State Of The Industry: Rising To Challenges

State Of The Industry: Rising To Challenges

Kicking off the year, we’ve identified the top 10 challenges growers are facing and the opportunities and strategies that come with them.

1) Profitability–Financial standing and banking relationships will be critical this year as lines of credit tighten up. Growers who rely on lines of credit for cashflow in between seasons may be in a precarious position if they have deep debts. We anticipate brokers, distributors and vendors will be pressured to help keep grower customers afloat in between seasons with extended payment terms, which will also put the supply chain at risk financially.

The growers who will be best prepared to weather rising input and overhead costs will have low debt and have made investments in technologies that will lower their labor and energy costs. Smaller growers who are highly specialized or seasonal with low overhead should be nimble enough to adjust, too. Precise, high-quality production will be key because no one can afford blunders or shrink. More diversified growers can take advantage of customer bases and product lines that are doing better. Finding ways to increase value and command better prices will be imperative.

2) Energy - Heading into winter, more growers were getting energy audits to maximize their heating efficiency and tightening up their greenhouse environmental controls. Many growers are converting to more efficient lighting fixtures. Installing energy curtains continues to be one the easiest things a grower can do to conserve energy, with a quick return on investment.

We’ve also seen more growers invest in alternative fuel systems and receive grants to do that. In the Northeast and Midwest, growers are investing in boilers that will burn alternative fuels ranging from wood pellets, grass pellets, waste oils, manure and even processed turkey parts. Geothermal, solar thermal, methane gases and wind power also are being harnessed for fuel. While cogeneration (generating electricity and heat at the same time) is more common in Europe, it is being tried here. Heading into 2009, we anticipate more state and federal grants will become available to invest in alternative energy.

New production strategies also are being implemented to grow crops cooler and choose crops that prefer cool conditions. Young plant growers continue to help their customers absorb energy costs by offering larger plugs and liners on demand for a quick finish, which allows finished growers to fire up greenhouses later and avoid growing spring crops during the coldest months of January and February.

3) Labor - In some parts of the country, growers may find access to labor is easier with other industries closing businesses and laying people off. Legal access to immigrant workers continues to be a challenge. Federal enforcement of consequences related to “no match letters” from Social Security was looming at the end of 2008. Comprehensive immigration reform was put on hold during the presidential election campaign, but President-Elect Barack Obama did express support for Ag JOBS, increasing legal access for agricultural employers. (For the latest on H2 programs, see page 28.) Raising the federal minimum wage and introducing legislation supporting labor are expected to be priorities for the Democratically controlled Congress, too. These are all concerns to employers nationwide.

In addition to investing in automation and labor-saving equipment, growers are learning lean production methods. Consultants have emerged specializing in our industry and lean manufacturing continues to be a popular topic in grower educational programs. Early adopters have opened their doors to share what they have learned with others.

4) Transportation–Costs were especially high over the summer when gasoline was nearly $4 a gallon and diesel was high, but fuel costs have been lower since last fall, due to reduced consumption and a strengthened dollar. Growers who ship high volumes great distances have become logistics experts, using the latest software technology to maximize each load and minimize empty returns. Some have even set up separate distribution businesses focused on trucking. Growers also are working together by setting up distribution hubs and cross docking facilities to streamline shipping.

5) Supply and Demand - The natural laws of supply and demand have been a problem as growers ramped up supply, creating a glut of the same products on the market and leading to lower prices. Heading into spring, large growers have voiced concerns there will be a lot of wayward, uncommitted product on the market because Walmart dramatically reduced its grower base (see page 130.) While growers who serve the box stores will continue to be aggressive, we’ve heard growers who serve independent retailers are cutting back, which means the box channels will benefit the most when there is demand.

In general, growers and retailers being more conservative with orders will help keep supply more in line with demand and help pricing. But if there is great spring weather in most of the country, we may not realize our potential in sales. Being conservative will create our own recession. In a crowded market, differentiation is the key, whether it be in crops, sizes, presentations or participating in marketing programs.

6) Consolidation–The trend of fewer growers serving fewer large retailers has forced more growing operations to consolidate, either in ownership, through contract networks or both. Large growers who are emerging as regional leaders and have secured box store relationships have become the big customer for fellow growers who would like to serve those stores. The leading growers are responsible for managing the full spectrum of supply, service and logistics.

Consolidation in companies supplying growers has been just as dramatic, whether it be in flower breeding, plastic pots, growing media, chemicals or regional distributors of these products. So far, the market response has been positive with many feeling there were too many companies with the same products. Whenever a company gets really big, like Syngenta, there is a concern about future monopolies, but the box stores are exerting so much pressure that those who supply growers need to offer competitive pricing, which is a driver behind consolidation.

7) Driving Sell-Through–Growers at all levels have become responsible for driving sell-through like never before. Even independent retailers are looking for smaller, more frequent deliveries to minimize shrink and ensure consumers see fresh plant material. At the Home Depot, Kmart and Meijer’s, growers are managing the inventory and are not paid for the plants until they are sold through cash registers (pay by scan). Growers have invested in service divisions solely responsible for merchandising at store level.

Providing the right product mix at the right time at the right price has never been more important. Bundling techniques seen in other consumer goods, like produce, are effective in driving consumers to buy more at a time. Offering multiple price points also is an effective strategy. When presented with good, better and best, or standard and premium baskets, many consumers will trade upwards, if given the opportunity. But a perceived difference in value and quality must be there. This could be in the plant material, size or packaging.

8) Weather - When it comes to making or breaking a year, spring weather continues to be the most important factor for most growers. Rainy Saturdays in May will hurt sales more than economic conditions. Some growers have broadened the geographic footprint of the markets they serve to minimize risk where weather is bad and maximize opportunities where it is good. Growers who serve Northern and Southern climates can get an early jump on spring while also extending the season into summer. The fine balance is to be ready for sales when the weather is good but not carry so much inventory that you are dumping plants when the weather is bad.

9) Water - Many regions of the country have been in prolonged periods of drought, primarily in the Southeast and out West. Southern California growers have been operating under mandatory watering restrictions for a year and water has become an issue in Florida again. Even if growers themselves aren’t restricted, municipal outdoor watering bans prevent consumers from watering and dry up plant sales.

Local water-use battles have brought growers, retailers and landscapers together at the state level to speak with a united voice on water issues and educate the public on water-wise gardening. The big challenge has been convincing bureaucrats that our industry and our products are essential. One way state green industries have done this is by quantifying economic impact and actual water use.
Leading floriculture faculty have partnered with allied industry suppliers to create a Water Education Alliance For Horticulture to educate our industry on ways to conserve water. Plant introducers also are looking into drought-tolerant lines of plants that require less water, like succulents.

10) Relevance–When it comes to growing our industry and connecting with more consumers, focusing exclusively on gardening as an activity is not going to cut it. Nongardeners who are stressed for time think of gardening as work. And in the indoor plant gift category, there are so many other industries we are competing with to be chosen as the gift. The battle for discretionary consumer dollars is fierce, but fortunately, there are so many consumer connections where plants are a great fit:

- Lifestyle - from outdoor living patios to interest in cooking shows, plants and flowers fit food, fashion and fun.

- Health & Wellness–Gardening does tie in with exercise and spending more time outside. Vegetables and herbs are nutritious and fight ailments. And more studies show the positive impact plants and flowers have as mood lifters, counteracting depression.

- Rev Up Real Estate–Struggling with the housing market? Attractive plantings and landscaping could help your home sell first and at a higher price. What if you own retail or office buildings and are looking for tenants? Attractive surroundings will help fill the vacancies. And if your city is trying to attract residents, tourists and businesses, participating in America In Bloom would be a step in the right direction.

- Sustainability - Promoting an environmentally friendly message is a great way to differentiate your business. This doesn’t mean you need third-party certification, although it helps. Telling your story related to recycling, pest management and energy and water conservation is one way. Promote plants as the ideal way to offset carbon footprints and create more oxygen. Capitalize on niche opportunities with green movements, whether it be supplying sedums and groundcovers for green roofs or marketing organic herbs and vegetables. The opportunities are there.

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