2014 State of the Industry Report: Find your focus

2014 State of the Industry Report: Find your focus

Capitalize on steady industry growth and trends to make the changes your business needs now for a successful 2015.

December 2, 2014
GM Staff

Survey says…

The data on the following pages was collected by Readex Research via an online survey from August 14 to 18, 2014. The survey was closed for tabulation with 207 responses. To best represent the audience of interest, the results in this report were based on the 192 respondents who indicated they own/work for a greenhouse.

The margin of error for percentages based on 192 usable responses is ± 7.0% at the 95% confidence level. That is, 95% of the time we can be confident that percentages in the actual population would not vary by more than this in either direction. The margin of error for percentages based on smaller sample sizes will be larger. — Greenhouse Management


By Greenhouse Management Staff

The economic outlook for the American economy is still unsure. Job growth has been slow, but steady. Corporate profits are increasing but competition from abroad has made many industries pessimistic about the future. These symptoms appear to extend to horticulture in this year’s State of the Industry Report. However, there are reasons for hope. Sales and profits are increasing for a majority of growers and diversity may be the name of the game for the industry moving forward.

Over the next few pages, we share some of the data about revenues, profits and crops from our annual State of the Industry Report. Our coverage continues with a look at the independent garden center and landscaping markets, starting on page 14. Dr. Charlie Hall sounds off about plant pricing on page 20, and we share tips for financial success on page 24. We finish up the section with economist Bill Conerly’s thoughts on the 2015 economic outlook on page 28.



Are we up or down?

The sales-related feedback from growers in our State of the Industry Report paints a promising portrait of the industry. The majority of growers reported an increase in sales compared to 2013, with 71 percent predicting that their end-of-year numbers would outpace 2013. With 20 percent of growers predicting sales would remain at the same level, only 8 percent of growers surveyed will experience a loss in sales this year.

The data becomes even more promising when compared to last year’s State of the Industry findings. The 2013 survey found that only about 59 percent of growers experienced an uptick in sales, meaning about 11 percent more growers had an increase in sales this year. Both 2013 and 2014 revealed about the same number, 20 percent, of growers remaining stagnant in sales numbers.

Stretching further into the history of the survey, in 2012 about 51 percent of respondents said that sales were increasing. The three-year stretch of increases suggests that the industry is experiencing some version of an economic upswing and could be rebounding from the long recession that gripped the nation.

Leslie’s take
This is encouraging as it reflects about an 11 percent increase in businesses whose sales are up in comparison to 2013. It seemed that the weather was on our side this year in some ways, but that also some efforts towards more efficient growing practices and plant selection contributed to improved sales.


Leslie’s take
I’m curious if the growers that are projecting a net profit increase are simply looking at overall margin, or if they are strategically depending on specific categories or new products to improve their margins. Are they programming in more premium crops and perennials? Or perhaps working to diversify their variety selection or offerings for container plantings?


Leslie’s take
It looks like we’ve doubled the number of companies that are showing net profits of 10 percent or greater over 2013, which is a huge improvement. When you look at the growth categories (see below), we see that produce, edibles and perennials are playing a big part in that positive growth. That says to me that the key to better profits is making sure we’re paying close attention to consumer trends and wants.



Did increased revenues translate to increased profits?

Profits were another area of improvement for most growers. In 2013, 20 percent of growers reported a profit loss. In 2014 that number dropped to a paltry 6 percent. About 11 percent of growers said they were projecting a 20 percent, or more, net profit increase for the year. That number is up from roughly 8 percent in 2013.

An overwhelming majority of growers predict their net profit will either remain steady or increase moving into 2015. Fifty-five percent of growers believe net profit will increase next year, while 42 percent believe profits will stay at the same level.

Individual confidence seems to be fairly high. Only 3 percent of growers surveyed believe their net profits will contract next year. But confidence in the industry as a whole remains more meager. On a scale of 1 to 5, with 1 being not all confident and 5 being very confident, about 23 percent of growers surveyed said they were less than confident in the industry’s growth for 2015, answering below the 3 mark. About 39 percent were confident that the industry would grow, rating it 3 or higher.

That last statistic is particularly interesting. Despite reporting a better revenue year in 2014, growers are more pessimistic than they were a year ago. In 2013, about 60 percent of respondents believed profits would increase the next year. Only about 12 percent believed profits would decrease. With more growers reporting improved sales and improved net profits, a myriad of external factors seem to be affecting business projections for next year.



What are growers producing, and who’s buying it?

About half of all growers surveyed said they expect production of vegetable plants to increase in their greenhouse in 2014. A similar number predicted the same increase in 2015. External factors, like the blossoming local food movement, could be driving an increase in vegetable plants.

Perennials also appear poised for a growth period. Thirty percent of growers said that perennials will be the biggest increase in their greenhouse production for 2014. About 32 percent of growers said their perennial production should increase in 2015.

The largest customer for growers continues to be independent garden centers, with 36 percent of respondents indicating IGCs as a major customer (see page 14 for more on this market). Landscapers and direct-to-consumer mail orders were second and third place respectively, with 29 and 26 percent. See page 16 for more on the landscaping market.


Leslie’s take
It’s great to see that an overwhelming percentage of sales is going to the IGC and landscape market. I suspect we’ll see the direct to consumer/mail order grow over the next few years and I think there is a lot of demand and opportunity for direct sales.



Leslie’s take
Edibles and perennials are killing it! I think the big increases in these categories reflect the demand and trends in the consumer marketplace. It’s also interesting to see the strong numbers for potted flowering plants; this category heavily supports the “decorating with plants” movement that consumers relate to. I believe these products are what are supporting the upswing in overall business sales this year.


Independent Garden Center Market

A strong year for independent garden centers

Growth is slow, but steady for IGCs.

Garden Center magazine’s State of the Industry Report this year showed steady growth in this market, although some would say that the growth is slower than they might like. Overall sales for independent garden centers (IGCs) were up across the board, with 72 percent of IGCs reporting an increase in revenue in 2014, whereas in 2013 that figure was only 47 percent. Good (albeit late) spring weather and a slightly stronger economy provided a much-needed boost, according to many retailers we spoke with.

When it comes to plant sales, 68 percent of garden centers reported increased perennials sales and 63 percent sold more edibles this year. This correlates with the demand that growers reported and trends we’ve been following, including grow-your-own veggies. The good news is that fewer garden centers had decreased sales in green goods (annuals, edibles, perennials, trees/shrubs) compared to 2013. Most decreases were reported in other, non-green good categories.

Lastly, we see that retailers are still relying heavily on local growers for their plant material, and about half are producing some of their green goods on-site. — Karen E. Varga, Editor, Garden Center


Landscaping Market

A look at landscapers

Understand your lawncare contractor customers better with this data from Lawn & Landscape.

It’s a good time to be a landscaper. Revenue and profits are on the rise and the long-dormant construction market is starting to come back to life. Homeowners and property managers are once again investing in their properties. But, not all bodes well. Landscapers across the country complain of a lack of qualified employees—both for crews and management positions. Persistent drought in the west and south has put pressure on the entire green industry to get smarter about how it manages water. And the specter of the Affordable Healthcare Act still looms over many contractors. Below, GM’s sister publication Lawn & Landscape shares some of the data from its 2014 State of the Industry Report to help you better understand what landscapers are thinking, and what they’re planning for 2015. — Chuck Bowen, Editor, Lawn & Landscape


Survey Methodology

Lawn & Landscape partnered with ABR Research, a nationwide independent research company, to conduct our 2014 State of the Industry Report survey. An internet-based survey was sent to a random sample of L&L subscribers. The responses were gathered during July and August. In all, a total of 602 surveys were completed. The margin of error is calculated to be no greater than +/- 4 percentage points at a confidence level of 95 percent.



The Hard Sell

Dr. Charlie Hall, Texas A&M professor in the department of horticulture and holder of the Ellison Chair in International Floriculture, voices his opinion on plant pricing for growers.

Greenhouse Management: Was plant pricing this year appropriate for most growers? Did it need to be adjusted up or down?

Dr. Charlie Hall: You know what? Prices can always be adjusted up. That’s been a perennial issue for our industry. We were in a position this year, because of some of the plant shortages, to be able to command the prices that we needed. I would say that half the growers out there — I’m just guesstimating — had a slight increase in their price, although, I don’t think it was quite enough. Then others kind of held price. But there are two sides of that fence. I know there are folks who think we are still overpriced and we need to provide a better value to consumers so they will buy more.

And I’m looking at it in terms of opportunity cost. Back in 1965 we were selling a poinsettia at retail for $4.95. And if you took that and accounted for inflation, today we should be selling that poinsettia for $42. We don’t see a whole lot of $42 poinsettias at the retail level. So we haven’t really kept pace with inflation. But right now, the fact that the consumer doesn’t value our product, they don’t see the features and benefits that they need to which means they still view us as a luxury product instead of a necessity product. They don’t see an inherent value, therefore they are unwilling to pay a higher price, and those who are going into Walmart certainly fall into that category. Customers who go to high-end garden centers, not so much. They are willing to pay higher prices because of the service dimensions of the garden center and other kinds of attributes.

GM: Why then should prices increase?

CH: The cost of inputs has been continually going up over the past two decades and yet our prices have kind of held steady; we are selling stuff for the same price we were over 15 years ago. That’s what we call a cost-price squeeze. And the person who gets squeezed, in our industry, is the grower and they’ve got lower margins. And when you have lower margins, it sets up an atmosphere of hyper-competition in the industry. And so in a hyper-competitive environment, the competitive advantages you developed 10 years ago are not going to carry you into the future. You have to keep developing new, better competitive advantages. So in some cases we are our own worst enemy because when the recession hit we had a lot of discounting going on. People were trying to move product so they had a little bit of cash flow so they could keep the doors open. Yet that discounting taught the customer they could get that product for a lower price. And it’s awful hard to go back after that happens.

GM: How can growers convince customers they’re worth a higher price?

CH: Well, I would say that it is difficult. It’s only the growers who differentiate themselves in the marketplace in some form or fashion that have a shot in Hades of getting a price increase.

GM: What do you mean by differentiate?

CH: Look at retail, for instance. What makes an independent garden center different? Well, it’s the level of service; it’s a level of knowledge by employees. Sometimes it’s the selection. It’s not necessarily quality because we have some of the best growers in the country selling to Walmart and Home Depot and Lowe’s.

Take those same principles of retail differentiation and apply it to a grower, and ask how can a grower differentiate themselves?

Growers want to make it easy to do business with them which is a service dimension: pre-pricing plants and pre-tagging plants, offering plant tags and upgrades other growers don’t use and growing exclusive varieties. How else? Employing the use of branding campaigns, whether they grow Endless Summer Hydrangeas or some other branded product, is a good idea. Are they developing any sort of messaging that encourages the consumer to consider plants to be more of a necessity? Did you know that one tree provides enough oxygen for a family of two during the course of the year? And did you know that kids learn 20 percent more when they are surrounded by plants than in a sterile environment? And growers should provide these little “Did you know?” statements to help the consumer gain a better appreciation for the value of plants.

GM: So increasing price is intimately tied into marketing industry value?

CH: I guess the bottom line in terms of pricing is if we do the same thing today as we’ve always done, we don’t deserve a price increase. But if we differentiate ourselves and we convey these plant benefits and we convey to the consumer that we are a necessity in their lives and this is the value that we provide then we are relevant to them. And if we do that in an authentic manner, then we will have all kinds of opportunities to increase price.

Leslie’s take
Looks like there is still opportunity to raise prices and offer higher priced premium crops. I’m surprised to see such a high percentage of businesses that haven’t raised prices at all. Edibles and perennials do command higher prices from consumers, so there’s opportunity there to improve margins. Investing in marketing to promote premium products can also help improve perception of value and price.



Up Your Cash Flow Game

Business guru Gene Marks suggests 5 smart strategies to infuse more cash into your business. Starting tomorrow.

By Kristen Hampshire

Smart businesspeople make money by looking forward — at the next few years, not at next week’s payroll. Cash is king. And if you’ve scrambled to pay vendors or cut employee paychecks, you know that when the cash runs dry, you’re out of business.

Your job as an employer runs deeper than just making payroll. “We run businesses,” says Gene Marks, columnist for The New York Times, The Huffington Post, Fox News and others. “We have responsibilities. People rely on us. Our employees. Our customers. Our suppliers. Our partners. Our families.”

Marks, an author of business management books for small- and mid-sized firms, has some ideas for owners and managers working in established pest control businesses — ways to help you manage cash and grow, to reduce expenses and build profit. “The biggest thing I’ve learned about cash flow is about thinking ahead, and planning way ahead,” Marks says.

A favorite example of this is the Gardiner’s Furniture $600,000 “loss” on its Super Bowl bet on the Baltimore Ravens. Anyone who bought furniture from the store the days prior to the big game in 2012 would get their furniture for free if the Ravens scored on a kickoff return to begin the game or second half.

History put the odds in Gardiner’s favor. In the 46 previous Super Bowls, just eight kicks had been run all the way back. But not this year. The Raven’s Jacoby Jones opened the second half with a long-shot dash and returned a kick 108 yards for a touchdown. Gardiner’s had to pay up — and according to a Fox News report, 445 customers made good on the store’s offer. (One mom of three scored $4,000 of free children’s furniture.)

“You’d think this guy must have had a heart attack,” Marks says of the win, and loss for Gardiner’s. “But the first person the owner called was his insurance guy because he spent $12,000 on a policy to make sure if, God forbid and lightning strikes, and someone runs this ball (back), his costs would be covered.”

The $12,000 policy was an incredible marketing investment for Gardiner’s, which made national news for the stunt and garnered attention from the business community because of its cash-flow smarts. “Cash flow is all about thinking ahead,” Marks emphasizes. “It’s paying attention to the details.”

Here, Marks provides five strategies for upping your cash flow game.

1. Print and mark up the general ledger
“As boring as it may sound,” Marks says, print the general ledger monthly and get out your pen. Leaf through those 20 or 30 pages of transactions and take note of expenses that seem off. Ask yourself some questions. “Why did we pay this guy three times?” “Who is this guy?” “Why did we write that check?”

“To keep track of your company’s cash flow, you have to look at the details,” Marks says. “Don’t do it every day. Do it once a month.”

2. Create a flash report
Every single day, print out a one-page report containing critical financial information that is critical to track. “I do not mean an income statement,” Marks clarifies. “You can wait for an income statement — but you need to have this flash report.”

Good news: This report is easy to put together. Take your key metrics — cash (today), receivables, accounts payable, callbacks/retreats, backlog and revenues. Now, the key to the report is to benchmark these daily numbers — compare them to your cash on the same date last year, for example. Study year-to-date comparisons on a daily basis.

Start running flash reports tomorrow, Marks says. “See what happens when you are more aware.”

3. Generate a rolling forecast
What do the next three months look like at your business from an income and expenses perspective? If you’re not quite sure, that’s all the more reason to begin generating a rolling forecast. Marks suggests printing a monthly income statement — “always make it year-to-date,” he says of benchmarking. Compare this income statement to your year-to-date flash report. How are you doing?

Next, create a spreadsheet with three columns for the next three months. So, if “now” is July, create a column each for August, September and October. Next, study your backlog to get an idea of projected revenues. Fill in the columns. Consider what expenses are coming down the pike (fixed — payroll, overhead, along with estimated taxes, inventory and supplies). Plug in projected income and expenses to paint a future cash flow picture.

“Here, you’re doing what Gardiner’s Furniture did — they looked ahead, and that’s what smart businesses do,” Marks reminds.

4. Invite an outsider “in”
External financial services are not cheap, Marks admits. (He’s a CPA… he knows.) But there are various levels of financial insight that CPAs can provide, and most small- to mid-size businesses will gain tremendous insight from a fairly basic “compilation” service. In this scenario, the business owner hands over its general ledger to the CPA, who transfers this information into a financial statement with footnotes to explain the numbers.

The value of gaining external financial insight is in the findings that surface when a professional who is not mired in the daily details of your business drills down into your ledger. “This can reveal things that are costing you money,” Marks says simply. And, part of boosting cash flow is identifying money vacuums.

5. Implement smart technology
With an excess of 400 million mobile users in the United States, businesses that are equipped to invoice and collect payment via mobile devices position themselves to get paid faster. That’s a fast “liquid” shot in a company’s bank account. Intuit’s GoPayment and Square are two applications to consider, along with PayPal’s mobile payment service, as well as the mobile solutions offered by industry software providers.

How about getting that contract signed in a hurry without paper? Document signing applications that facilitate “e-signatures” add ease to work orders and estimates. “These apps decrease the amount of time between closing a sale and when you get the cash in — it stops paperwork, and it increases cash flow,” Marks says.

And, perhaps the most valuable tech tool for businesses, Marks says, is a Customer Relationship Management (CRM) program. These database systems track everyone who has touched your business: suppliers, partners, clients, prospects, anyone.

“Whoever picks up the phone at your business will know the customer [from accessing the database],” Marks says. This increases cash flow because of the information share that allows everyone in the business to stay current on the status of various accounts. “Nothing falls through the cracks with a good CRM system.”

The author, a freelance writer based in Cleveland, Ohio, is a frequent contributor to GIE Media publications. khampshire@gie.net


Economic Outlook

Careful spending

In 2015, look for consumers to spend income gains, but at a cautious pace.

By Bill Conerly

Consumers often want robust plants, just as business owners want a robust economy. What we want, and what we can get, are two different things. The good news, though, is that the economy is likely to grow in 2015, but not as fast as we would like. The major drivers of greenhouse sales—new construction and maintenance spending by consumers and property owners—will mostly be positive. Labor costs will rise and availability will be a little tighter. Bank credit should be somewhat easier to get next year, but a touch more expensive.

A look at housing
Housing starts are likely to increase again next year. This year’s gain is not as strong as we expected a year ago, as last year’s mortgage interest rate hike discouraged some buyers. However, the country has been building fewer housing units than our growing population justifies, so further increases in new construction will come simply to accommodate new demand.

The bad news for greenhouse managers is that a much higher percentage of new construction is in multi-family units—apartments and condominiums—which generally need fewer plants per housing unit than do single family homes. A key issue for the coming decade is whether young adults will want suburban single-family homes when they have children, or if they will continue to prefer urban, multi-family buildings. Housing experts are divided on the question; one path is very favorable for the greenhouse industry, the other not so much.

Existing homeowners, though, will be increasing their total spending in 2015. Consumers are following the economy, not leading it. Expenditures on all types of goods and services are rising by about 4 percent. Personal income has risen 2 percentage points due to rising employment, plus another 2 percent due to wage increases, for a gain of 4 percent — matching the increase in spending. There is little likelihood of consumers being overly bold, but they also won’t shrink away from spending most of their income gains. The best news on the consumer side is gradual increases in gardening as a hobby as baby boomers retire.

Commercial outlook
On the commercial side, construction is increasing, though still well below pre-recession levels. Some types of non-residential property are typically landscaped: hotels, stores, schools, etc. Other types are not so often landscaped: factories, oil rigs, cell phone towers. Within the “typically landscaped” category, construction has increased by 7 percent in the past year. Next year’s growth will likely be in the 7 to 9 percent range. This will still be well below normal levels. However, in most areas vacancy rates are too high to encourage much new construction. That won’t take off for a couple more years.

Maintenance of existing commercial properties will probably be flat in 2015, as landlords won’t feel that they have to work any harder at attracting tenants.

Leslie's take
I think it makes good sense to share where you stand financially with your team. We all rise and fall together and if your staff doesn’t know the goals or the realities of where you end up each year, it’s difficult for them to hit the targets. Sharing sales and profit data with staff makes the staff you want to keep feel more included and invested in the success of the company. It can help create a new sense of personal responsibility amongst your key players.

The big picture

Rolling all of these factors together, 2015 should have light to moderate growth for greenhouse products. That, however, does not reflect the many risks to the economy.

The greatest danger to continued economic improvement is foreign recessions. Europe’s financial crisis could very well rear back up. Even worse, the conflict between Russia and Ukraine could escalate, pulling down the entire Continental economy. Strife in the Middle East could also hurt the global economy. And if that’s not scary enough, China’s economic growth has decelerated. China is still growing at a very fast rate, but not so strong a rate as a few years ago. If China stumbles, then the entire world will feel at least a bit of a slowdown.

Domestic problems worry many economists, but me not so much. The Affordable Care Act has limited some small business hiring. Banks are finding it more expensive to operate since the Dodd-Frank Wall Street Reform and Consumer Protection Act, and those higher expenses will eventually be passed on to customers.

On the business side, companies have been hesitant to lay out cash to increase their production capacity. They are spending money to lower future operating costs, such as by automation equipment or more energy efficient equipment. However, they lack the optimism to really push the economy forward through capital spending and hiring.

These are valid concerns, but in my studies I have found the economy to be more resilient than many political pundits expect it to be. We have survived plenty of bad political policies in the past, as well as stupid corporate strategies. My best estimate is that we will muddle through current challenges.

With a gradually improving economy, labor will become harder to recruit and retain. As good workers become harder to recruit and retain, business managers should consider how they find people. Most American employers have used word-of-mouth as their primary recruiting technique. That is still a good method, as a current employee usually will not recommend a friend who is flaky. However, word-of-mouth does not allow the employer to find new pools of workers, people who are not friends of existing employees. Immigrant support services agencies can often provide job referrals. Online job boards such as Craiglist are great approaches, and don’t forget online special-interest forums. People who love plants might prefer to work for a greenhouse company, even if the job involves sales or accounting.

Interest rates are likely to rise in 2015. Short-term interest rates, such as the prime rate that is used in many bank loans, will go up when the Federal Reserve decides to tighten next spring. Mortgage rates will rise as global economic growth stimulates more demand for credit than supply of savings. On the positive side, though, banks are becoming more interested in making small-business loans. Don’t expect a major change in bank loan standards, but the company that was almost creditworthy last year will probably be bankable in 2015.

The economic outlook is moderately positive for next year, but forecasting is not a perfect science. Business plans should include contingencies for both recession and for a surprisingly good economy. On the recession side, figure out ahead of time the cuts in expenses you would want to implement, and also determine trigger points for these cuts. Take into consideration the company’s long-term objectives. For example, if building relationships with independent retailers is important, make sure that your recession contingency plan reflects that.

Don’t forget upside possibilities. If the economy accelerates, and housing starts to rebound faster than expected, will you have the workers you need, the space you need, and the working capital you need? Thinking about these challenges ahead of time will enable your company to thrive if the opportunity presents itself.

Finally, here’s some advice from an economist: don’t obsess over the economy. Focus on your business first and foremost. Keep your customers happy, keep your employees happy, keep your suppliers happy. The economy is not your destiny. How you run your business is.


Dr. Bill Conerly is an economist and business strategy consultant. Send questions and comments to bill@conerlyconsulting.com. www.ConerlyConsulting.com.