State Of The Supply Chain

One noticeable trend within the large grower sector is the number of trial gardens they are building to gain more influence with their retailers. Grower trial gardens present the opportunity to have earlier firsthand information regarding variety performance in their locales. Some of the notable grower trials around the country are Metrolina Greenhouse, Van Wingerden International, Welby Gardens, Raker and Costa Farms. These trials will prove, or disprove, regional variety performance and should lead toward more appropriate product offerings on the shelves of retailers.

The greenhouse supply chain has evolved since 2000 like no other time in industry history. These dramatic changes were driven by a number of factors, including:

• Consolidation at all levels of the chain

• The massive explosion of retail space in the 1980s and 1990s

• Power shifts from growers to retailers

• The declining size of the grower base

• Changing levels of support between the breeder/producers and the brokers

• The economy

Let’s take a look at some of these changes, and how they’re impacting you and your business.

Retail: The Box Stores

In the ’70s and ’80s, Kmart was the market leader in bedding plant retail. That changed by 1995, when Home Depot, Walmart and Lowe’s combined had 2,913 stores with 33 million square feet of outdoor garden selling space. By 2000, these giants grew to 4,228 stores and 72 million square feet of outdoor space.

From 2000 forward, things really changed as we exited the era of “grower in charge� and entered the era of “retailer in charge.� This shift was arguably for the better as it forced growers to be better business people.

The high-impact changes driven by the “retailer in charge� system included:

• Vendor-Managed Inventories (VMI), aka Pay By Scan.

• In-store merchandising funded by the growers. This really freaked some people out initially, but they soon learned they could affect sales at the point of purchase for the first time.

• Consolidation of these retailers’ supply base with fewer but larger vendors — a move to a higher performing supply chain. There are now fewer than 100 bedding plant growers serving the three national retailers. Prior to 2000, there were 500 or more.

• Most large retailers now have grower and breeder councils as they become more active in genetics selection.

Retail: Independents

Although we don’t see a lot of building in this sector, many garden centers continue to grow and profit. The largest operator, Armstrong Gardens, is doing extremely well in California and with its Pike Nursery division in Georgia and North Carolina. In fact, there is a sizable group of well-managed and very profitable independents that include companies like Petitti Garden Centers, Al’s Garden Center, Bordine’s, Nick’s Garden Center and Farm Market, Welby Gardens, Gerten’s and Tagawa Gardens — just to name a very few.

The hardware chains, led by Ace, True Value and Orchard Hardware Supply, are showing real signs of life. True Value, for example, operates its retail nursery sector under the Home & Garden Showplace banner with separate experienced horticultural management and has created a strong alliance with the Master Nursery Group. Look for increased sales opportunities in this sector. Farm and Ranch stores like Tractor Supply Co. are also growing their presence in the market.

And let’s not forget a small-but-powerful segment that may be viewed as part of the independent garden center sector but differs vastly from the typical garden center: the retail grower. Many operate in spring only and may have farming operations the rest of the year. There are several thousand of these and many are very profitable.

Big Growers Become Merchandisers

Many growers fought the VMI and merchandising concept because they were used to calling the shots. However, well-managed companies soon figured out the retailers are in charge.

The Bell Nursery model designed by Gary Magnum and Mike McCarthy, not only consisted of great in-store merchandising with highly trained personnel, it also had a major focus on building relationships at all levels within Home Depot from the garden center personnel to top level executives. Today, that model continues to be improved, updated and frequently copied.

Growers getting into the merchandising business was not the only outcome of Pay By Scan:

• Growers are now 100-percent responsible for discards, impacting profitability.

• Growers must be more data driven and seriously analyze retail daily reports to see what’s selling and what’s not.

• New and improved replenishment strategies had to be developed and deployed. Some growers have customized software that will do analysis and even write orders on a store-by-store basis.

• Growers essentially “became� retailers; they are far more aware of consumer likes and dislikes than ever before.

• The distribution model changed. Replenishment is done with smaller, more frequent deliveries, reducing discards.

• Low-cost production is still very important, but it is not the only strategy for high-performance companies.

• Pay By Scan led to more refined and accurate production planning now that growers have informative sell-through data and know how to use it.

• The emphasis and investment in sales and marketing has vastly increased.

Brokers Focus On Sales And Financing

The broker channel has undergone some major changes in 2012-2013 with three significant events:

1. McHutchison launched a new division called Vaughan’s Horticulture, targeting the large grower sector.

2. Griffin Greenhouse Supplies purchased Syngenta Horticultural Services, the U.S. market’s third-largest broker.

3. Gary Falkenstein and a group of investors formed ePlantSource, an internet storefront targeting those who prefer to shop online with a high-efficiency, easy-to-use website being launched in 2013.
Neither Vaughan’s Horticulture nor ePlantSource will offer seed products other than seed-grown plugs.

The brokers’ role has changed radically over the past 30 years. The focus is now primarily sales and financing with huge accounts receivable portfolios used as selling tools. Many times, the best terms are the determining factor in order allocation.

The broker is generally far less influential than the retailer and the breeder relative to variety selection than in the past. Brokers seem to have more influence in the selection of vendors, domestic or offshore. Clearly their advice is valued in the selection of domestic rooted products and seed-grown plugs. Brokers have played an intricate role in the selection and development of rooting stations.

Some of the more progressive brokers have developed very sophisticated infrastructures combining their selling organization with effective supply chain management, financial management and very efficient information systems.

The broker and broker seller’s role in the large grower market has changed to more of an after-sales order manager. Breeders now sell more of their programs to the national retailers directly.

In the future, I see brokers adopting a more focused approach to the market by becoming specialists within a market segment. A perfect example is McHutchison and its newly formed division, Vaughan’s Horticulture. McHutchison is focused on the smaller grower market, while Vaughan’s Horticulture will focus on large growers. The two divisions use the same infrastructure, and that will ultimately give them an advantage relative to the cost of doing business.

Breeder/Producers — Seed

Although the battle continues for the top 10 bedding plant classes, there is far more emphasis on high-value seed and vegetative potentials that come out of seed breeding. A good example is SunPatiens, the top-selling New Guinea from Sakata Seed, a very traditional seed breeder.

Breeders have recognized that high-value seed will bring them vastly increased margins, but it adds value in every stage of the supply chain. Growers gain immense benefits from high-value seed by using it in premium programs.

Although these are more expensive than traditional seed products, they cost two to five times less as an input vs. a vegetative item. Some great of examples of high-value seed with huge sales volumes and above-average gross margins are Syngenta Flowers’ Vinca ‘Cora’ and Pan American Seeds’ Wave petunias, and in the vegetable sector, ABZ’s strawberry seed.

Seed technology has helped growers achieve more usable seedlings, meaning lower seed use, improved vigor and vitality of seed and increased efficiency of sowing through pelleting and coating. Technology has added a lot of value to seed products. Companies that have it and know how to market it will be the winners.

Currently, the single biggest challenge of the breeding community is garnering distribution support with more seed-produced items than the market demands. To answer this challenge, most breeders have put additional people in the field to influence the grower market. This has been accomplished with varying levels of success. Today, the emphasis is less on product and more on pre-sale and post-sale marketing activities:

• Growers want to order more frequently, rather than place a huge bulk order as was done in the past. Most have computerized production plans that will kick out seed requirements weekly.

• Value-added seed has gained in popularity with things like pelleting, coating, priming and PGR infusion. Seed technology provides a clear sustainable competitive advantage.

• If breeder/producers don’t have high-efficiency drop ship capabilities, they are at a distinct disadvantage.

• There is no such thing as advanced commitments for large percentages of the season’s needs.

• This is likely the one category where the broker is more influential than the breeder, primarily because the seed breeders have less impact on the retailer.

Seed plug producers are far less visible because of the growth of vegetative products, but still play an important role. However, the growth for most has been their entry into the vegetative rooting station sector. Ninety percent of this group are also rooting stations for vegetative cuttings. This is still a decent business, but not a growth business because of the reduced demand for low-value seed-grown items. There is, however, some growth for the few stellar performers.

Breeder/Producer — Vegetative

With fewer but larger companies, I see this sector continuing to consolidate with Agribio and Ball leading the way in the vegetative sector.

Breeding has provided incredible improvements in traditional classes and brought many new classes of bedding plants and perennials. There are a lot of look-alike and perform-alike varieties and, as with seed, the business is becoming more about the service elements. In addition to price considerations, growers now choose vendors based on:

• On-time delivery on a specific day of the week

• Order accuracy

• Immediate communication when there is any change in an order status

• Advance notification of shipping with tracking capability

• Truck delivery

• Salespeople who bring solutions

• No surprises

This sector is aggressive in presenting programs to the national retailers. Dümmen’s Confetti program, for example, is available from all three big box retailers and many others. In the future, those who don’t know how to develop retailer programs will not maximize their potential.

Rooting stations are very important to breeder producers, as millions of rooted liners are sold each year. There are some outstanding rooting stations, including Bob’s Market, Hart’s Nursery, Lucas Greenhouses, Millstadt Greenhouses and Pacific Growers.

The Future Of The Supply Chain

The supply chain continues to consolidate, particularly in the grower, breeder/producer and broker sectors. The retail sector continues to see some expansion.

In the future, we will see fewer but larger growers serving the national retailers. They will be highly efficient, well-managed companies that have the ability to change course as the retail environment changes. Contract growing will continue to grow and become a major sector in the grower market, but these growers will be low-cost, high-performance businesses that understand the importance of delivering products as ordered on a specific date. If not, they will own the product they have produced.

The broker sector will start to see casualties as the number of growers decline, making the pie smaller. I expect to see more growth from Express Seed and Ball Seed. McHutchison with its Vaughan’s division will become a factor in the large grower sector. The new ePlantSource will cause some stir in small- and mid-sized markets.

The national retailers have slowed new store growth because of the economy and the over-storing of retail space in America.

Top-line growth for the sector will be anemic as long as we remain reliant on the Baby Boomers, 10,000 of whom are retiring every day. These people no longer want to dig holes and neither, it seems, do ensuing generations. Until we can connect with these new generations, expect to see subdued growth.

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