Times Change Quickly

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The entire United States financial system was on the verge of bankruptcy. If it had not been for the federal government’s intervention, the whole system would have collapsed.

Some unscrupulous individuals stole hundreds of billions of dollars at the expense of all of the honest workers and citizens. In only days, the government printed the money to cover these criminal acts. The debt of our country almost doubled in one month.
 
The recession got worse and unemployment hit new highs. As I write this, the unemployment rate is 10 percent nationally. In Michigan, it is 15.8 percent and in Detroit it is over 29 percent.
 
In the September 2008 Produce Business magazine, Dave Dever indicated that, based on his most recent statistics of income for the 2006 tax year, approximately 55 percent of tax filers had adjusted gross income of less than $50,000 with an average discretionary income of about $12,000.
 
One has to wonder if, given the current economic climate, the garden plant mix will be changing. The consumer will be looking for the right product, which may be smaller and less expensive, at the right price, which may be higher per unit at retail but packaged with three or four or six plants in a unit. Our product will have to be available when weather and time permit consumers to garden. It also needs to be in the right place so consumers can easily find what they are looking for.
 
Service will be a large part of the success or failure of our efforts. Better use of information technology will be a must. Supply will have to be very closely monitored, so there are no empty shelves in the display. Service to the major stores will have to be made-to-measure to ensure that the product is there when the customer comes.

Looking Back

In the 1990s, the box stores wanted to deal with fewer growers – large growers who could supply their total need for a product. The large growers tried to accomplish this by using outsourcing from other growers to meet their needs. One of the best ways to solve this problem was to have small growers they knew and trusted produce their shortfall.
 
In the beginning, it may have been 10,000 baskets and 5,000 flats. As the box stores demanded more product, these orders to smaller growers increased drastically. I know of one grower who added two acres of greenhouses to handle the order from a large grower.
 
However, if the demand from the box stores decreased, the large grower would reduce the product ordered from the small grower. This started to happen in 2006 and 2007.
 
Many times, the decrease in orders to the small grower was also due to the additional greenhouse space being built by the large growers.
 
The box stores also wanted their suppliers to use the pay-by-scan system and other information technology. These systems could post total sales of each of the grower’s products each day, and the grower could react by shipping additional product to keep the shelves full.
 
The grower and retailer could see what percentage of product was sold and could adjust the amount ordered to keep the shrink low. If a type of plant didn’t sell, both the grower and the retailer could see it and these plant species were dropped from the sales list.
This system was expensive to install and maintain. If the small growers didn’t have the systems, they couldn’t deal with the box stores. This put additional pressure on the small- and medium-sized growers to cooperate more with the large grower.
 
Therefore, life was more difficult for small growers, and their direct sales were limited to smaller chain stores, garden centers and other groups like fundraising organizations.

Growers At Risk

This was a major warning to the small- and medium-sized growers to make sure their customer base was diversified and that no more than 30 percent of their total product was sold to any one customer.
 
Those small- and medium-sized growers who continued to sell almost all their product to large growers were very vulnerable to significant financial loss if the large growers or large retailers decided to use other sources or to produce the product themselves.
 
The most threatened by this situation are greenhouses between two and 10 acres. This size operation is too big to change to a retail business and too small to compete with the large growers. I know there are exceptions, but these greenhouse operations will have a much harder time trying to survive the recession (or the depression) of 2006-2009. These operations will encounter greater financial problems.
 
All greenhouse operations, no matter their size, will have more obstacles to overcome in 2010. The greenhouse operations that are in poor financial condition will be at the greatest risk.

Forward Looking

Looking at the economic conditions for 2010, it appears consumers will have less discretionary money to spend. A family that makes $50,000 per year (the typical middle class family) will have to spend more for basic needs – food, housing, clothes – and more for taxes and services. It is estimated they will have less than $12,000 in discretionary income in 2010.
 
What part of that income will be spent on horticultural products, specifically plants? The answer is I don’t know! 
 
I believe there will be an increase in the number of food plants sold as seed or bedding plants. Other bedding plants should also be able to hold their own. Perennials should hold their own or decrease slightly. Large producers of trees and shrubs may see an even deeper drop in sales.
 
Therefore, we need to grow what the customer wants and needs! If we can make it easy for consumers to plant and grow vegetables and herbs, they can reduce their food costs. If we can help them save money, they will come to our establishments.
 
I wonder what pricing strategy our industry will use? It may follow the trend set by the box stores this Christmas, which is to offer discount sales in the beginning of the season and hope to sell out well before the holiday. Some suppliers have reduced the stores’ credit, and the supply toward the end of the season may be tight as a result.
 
If I were a retailer, I would promote the savings customers can make by choosing my operation. Many of the chain stores do this and print how much the customer has saved by shopping with them on the receipt.
 
As Yogi Berra said, “If you walk down the road and see a fork in it, pick it up and keep walking.”
 
Work hard and work right! Make your own path to a profit in 2010. Although it won’t be easy, you can make it happen. Best wishes for a profitable 2010. 

Will Carlson is a Michigan State University emeritus professor who has devoted his career to educating growers. He also had the vision to launch Greenhouse Grower magazine with Dick Meister more than 25 years ago.

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    2 comments on “Times Change Quickly

    1. Anonymous

      If you think Will is right about packaging plants in units of 3 or 4 or 6 plants, race to plantertogo.com and check it out. Our best flower sales will occur when we offer service and simplicity to our customers.

    2. Anonymous

      If you think Will is right about packaging plants in units of 3 or 4 or 6 plants, race to plantertogo.com and check it out. Our best flower sales will occur when we offer service and simplicity to our customers.