the customer, providing more help, service and replenishment on the merchandising side. We listened to the customer and it took on the form the customer wanted.
Q: What are the advantages and disadvantages of having outside investors as owners?
Vukelich: The advantage is they have lots of money. The disadvantage is that sometimes they don't understand the business and as a result, make bad decisions that affect the business. When Jerry and I left and were asked to come back and stabilize the company, we recapitalized and carefully chose partners to fit our industry. We have four institutional partners, including GSC Group out of New York.
Halamuda: Our equity partners are in the business of investing or lending money intelligently and investing in companies that make sense. Our current partners understand when it rains that people don't buy lawn and garden products during inclement weather. They understand our business is not on a quarterly basis, or even a week-to-week basis, and take a long-term view.
Q: What is Color Spot's formula for success?
Vukelich: The No. 1 thing is the program has to be what the customer wants it to be. No. 2 is quality, consistency at the lowest cost.
Halamuda: Excellent personnel and making sure the capital structure is correct.
Q: What are the greatest challenges for growers?
Vukelich: Before, there was more flexibility and margin in the business. Now there's no room for mistakes and you have to be the low-cost provider. It's difficult to pass along rising costs. With the pressure to maintain retail price points, there is big push back. You have to become more efficient.
Halamuda: I don't think any grower is ahead on the cost side of the equation, with state and federal legislation, oil at an unparalleled $100 a barrel and propane and natural gas 25 to 40 percent higher in the last 18 months. Oil impacts every part of the business and ripples right through to pots, fertilizer, fuel and heat. It's a challenge to every single grower.
Q: What are the greatest opportunities or upside potential?
Vukelich: Although some may look at it as a crisis, the industry is going to consolidate because our customers are consolidating. You have to take cost out of the structure to stay at pace with the needs of our customers, and we see that as an opportunity.
Halamuda: If you can put more volume through your facilities, you reduce cost per unit. That's the opportunity for upside. Call it whatever you want - Six Sigma, TQM or Lean - but we're focused on initiatives taking cost out of each step of the job. We measure, monitor and challenge our people to become more efficient. If we've done everything right, the customers will see results and reward us with more business.