Top issues that will affect your business

Immigration reform, fuel prices, the green movement, big-box stores and high tech are making daily headlines. How do these global trends impact wholesale growers? A recent meeting of leading growers revealed a wide range of strategic issues facing growers and retailers alike. Some of these anticipated changes present opportunities, while others represent major challenges.

Gerke & Associates conducted a Balanced Scorecard (BSC) study for this group of container growers that revealed some obvious concerns and issues. These confidential BSC grower studies have been sponsored by Nursery Supplies Inc. for the past three years.

The BSC growers projected good sales growth for 2007 but management must think strategically to factor the major projected changes into their strategic and operating plans. The well-established growers (average company age of 53 years) must plan for production cycles from two to seven years to anticipate strategic considerations that will affect production costs and sales prospects.

What are the changes?

Here are some of the major changes noted in the survey:

Labor cost and availability. The debate about immigration is a major concern. The industry will be challenged by proposed changes in work rules and guest-worker regulations that could affect the supply of labor and possibly drive up costs if the supply decreases. The availability and quality of management for field workers will become increasingly important as new social issues become part of the work environment.

Transportation. Concerns about transportation range from the cost of fuel to the availability of trucks and drivers. Most petroleum industry projections are for fuel costs to continue to increase. This squeezes margins for growers with FOB destination pricing and drives up costs for retailers whose shipments are freight collect.

Nurseries have made frequent use of trucks seeking back-haul loads, as the freight cost is typically lower than for primary freight. Some growers report that transportation companies are becoming more conservative about delivering into areas that must depend on back-hauls. This has affected both the cost and availability of trucks.

The net effect of these transportation influences may lead to greater regionalization of wholesale nursery production and sales.

Energy cost and supply. Increasing energy costs have forced growers to evaluate alternatives to conventional energy sources, particularly as supplies are threatened.

Beyond the immediate costs of plant protection, rising costs of petroleum-based production inputs such as plastics, shade cloth, fertilizers, herbicides and containers will affect future production costs dramatically.

Margin pressures. Another concern was increases in overall production costs. The BSC growers are pressured by the difficulty in the competitive market to cover increases in health insurance and other benefit. While these benefits are important in the competition for available labor, they do not increase the economic value of production output and may depress gross margins.

Services for major retailers. Growers selling to major retail chains benefit from greater volume per customer and faster inventory turnover, but in-store requirements for merchandising and handling services are increasing. Services range from unloading trucks to servicing displays.

Some growers hire contractors to maintain inventory in retailer displays, especially in the case of pay-by-scan (PBS) environments. The PBS practice has been largely limited to small plants such as annuals and perennials but some woody growers have had to adapt their policies on delivery, credit granted and receivable turnover to accommodate PBS. In some cases, just-in-time delivery has been integrated with PBS by retailers who are demanding greater service but who resist accompanying price increases.

Green movement. The growing support for green policies offers obvious sales benefits and some specific opportunities for growers. Concepts such as biodegradable pots and overwintering poly, as well as using organic or low-chemical-input production techniques, can position growers and their retail customers as active participants in the green movement.

The increased focus on native plants can also reduce external inputs in production. At the same time, knowledgeable consumers will recognize native plants that are also invasive and less desirable.

Increased regulations for capturing runoff and the elimination of some important pesticides have forced growers to explore changes in production practices. Some contend these will be beneficial in the long run.

Future of smaller independent garden centers. Many changes cited by growers exert greater pressure on profitability and even survival of independent garden centers. This market channel is very important to wholesale growers and all of the BSC participants offer marketing support to retailers. Some growers also provide cultural information on their Web sites so retailers can educate employees and customers.

While working to support the sales programs of garden centers, the BSC growers noted increased consolidation of independent garden centers, which can influence market share.

Emerging technology. Very little use is made of bar code scanning and radio frequency identification (RFID) in the nursery industry. But some BSC growers believe these technologies offer great promise for improvements in production efficiency and customer service.

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- Joe Weston

Joe Weston is senior consultant, Gerke & Associates Inc., jweston@gerke.com.