View: Industry Power Shift Approaching
Growers proved they weren't immune from change and accountability when retailers began putting downward pressure on them in the 1990s. Now, marketing consultant Jerry Montgomery says another power shift will soon be entering play, and it involve
May 21, 2010
Growers proved they weren't immune from change and accountability when retailers began putting downward pressure on them in the 1990s. Now, marketing consultant Jerry Montgomery says another power shift is coming, and it involves growers making suppliers just as accountable. Below is Jerry's commentary:
Our industry was in the era of "Grower In Charge" up until the 1990s. The retailers followed the growers during that era, and the growers made almost all of the decisions relative to green goods marketing at retail.
Growers selected the sizes, the varieties, the packaging and in many cases dictated the seasonality. Of this was also the period where the supply was less than the demand and the hay days of industry growth, where it was not unusual for the wholesale value of bedding plants to increase 8-10 percent annually.
In the early '90s, as the national retailers were becoming the leaders in retailing green goods, the dynamics drastically changed and the retailers took control of the supply chain. As they flexed their muscles and changed they way growers go to market, industry margins began to shrink because the retailer gained an understanding of production profitability and wanted to participate in the form of lowers prices.
Not only did retailers put downward pressure on prices, but they demanded UPC labeling, consumer information on the product labeling and got new and different packaging. They also started asking for specific varieties. Now, the retailers are adopting products from intermediaries and telling their vendors how many they have to buy, eliminating any bargaining for the grower with their supply chain.
During the '90s, some growers expanded but many more started to see dramatically reduced profits. By the early 2000s, grower loss was at an historic level. To survive, growers have to listen to the customer and embrace their demands. This did not sit well with many companies that were accustomed to and embraced the concept of "grower in charge." This was and continues to the beginning of the end for many industry companies that have a long history of success but can't bring themselves to embrace the changing market dynamics.
Until the mid-1990s there was little accountability for grower performance. The responsibility for retailing green goods and the associated costs, including discards, was the exclusive domain of the retailers.
As the retailers gained more bargaining power and at the same time started developing very sophisticated supply chain measuring tools and techniques, they made their vendors more and more accountable. "Pay by Scan is another example of how the major retailers are managing their supply chain by pushing more accountability and cost to the vendor base. Unfortunately, most growers don't buy on the basis of "pay by scan." They just sell - not a bad deal for their vendors. But just wait.
Retailers now judge their vendors not on who has the smoothest-talking sellers but on numbers - comp sales year over year, gross margin, GMROI and same store sales. If those numbers don't correlate with the retailer's plan, the grower is at risk of losing the customer.
Consider how the number of bedding plant vendors has changed at Walmart over the past three years. According to some well-informed industry watchers, Walmart has gone form more than 250 bedding plant vendors to a current level of 35 to 40. If you evaluated Lowe's and Home Depot, the numbers would be similar to those of Walmart.
In the face of the changing market, there are high rates of failure but there are also a number of success stories. Check out the table (below) for the elements that, in my opinion, are the drivers that determine why some fail while others succeed.
|Elements||Successful Companies||Struggling Companies|
|Customer focus||Listen and respond, lead||Hate the customers|
|Understand accountability||Embrace being measured||Always have excuses|
|Response to change||Drive and embrace change||Fight it|
|Measure the vendors||Make them accountable||Think it's ridiculous|
|Measure themselves||Standard practice||Waste of time|
In the future, large retailers will be more demanding and expect higher levels of performance from all of their vendors. This will ultimately put the supply chain in the hands of fewer growers, and those growers will have more bargaining power. When that happens they will buy on a "pay-by-scan" basis.
Looking at other parts of the supply chain, the game changes dramatically for the breeder/producer and the brokers. These sectors are not immune from the elements of change and accountability. No longer can either group sell based on mundane features; they must go to market with superior products that are competitively priced, and they must have a stellar track record of order fulfillment and on-time delivery.
Growers are and will continue to hold their vendors accountable for a lot more than just a pretty new color. Vendors are now accountable for making their customers money - not supplying goods. If you look at the most successful companies in any segment of this industry, it's those that have passion for making their customer's successful and doing it while making a profit.
The companies we see as the market leaders are not those who jump when the customer demands something but those who provide leadership by keeping their customers informed and up to date with the changing marketplace. They are the leaders because they understand how to successfully operate within the ranks of large retailers. They are the go-to companies.
Customer and vendor success are not mutually exclusive; they are synonymous with the companies in today's world that embrace and drive change and love being accountable to their customer's while making their vendors accountable to them. It's the ideal formula for staying healthy and developing a competitive advantage.
Change and accountability have made a huge impact on the grower market, creating fewer but stronger companies and causing others to enter other sectors like contract growing.
The next sector to be affected by these elements will be the breeder/producer segment, as more of their customers will measure their performance - not just judge them by new genetics. We all know there are more genetics available than the market can possibly absorb. We are entering a period when this sector will undergo enormous changes. Some will emerge stronger than ever, but some of the old-line traditional companies will no longer exist.
All successful companies in the future will be run by smart business people who know how to manage all the business disciplines and embrace change and accountability.
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 more than 2,000 stores since January 2008.
Jerry Montgomery is a veteran of the floriculture industry who has worked for distributor companies, breeders and large growers with a focus on sales and marketing. As an industry consultant, Montgomery 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 about 2,700 stores since 2008. You can eMail him at firstname.lastname@example.org.