Are Blue Skies Ahead?

May 2, 2006 - 09:04

Almost everyone in the industry is familiar with Color Spot. The company has always been innovative, taking the lead on many items growers now think of as standard; it was even one of the first greenhouse companies to have large-scale outside investors. But you cannot deny the company’s somewhat “spotty” history. Several financial restructurings and multiple management changes have many wondering what’s going on with the company.

Partially, the wonder comes from the current managers’ desire to keep a pretty low profile. In the two years since returning to Color Spot (yes, returning, these are the men who started the company), Jerry Halamuda and Mike Vukelich have refused all interviews and remained uncharacteristically tight lipped about what they’re up to.

Last month when Big Grower sat down with the pair, Halamuda and Vukelich were ready to talk. They were anxious to discuss a revived Color Spot, and we were anxious to get the real story of where the company has been and where it is headed.

A Bright Start

Color Spot Nurseries, Fallbrook, Calif., was founded in 1983 when Halamuda and Vukelich combined successor companies. Both men had been in the industry since they were teenagers and had strong entrepreneurial goals for the company. Very quickly, Color Spot became a major player in both the California and Texas markets.

In the two short years between 1995 and 1997 Color Spot, with the backing of two different investor companies, strung together a number of acquisitions: C.K. Plant Growers, Watsonville, Calif.; Barcelo’s Plant Growers, Fall-brook, Calif.; Sunrise Growers, Long Beach, Calif.; NAB Nursery, Phoenix, Ariz.; B&C Ground Cover Growers, Chino, Calif.; Signature Trees, Welches, Ore.; Peter’s Nursery, Walnut Springs, Texas; Wolf Nursery, Waco, Texas; and Lone Star Growers, San Antonio, Texas.

This rapid expansion allowed Color Spot to form a large footprint that covered all of California, parts of Texas and Arizona, and up into the Northwest. Additionally, their new ideas about in-store merchandising and supplying point-of-purchase materials made them a favorite with several of the mass merchandisers. It was a typical American story: Two self-made men creating an empire and finding success through hard work and dreams.

What Happened?

After such a blazing start, financial troubles were the last thing expected from Color Spot, but that’s just how the company finished the 1990s. Low quality/high cost production and loss of sales eventually led to multiple financial restructurings and the departure of Halamuda and Vukelich. For almost a decade, Color Spot stumbled through multiple financial backers and managers; no longer a leader, Color Spot was struggling for survival.

This is the Color Spot many people are familiar with, but it’s not what Halamuda and Vukelich like to talk about. Not that they want to hide anything, “We just don’t like to live in the past,” said Halamuda. “I will say, there is no question that we’ve made some errors, and we learned some lessons along the way. You can never outrun your people. You need that team of people to execute with you. We learned that you can’t outrun your capital. The capital structure has to meet the size and growth of your business. We learned that you can’t go out and just grow exponentially without a good, strong, solid plan.”

“You know,” added Vukelich, “the people on Wall Street want to think business is business, but there are some nuances to this business that aren’t congruent with a large, normal corporate structure. This is a fast-paced business. Every day something changes. You have to be on top of it to hit the seasons, to hit the windows, to get the right crops. It takes a lot of domain knowledge. It’s much different running one nursery than it is running nine, to build a team that services a large geographic area versus a smaller geographic area.”

According to Halamuda and Vukelich, the biggest problems stemmed from a lack of investor understanding. The investors wanted to grow aggressively and tied up all available capital in doing so. During the inevitable slow years, they argued, there was no reserve to see the company through.

Would investors with a floriculture background have made better decisions? Been more conservative? Understood the nuances of the industry? Halamuda and Vukelich seem to think so. And evidently so do the current financial backers, who three years ago asked the pair back to restructure the company.

Stability At Last

“Since Jerry and I have been back here in 2003,” Vukelich said unequivocally, “we’ve paid our bills better than anybody in the industry. We’ve been profitable, and we’ve gotten this company turned around and moving in the right direction. It’s a much different path than we used to be on.”

“In the past,” added Vukelich, “we went to our customers with new ideas, new products and used our sales and distribution systems to push those products through the stores. Now, the customers have the programs. They’re not looking for a lot of new ideas. They want you to produce high quality, large volumes of plant material, hit the windows and execute their programs. So what we’ve done over the last few years,” continued Vukelich, “is change the thinking in our team. We exist to take care of those big box retailers. When they tell us what they want, we better have big ears, listen and do it better than anybody else because otherwise we won’t be here.”

Focusing on the customer seems to have worked. According to Halamuda and Vukelich, Color Spot has had two of its most profitable years since their return. They have converted debt to equity, restructured the balance sheet, paid the bills properly and have plenty of capital.

Part of putting the company back on course meant downsizing and reevaluating expenses. The company no longer outsources plug production and keeps its trucks closer to home.

“We’re back to our core geographic areas and facilities,” said Halamuda. “At one point, we were a $225 million business. Now we’re $155-160. We used to have facilities in the Washington and Phoenix markets; we no longer have facilities there. We’ve created larger facilities, and we’re going into marketplaces we feel comfortable in. We decided to cut down, and now, we’re in a really good position.”

What Comes Next?

What can come next for a company that has been at both ends of the spectrum?

Like most people who have seen the worst of it, Halamuda and Vukelich seem to be very focused on the present. Which makes sense given the company is in a better position now than it has been in more than a decade. The new philosophy has taken care of quality issues, trimmed the company’s footprint and painted the ledger black. And success like this will inevitably lead to opportunities, especially with two entrepreneurs at the helm.

“Our main jobs since we’ve come back,” explained Hala-muda, “are to make sure we’re the highest quality, low-cost producer in the market; to take care of our customers every day; and to become the best large-scale, multi-facility nursery operator. If we do that, opportunities will be there naturally.”

According to Halamuda, those opportunities might even include some acquisitions…but only if the company is ready. Before that, he emphasizes the opportunities for internal, organic growth through new product lines and industry growth plus the opportunity to grow as the company’s retail partners grow. Each new store needs a provider, and where the relationships are strong, Halamuda anticipates that provider will be Color Spot.

“Just to set the record straight,” said Halamuda, “we made some mistakes, and we did trip, but we didn’t fall. We have no intention of going anywhere. We have no intention of retiring. We’re going to be in this business until we’re very old.”

About The Author

Bridget White is editorial director of GPN. She can be reached at (847) 391-1004 or bwhite@sgcmail.com.

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