The State Of The Greenhouse Grower In 2013
The world of the greenhouse ornamentals producer has changed dramatically since 1983, when Greenhouse Grower magazine published its first issue. Thirty years ago, small growers served independent garden centers with seed-based production of bedding plants. They sold everything they could grow at nice margins and spent much of their time focused on the plants.
Today, mega growers serve the big boxes with vegetative production of broad crop mixes. Business plans call for zero shrink and razor-thin margins. And the grower spends as much time on the numbers as on the plants.
These operations are still serving their original purpose: growing ornamentals for U.S. gardening consumers. But the business is now fundamentally different.
So, for this State of the Industry issue, we’re asking the question: Who exactly is the American greenhouse grower in 2013?
Changing Makeup Of The Market
Much has been made of grower consolidation in recent years. For reasons from economics to changing customers to oversupply, there are fewer growers in the industry today than 30 years ago.
The attrition of growers is a big issue, says Tim Brindley, president of Stacy’s Greenhouses. “There are fewer growers doing business with the big boxes, which is where the majority of the business goes. That consolidation has given even more power to the customer.”
“We’ve gone from primarily small family-owned operations in 1983 to a mix led by large, very professional operations servicing the chains and covering a much broader geography,” says Stan Pohmer, CEO and founder of Pohmer Consulting Group. “You still have the small growers, as well, which are becoming more niche growers, and in many cases are very active in the locally grown trend.”
And then, he says, there is the shrinking middle. “It’s one of the things we see in all industries, where you’re too big to be small and too small to be big. It’s increasingly tough to be a mid-size grower.”
Many of those struggling mid-sized growers have changed their business models to survive by serving as contract producers for larger growers.
One thing hasn’t changed: greenhouse growing, even among the largest operations, is still a family business.
“I would say that’s true of most greenhouse operations,” says Joel Goldsmith, former president and CEO of Goldsmith Seeds. “Some are quite large, but I think they’re still family businesses. They just look different than they used to.”
“Large multi-nursery corporations don’t seem to work,” says Tom Demaline, president of Willoway Nurseries. “There are so many moving parts, you can’t have someone in an office in Chicago making decisions for someone on the ground in Ohio or California. You need a keen understanding of the operation.”
Change Driven By Technology
Much of the change in the last 30 years has been driven by some amazing improvements in production methods.
“We have gotten smarter. I don’t care if you’re in poly or in the greatest glass system known to man. You still have to know how to run it. You can get just as good a crop out of a single-poly greenhouse as you can in a Dutch glass system today if you know what you’re doing,” says Allan Armitage, professor emeritus of horticulture at the University of Georgia.
“That knowledge has led to more specialization among growers. There’s a division of labor at the system level now,” Armitage says. “The grower who is finishing plants is probably not starting the products and the plug grower isn’t finishing it. It’s a whole new system.”
The development of the plug in starting plants altered the nature of the business.
“Thirty years ago, most of the seeds were still sown in seeding flats and hand transplanted. The plug system of growing brought tremendous development in machinery and automation, and gave growers a better understanding of their costs,” Goldsmith says.
“All of a sudden, we went to having a defined area — a cell — dedicated to each young plant. Growers were paying for seed, water, fertilizer, heat, cooling and greenhouse space, whether they had a viable plant in there or not. It didn’t take long to figure out that having a plant in every cell was more economical,” he says.
“That one major change in how plants were grown led to any number of changes,” Goldsmith says. “Rolling benches. Automatic seeders. Transplanters. All this mechanization we have now creates different growers. If you’re going to be an effective producer of any real size, it requires a substantial investment. It’s much more of a manufacturing operation than it was 30 years ago.”
Doug Cole, president of D.S. Cole Growers, agrees that technology, particularly from Europe, has changed the job of the grower for the better.
“As our labor became more expensive and our ranges became larger, we found the need to borrow Dutch technology to increase our efficiency of growing. This has been seen in our structures, our internal transport, robotics, our cart system for shipping and our our interest in sustainability,” Cole says. “With tighter margins, we need to make use of technological developments we did not have in the past.”
Of course, advances often have unintended consequences. “In the past, our industry could never quite meet market demand. We were able to raise prices and everyone in the supply chain was happy. With current technology, we are now able to grow our facilities into large manufacturing plants,” Cole says. “We are now in an oversupply situation. Our success has made us compete with each other much more than in the past.”
Change Driven By Customers
External forces have shaped the role of the grower, as well. The biggest driver of change over the last three decades has almost certainly been the evolution of the box stores. The rise of Walmart, Home Depot and Lowe’s forever altered the world for the greenhouse grower.
“A lot of people will tell you it has been good overall,” says Jeff Warschauer, vice president of sales for Nexus Greenhouse Systems. “Others will say it has not. But there’s no doubt that the big box has had a tremendous impact on our industry.”
“You have to ask whether these advances to mega greenhouse production of thousands and millions of plants, all uniform and standardized for mass markets, are a good thing,” says Dick Meister, chairman emeritus of Meister Media Worldwide and Greenhouse Grower’s first editor-in-chief.
“Obviously, an important market is served. But we must not lose sight of the need for the beautiful specialty plants grown by the smaller grower who has the skill and focus and instinct not found on the big production lines,” Meister says. “These flowers from the boutique producer truly excite the senses and set a high standard for the whole industry. There is a special significance to the smaller grower and the important role he fills in turning consumer’s attention towards flowers.”
One area that has been impacted by the boxes is the crop mix growers produce, says Bobby Barnitz, vice president of Bob’s Market and Greenhouses.
“Thirty years ago the business was bedding plants in cell packs and hanging baskets. The box stores needed a complete line, and that put pressure on the grower to be more diverse and grow more product lines,” he says. “Now growers are growing perennials, hanging baskets and annual bedding plants. They might be growing annuals in 4-inch pots or 6-inch pots. All of that has become a much bigger part of the business as bedding plants have declined.”
Some of these changes in crop mix may also be due to working closely with these box store retailers who pay attention to what consumers really want.
“There’s a mindset shift that’s evolved,” Pohmer says. “When we talked about the customer 30 years ago, we meant the retailer. Today, if you ask who your customer is, we automatically translate that to mean ‘consumer.’ We were a production-driven industry then. We are market-driven today.”
“It’s our job to innovate for the consumer,” says Mark Foertmeyer, owner/president of Foertmeyer & Sons Greenhouse Company. “Sometimes they don’t respond well. But sometimes they really like it. Our job is to keep doing that.”
Of course, as the power in the supply chain shifted to the retailer, the pressure to supply higher quality plants at smaller and smaller margins has become a reality.
“When we look around now, we see that no matter where we are in the supply chain, margins are tighter due to supply and demand and the box stores now handle well over half of all plant sales,” Cole says.
Brindley agrees. “The execution piece is so much more important than it ever was before. Today quality is a given. You have to have extremely high quality. That can’t ever be sacrificed,” he says.
The rise of the box stores has also made transportation and logistics both more important and more challenging. As growers have expanded delivery areas from local to regional, managing shipping is now a key part of the business.
“Distribution and logistics is where half a grower’s labor is tied up right now,” says Charlie Hall, professor and Ellison Chair in International Floriculture at Texas A&M University. “Twenty-five percent is getting the product on the bench, 25 percent is taking care of it and 50 percent is in distribution and logistics: order pulling, assembly and getting it to the customer.”
Regardless of where you stand on the boxes, it’s hard to deny the changes they have brought to the market have forced growers to be better businesspeople.
“Greenhouses are operated as real businesses today. In the ’80s, there was a lot of ‘gut feel.’ The level of sophistication we have today compared to what we had back then is like night and day,” Pohmer says.
“Thirty years ago the industry was growing at double-digit rates,” Hall says. “When an industry is growing every year from 9 to 11 percent, you can make money in spite of yourself.”
Quite obviously, that situation is different now. But as the market conditions have changed, growers have adapted the ways they run their businesses.
“Over the last 30 years, the business skills of the average grower have increased dramatically. We’re a very mature industry right now, barely growing at all. To survive you have to have developed a pretty good business acumen,” Hall says.
Much of that change has been in deciding how much to produce each year. With miniscule margins and supply exceeding demand, growers are producing less product that doesn’t have orders in place in advance. Pohmer estimates growers servicing the boxes are growing less than 5 percent on spec. Even the small and medium-sized growers may have reduced their spec numbers from half of production to 15 or 20 percent at most, he says.
“Today you have to be more focused on how to sell 99 percent of what you grow in order to not have shrink and not lose money,” Barnitz says.
“It was a lot less challenging in the 1980s,” says Demaline. “If you wanted to grow your business, all you had to do was grow more stuff. That isn’t the case anymore. You better know what you’re going to grow and where it’s going to go.
“All of this has made us better businessmen. We now have no fluff in our management style or our staffing. We’re running really lean,” Demaline says. “It’s good from that standpoint.”
It’s A Different Job Now
While the ultimate goal — producing plants — is the same, the job of being a grower truly is different than in 1983.
“Back then you grew plants on spec. You had black pots with no UPCs. You didn’t price anything, and a lot of times you didn’t even have tags,” Brindley says.
Today, he says, growers talk about the plants last because everything else — the planning for each individual customer, the advertising, the pots and tags and UPCs — has to be timed so you have the least amount of cash out at one time.
“I spend 70 percent of my time on operational planning and 30 percent on varieties, plant health and nutrition. Fifteen years ago, I spent 70 percent of my time on the plants and learning how to grow them and 30 percent on all the rest. It’s 100 percent different today,” Brindley says.
Another change is the evolution to year-round production.
“Thirty years ago, the greenhouse business was seasonal,” Goldsmith says. “Almost every grower shut down once spring was over and started back up to have plants in the fall. Nobody does that now. They have such an investment in their infrastructure and their margins are significantly less than they were 30 years ago. They don’t have that luxury. They have to keep cranking out plant material.”
“A factory wouldn’t shut down for three months,” Warschauer says. “Leaving high-value greenhouse space idle for several months is not a good thing.”
Getting the necessary return on investment is a top priority today, Pohmer says. “The grower’s job is about producing better and more consistent quality. Having better cost controls. Using more mechanization and managing production more intelligently.Building partnerships with key customers. Taking an active role in marketing. These things weren’t even on the radar screen back in the ’80s. It’s become a much more complex business.”
It’s a different job, and not always easier. “But change is inevitable. You ride the wave of change or get left behind,” Barnitz says. “It’s made us better.”
And despite all these challenges, the greenhouse can still be a good place to go to work every day.
“I have appreciated my choice to get into this industry,” Foertmeyer says. “Seeing the value of what we do, working with family, being able to provide jobs, developing people — that’s very satisfying to me. I think we’re all doing really good work that makes lives a little nicer.”