Our industry has always felt changes in certain areas over others, but over the last three years we have entered into more collective rhetoric than ever. The rhetoric is probably driven by more obvious high-impact results than we have experienced in the past. The results of change have been eye opening because the No. 1 result has been the loss of greenhouse businesses at a rate we have never before seen.
According to USDA, the number of grower businesses has declined every year since 2001–a clear sign of industry change.
The retailers took charge and now make the decisions growers used to make. Many growers are mad and would like to return to the “good old days,” but that isn’t going to happen. While the retailers took charge, they also provided more retail selling space than we could ever have envisioned, creating more than 100 million square feet of selling space since 1980. We should love these guys.
In the 1980s and ’90s, it was one big party with rapidly growing demand for bedding plants and perennials, great margins and little price pressure. Then, in the late 1990s, national retailers got very serious about a new topic–”supply chain management”–and things rapidly changed as we entered a new era of accountability. Retailers developed sophisticated tools for measuring vendor performance, and they called the industry to task in areas of gross margin, same store sales, year-over-year comps–and, of course, cost of goods.
The grower community split into two factions. One faction stood by the old traditions of “grower in charge” and fought changes instituted by the retailers. The second adopted the philosophy of “we have to figure out how to serve these customers profitably or find new customers.” The group that fought change has been most negatively affected by change.
As retailers consolidated their supply base with fewer but larger suppliers, they have come to expect higher levels of performance. High performance does not simply mean growing quality goods. Quality is not measurable and, therefore, cannot be defined except in terms of sales velocity, gross margin and the quantity discarded. Get those numbers right and you have quality.
In determining the number of growers serving the three largest national retailers, my estimate is 135 provide all the annuals, perennials and vegetables. And that number is down from 350 to 400 growers in the 1990s. Many former vendors have become successful contract growers, some sought out other channels of distribution and, of course, some are out of business.
Those who remain as vendors will become more than just good growers. They’ll become good business operators who provide products retailers want and consumers embrace.
Serving the national retailers has driven many changes in the industry and will drive more in the future, as vendors become increasingly accountable for sales, gross margins and discards.
Distribution is usually the second biggest cost for growers, and it’s one of the most difficult costs to manage because of the complexities that include high fuel costs, investments in distribution carts and equipment, declining value per cart and smaller but more frequent deliveries. (Cart value decreases as the demand for larger containers increases.) With fewer vendors, the existing vendors are servicing more stores and servicing stores that are far away from their production centers.
Growers need sophisticated information systems in order to have quick, accurate information available to all who need it. The information system can be in the form of a merchandiser in the field, a salesperson preparing for a customer presentation or a distribution manager tiring to compute cost of a route. Accurate information in real time is a must.
Replenishment software is the next level of information needed to ensure the right products are on the shelves at the right time. Manual processes are time consuming and very inaccurate, so reliable replenishment software will save time, money and be a major contributor to the reduction of discards.
Vendor managed inventories (VMI) will ultimately lead to total category management (CM) at certain retailers. I have seen some instances of it already happening in selected areas. CM is a system where one vendor manages the entire green goods category and is responsible for all vendors in the category. It is far more complex than VMI as we know it today, and there are few who are equipped to mange the complexities of Category Management.
It is amazing after attending the California Spring Trials each year to see what is on the retail shelves the following spring. Usually, you have to search many retailers to find any of the great new products launched at the trials. New products are the lifeblood of business and without them the price conversation becomes the major topic.
Have you ever wondered why you see certain brands at the national retailers? It has occurred to me that very few vendors have developed or are interested in developing a new product pipeline that keeps retailers and consumers interested. As a result, we look for more outside influences to drive product decisions, and those decisions are passed down to the growers.
We all view change differently but it is inevitable and will continually impact how we do business. Those who always benefit from change are those who look at it as an opportunity and not a threat.