Expansions And Contractions In Structure Construction
How do you define growth for your greenhouse operation? Is it forming or enhancing customer relationships? Lessening your greenhouse operation’s carbon footprint while boosting your bottom line? Is it building new greenhouses?
Growth, obviously, has different meanings to different growers, and enhancing relationships, boosting your operation’s bottom line and building new greenhouses all represent growth. But building greenhouses? It’s always been the tell-all indicator that business is good – maybe even booming – and that the operation building the greenhouses has a big-picture plan for expanding production.
The golden age of building greenhouses is gone, though. Structures are still being erected each year, as the 2010 Top 100 Growers Report in our last issue reveals. Our 2009 report, however, showed the Top 100 Growers as a whole actually reduced production space from 2008. And 2009, according to Bill Vietas, the vice president of sales for Rough Brothers, was a year in which growers invested in lower-cost hoop house structures.
Growers are also considering retrofitting existing greenhouses, reglazing coverings and adding new benches or shade coverings as alternatives to building new greenhouses.
“People are not expanding like they once were,” Vietas says. “They may look to become more efficient with energy or labor. They may have an old glass house and want to put double polycarbonate on it and save some money on the heating bill. Or, they may add a bench system that improves quality. People are spending money at some level – it’s just different than before.”
The Customer’s Building Effect
Consumers are spending at retail, too, but their purchases aren’t as large as they once were. Rob DeLeon, president of DeLeon’s Bromeliads in Goulds, Fla., is well aware of the consumer’s new demands, and those demands ultimately impact DeLeon’s production and whether or not the operation will expand or contract space each year.
“Because of the economy, I’m cutting back on 6-inch orchids and growing more of the smaller-sized pots because they’re more affordable for the consumer,” DeLeon says. “We can grow in the same amount of space and still sell to the marketplace.”
Still, the market DeLeon’s serves isn’t asking for more product – it is, instead, asking for a different kind of product – and “different” doesn’t lead to more greenhouses. Another reason fewer greenhouses are being built is because of the grower-retailer relationships that have morphed in recent years.
Producing crops on speculation used to be a way many growers did business, and it wasn’t preferable. Now, many have moved away from spec production, but they’re in yet another unpreferable position in that retail buyers are making more conservative purchases. And conservative purchasing leads to conservative production.
“Some buyers are not as loyal as they used to be, in some respects,” DeLeon says. “It’s just a more difficult situation out there. Price is very important to certain buyers and if they can get something cheaper elsewhere, they will.”
Wendell Ulmer, the production manager at O.F. Nelson & Sons in Apopka, Fla., knows exactly what DeLeon is talking about. O.F. Nelson & Sons was on the Top 100 Growers List in 2009 with 871,200 square feet of environmentally controlled greenhouse space. This year, the operation dropped off the list after reporting it planned to use only 435,600 square feet of it.
“We’re not getting as many pre-books as we normally do,” Ulmer says. “Everything’s pre-booked. Really, I would say our production rollback now is probably 20 percent. At one point it was about 50 percent.
“The economy needs to be a little bit stronger. We’re trying to maximize our production. In hindsight, 50 percent was probably a poor decision. But six months out, you have to make these decisions.”
Contract Growing Concerns
One greenhouse operation that has added greenhouse space within the last two years is Plants Unlimited in Kalamazoo, Mich. In 2008, Plants Unlimited added less than an acre of Rough Brothers greenhouses, and it added a 115,000-square-foot double-polycarbonate structure last year. The new structure has side walls that roll up, and it’s designed with Cherry Creek Systems booms. There’s also a chance Plants Unlimited adds another 2 or 2 ½ acres this year.
The operation’s owner, Nirmal Shah, has added space to meet new customer demands. Plants Unlimited is a contract grower for six different operations: CK Greenhouses, Color Point, Elzinga & Hoeksema Greenhouses, Hybels, Masterpiece Flower Company and Neil Mast & Son Greenhouses. Contract growing is working out for Plants Unlimited at the moment, but there’s always concern about the future.
“There is lots of consolidation taking place in the industry,” Shah says. “Big box stores are trying to use fewer suppliers. Because of that, Color Point picked up a lot of Lowe’s stores and it would have to add 10, 15 or 20 acres of greenhouses to meet the demand. Few people can build that many acres in a given year. It’s the reason I feel I can succeed over the next five years. But, of course, there’s always the chance things can change.”
As long as Plants Unlimited is a contract grower, Shah will continue to look at additional contract growing opportunities. That way, he can continue to build greenhouses and expand his operation as if Plants Unlimited were directly serving the box stores.
“It’s definitely scary if you build a greenhouse as a contract grower,” Shah says. “My first question to Color Point, before we started working with them, was whether contract growing is something they’re looking to do for one year or is this something I could making into an ongoing relationship. Color Point is expanding on its own. In a situation like that, you are taking a risk because if, for whatever reason, the relationship doesn’t work out, then you have two acres of empty greenhouses.
“I took that gamble and so far it has been successful.”
Another greenhouse operation, Dan & Jerry’s Greenhouse in Monticello, Minn., serves as a contract grower but is more hesitant about building greenhouses as one.
“We’ve been down the road where you put up as much space as you figure you’ll need for accounts,” says Dan Totushek, CEO of Dan & Jerry’s. “If an account cuts back, you have more space than you know what to do with. We’re in need of space now, but we’re expanding fairly cautiously and keeping as many doors open as we can – including other growers.”
Speedling, with growing locations in four states, recently replaced a few old wooden structures with new steel structures, and the operation increased its net production space by making the update. Speedling is also utilizing existing greenhouses for vegetable transplants and poinsettia starts. Previously, Speedling was growing just the veggies and not utilizing the greenhouse year-round.
“We’re utilizing our assets better,” says Sandra Fischbein, vice president and vegetable business manager at Speedling’s facility in Nipomo, Calif. “If you cover more overhead, then everything you grow becomes more profitable. Plus, the other factor is our greenhouse crews. We have these trained crews, and we don’t want to get into laying them off in the offseason. So it’s good to have something to keep people busy throughout the year.”
Energy and labor improvements are also reasons to build new greenhouses. But more growers, it seems, are looking to hoop houses as the solution.
“As it relates to energy, we’ve seen increased interest in shade structures,” says Reid Squires, director of sales for Stuppy Greenhouse Manufacturing. “I think people are looking for innovations for energy conservation.”
Still, for the most part, the vibe Squires is getting from growers is they’re hesitant to do much of anything until spring runs its course this month.
“We’ve seen a lot of conservatism,” he says. “I think there’s concern to build based on the economy. It’s tough to have innovations in this industry, especially with structures because they are consistent over time. The innovations we’re seeing have to do with creating an environment through irrigation, ventilation and other things.”
Robert Hotte, the U.S. and Canadian sales director for Harnois Industries, has a similar outlook on the structures market.
“Right now, we’re not shipping that many structures into the U.S.,” he says. “People are modernizing and adding natural vents to lower their operating costs. In the North American market, there is always a guy who will add some square footage but there’s another guy who won’t. It’s going to be this way for a while.”
Yes, business is tough for the structures companies these days. But life as a grower isn’t any easier. And the grower’s challenges have huge effects on the number of new greenhouses built each year.
“It’s tougher to be a grower today than it’s ever been,” DeLeon says. “I think a lot of nursery people have an uphill battle. When the customer changes, especially at the stores, it makes business more difficult. You just go with the flow now. Sometimes you have to deal with things you’re not happy about, but you have to understand that’s part of doing business.”