Industry Leader Forecast

Oh, if only we each had a crystal ball. We could see into the future and be prepared for those late-coming springs or the newest product trend or the economy's ups and downs. It would make life a little boring, but our financials would look a lot better.

Since we haven't yet tapped into the supernatural, we thought a collection of educated guesses would be the next best thing; hence GPN's 6th annual "Industry Leader Forecast." We polled several of your peers on what they think will be the biggest issues facing commercial greenhouse growers over the coming year. From economic changes to customer service to buying habits, find out what to look for in 2004.

Teamwork

All segments of the market working together. That is what I would like to see in 2004 and beyond. We have so many avenues being pursued in this great industry that we need to find a way to each build on the efforts of the other. We have "big boxes," smaller chains, independent garden centers, grower/retailers, mass producers, specialty growers, distributors of genetics and other inputs, producers of plant inputs, breeders and manufacturers. We are all trying to find our place, and it normally is at the expense of others in our segment of the market.

Each one of us is trying to establish an identity that will help carry us into the future. Our company is a partner in The Flower Fields, which is a branding program run by breeding companies. Proven Winners is a brand established by a group of production companies. Simply Beautiful is the product of a distribution company. MiracleGro Plants is an effort by a fertilizer manufacturer. Growers are differentiating their plants from the grower down the street through the use of containers, branding or some other means. Independent garden centers are highlighting their differences from the big boxes in the area through selection and perhaps plant quality. The big box retailers are all trying to be different from each other through branding, pricing or some other means.

What we aren't doing is working together to make the total picture bigger and better than the pieces. And that is what I think the industry is poised to do. Those of us at the breeding, production and distribution levels need to work with the growers to give them more control over, and benefit from, the products they sell. We can't continue to "pull" (read force) products through them. We can get retailers excited about our efforts, but we need the grower to produce it before we actually have a product for the retailer to sell. In my particular case, I am also dependent on the distribution companies to get my products to the grower, so that he can get them to the retailer. If there isn't benefit to them, it isn't going to happen.

So, my prediction is that this is the year that we start to make that happen. We shouldn't be competing with each other. We should be working together to make the gardening industry grow -- all of us. Then we will truly be successful.

-- Joel Goldsmith

Goldsmith Seeds

Gilroy, Calif.

Survival in the Land of Mass Merchandisers

As we look to 2004, the obvious issues (concerns) jump out. Higher energy costs, higher fuel cost, higher overall production cost and higher major medical costs for our employees are just a few that come to mind. I think if you were to ask major retailers the same question, they would echo the same comments I listed above. (By the way, we did ask and that's what they told us.)

Also of concern are questions/comments such as:

*                     Can a large grower continue profitability to serve several mass merchandisers? With custom programs such as private label branding and different pot size or flat configurations, the risks get higher and higher for the grower.

*                     Can our industry continue forward without a more formal, legally binding customer-to-grower purchase order commitment program? In my way of thinking, that would benefit both the customer and the grower.

*                     How do distribution channels remain open to new breeding and varieties coming from small breeders? With the tremendous consolidation and vertical integration continuing with the distributor, some great genetics are not making it to the market place.

*                     Merchandising (service) at store level as well as leaving racks behind at stores is now the norm. What will be next and is our industry ready for the next "requirement" from our customers? Some thoughts would include pre-pricing all products like packs and 4-inch, or maybe a pay scan program.

*                     Last, I'm concerned about more consolidation of some very good companies because of financial, economic or environmental issues. We saw several good companies fall by the wayside this year. I know it is inevitable; I just hate to see it.

A Christmas wish for Santa (yes, it is late but I'm always late, Santa understands): Major merchandisers (retailers) all take a 15-percent increase in retail prices and allow the growers a little breathing room. By the way, the customer will pay more; everyone has seen the exit surveys.

-- David Edenfield

Smith Gardens, Inc.

Bellingham, Wash.

Washington in 2004

Washington is never short on challenges, and predicting what will happen is an art that no one, so far as I know, has perfected. That said, here are some of the current issues of importance to floriculture, and what I think might happen in 2004 on those issues.

First of all, we will see brought to fruition a completed certification program for import of geranium cuttings from the offshore production facilities of the major production companies. In fact, that program is being finalized as I write these words. The certification program, built on the clean stock production practices of the companies and adding some new requirements, is the culmination of nearly two years of effort by the U.S. Department of Agriculture, Society of American Florists (SAF), the American Nursery and Landscape Association (ANLA) and the industry itself. It's important because over 70 percent of geraniums sold in the United States originate in offshore cuttings and without this certification program, those imports would no longer be allowed. Many people have done a lot of work to make this dream a reality, and it's the best Christmas present I could have possibly asked for!

On another very important front, the agricultural immigration reform legislation will be passed this year. Grassroots support is imperative to this legislation's success, and the legislation is important to everyone in agriculture. More than 70 percent of today's agriculture labor force is estimated to be undocumented because employers have no reliable way of verifying legality of worker identification and have no workable guestworker program. S. 1645 and H.R. 3142 (the "AgJOBS bill") are our best hope of solving this serious problem, and passage is a top priority for the industry. If you have not yet contacted your senators and representative, please do so -- contact me for more information.

We'll be making a push this year to increase the funding for the Floriculture and Nursery Research Initiative (Congress still has not passed a final budget for the U.S. Department of Agriculture, but must do so quickly after it returns to work in January). This year, funding should remain level at $6 million annually, which has been a big accomplishment in a year of draconian budget cuts. Next year, we want to see an increase in that funding level.

SAF is working on many other issues of importance: continued ability to use methyl bromide, continued availability of important chemicals, a move to update overtime compensation rules, passage of the Association Health Plans legislation, permanent passage of estate tax repeal, crop insurance expansion and reform of existing sales tax structures, just to name a few. Your individual voice can make a difference. All too often, business people and employees think their voices don't matter. But by joining together as an industry, floriculture can, and will, be heard in Washington!

-- Lin Schmale

Society of American Florists

Washington, D.C.

From the Land of Legislation

Whereas previously we thought of issues of the marketplace as our largest challenges, we are now seeing governmental regulations at the top of our list, and there are several that come to mind. While laudable in their goals they put a lot of pressure on companies such as ours.

In California all tailwater and the first one half inch of rainfall in any 24-hour period must be retained on site. The goal of running a cleaner operation with less impact on the environment is one that we support -- but it is difficult for a large outdoor operation that drains the rain of several hundred acres, not to mention the water from our own irrigation. Likewise, having multiple small locations can be equally tough to ameliorate.

California has passed a health insurance regulation that asks companies with more than 200 employees to cover the health insurance needs for employees and family. This can add a $6,000-8,000 yearly cost for employees that may be earning $18-20,000 per year -- a very large percentage increase. California's Workman's Compensation crisis is well known, and now it turns out that the unemployment insurance system is likewise in trouble and will be augmented by a 50 percent increase in premiums.

Beyond the above top-of-the list items, there are still interesting challenges in the marketplace. Each national retailer is looking to differentiate their program. For the grower, this leads to shorter production runs and increased complexity due to customization. At Altman Plants we believe that each customer deserves to be treated separately, but certainly achieving this in an efficient manner is a learning process.

Also coming soon from a national retailer near you is UCC.net. This improvement in the product identification system will improve EDI but will require a significant investment in software and systems as well as a learning period for growers and retailers alike.

There are definitely some tough challenges out there, but that is what makes life interesting.

-- Deena and Ken Altman (not pictured)

Altman Plants

Vista, Calif.

Channel Specific Worries

The strength of the mass marketers will continue to polarize growers . . .forcing those who service them to become even more efficient, while at the same time they will have to start the learning curve to accommodate the "pay by scan" activities and responsibilities that will roll out in 2005.

Those choosing to supply the independent garden centers will have to help them differentiate their products and programs from the mass marketers . . .it's no longer the sole responsibility of the independent garden center retailer to create this differentiation, but rather a partnership between retailer and grower that will result in relationships that both can benefit from.

-- Stan Pohmer

Pohmer Consulting Group

Minnetonka, Minn.

Going in the Right Direction

My 2004 forecast for the industry is that it will keep going in the direction it is going . . .but . . .Bridget probably expects me to use more than 18 words to make that statement, so I'll elaborate some.

About 10 years ago, a major industry change took place: several growers starting taking control over the way their product looked in the big box garden centers. These growers were outside of Florida and California, where service programs had been the norm for years. As we in the industry had long complained, the chain stores were not caring for plants at retail, and they were not about to start. These farsighted growers realized that this situation was an opportunity for them to differentiate their product from other suppliers. These growers immediately saw significant increases in same store sales and sell through. Today, merchandising is not an option -- it is a requirement to do a large amount of business with the home centers. There are greenhouse operations now that have more employees working in the retail stores than they have in the greenhouse.

The next step in this evolution is now starting, as a small group of growers see the opportunity to take even more control at retail. The stores' ability to accurately track vendor sales and percent sell through is facilitating these changes. The stores can easily see when a certain vendor has increased sales and profit. We are now breaking through a barrier in the relationship between growers and big box stores -- a few growers are finding ways to make themselves needed by the chains. The grower may be giving a guarantied sale, but in return, the grower is exclusive in the store and is getting more control over what product is put where and even controlling the price point in some cases. Also, the grower is getting a higher wholesale price! In one situation we will see this spring in a major market, the grower will control the entire color section of the store and do everything except ring up the sale. The grower is taking advantage of this opportunity and has developed a completely new and innovative marketing plan to enhance the appearance of the stores and the product. Yes, the next step is individual growers having more control but only the operations that are innovative, willing to take significant risks and have a positive approach to the situation.

As I write this, it is the tail end of the poinsettia season. I've seen plants poorly displayed, not removed from sleeves, dying from lack of water, dying from being flooded in a pot cover that does not drain -- this is a situation that has gotten ridiculous in too many chain stores. The retailers cannot and are not going to care for the plants (sound familiar?). The poor sell through is hurting growers due to reduced demand for restocking the same store. We are on the cusp of seeing a few growers take more control of the poinsettia situation. It will not take much in-store service to greatly improve the quality of the product offered at retail.

Barring weather problems, it looks like the industry could have a very good year. Spring should be very strong -- have a good one!

-- Jim Barrett

University of Florida

Gainesville, Fla.