November 2006 Big Grower

Costa Farms: Doing It All By Bridget White

Many people in the industry still associate the Costa name with foliage. But in the past 10 years, what was a sleepy, south-Florida company has grown into a national powerhouse in both foliage and bedding.

The Costa family immigrated to the United States in the early 1960s and began growing and selling foliage soon after: From its inception, Costa Farms (from the Tony Costa branch of the Costa family tree) was a foliage operation. And with last year's merger with competitor Mike Costa Foliage (Tony's brother), Costa Farms became the nation's largest producer of indoor foliage, shipping to all parts of the United States as well as parts of Canada.

In 1997, when Costa started what used to be Costa Color (that was before all branches of the company and family merged into Costa Farms last year), the company jumped into bedding plants. With the 2001 purchase of the Velvet Ridge facility in Ashville, N.C., Costa became one of the major players in the Southeast, shipping bedding plants to North and South Carolina, Georgia, Florida and Alabama.

President and CEO Jose Smith sat down with GPN's Big Grower recently to talk about how the company has managed to expand so rapidly, how he keeps competing customers happy and what the future holds for Costa.

Moving Fast

A fast pace must come naturally to the people at Costa: The company's entrance into the color business seems to have happened overnight, at least in the eyes of the industry, and the company continues to grow aggressively. During just the first week in October, when GPN's Big Grower was working with Smith for this article, Costa moved onto 85 acres of the Hines Lovell facility in Homestead, Fla., and was signing a contract to purchase a 60-acre farm in Pennsylvania.

Costa's move into the Mid-Atlantic market is a bold step in a time of rising costs and shrinking margins. It's also the first move the color side of the business has made outside of its home region.

"There was an opportunity to service one of our major customers in an area where they are growing aggressively," explained Smith. "We don't just grow for the sake of getting bigger, but we saw an opportunity, and we took it."

Costa will use the Pennsyl-vania farm, located south of Philadelphia, for production of bedding plants headed to the local, Mid-Atlantic market. Though details have not yet been finalized, Smith expects to ship some foliage from Florida to Pennsylvania to create a more complete offering. Smith said Costa expects to take over the property this month, leaving most of the management team in place, and start shipping from there in February or March.

But Costa's biggest move is yet to come. Starting next year, the company will begin the long process of relocating its Florida operations to a new 3,500-acre site about 100 miles north of Homestead. Set to coincide with the end of Costa's lease of Hines' property and a 7-acre ç expansion in Ashville, the first step of the move will open up much-needed space for color production. But Smith said the company will take its time completing the move, perhaps taking as long as 10 years.

Can It Transfer?

By the time Costa started its first bedding plant operation, the company's principals already had considerable mass-market experience and good buyer relationships. They were accustomed to shipping long distances and succeeding in the ultra-competitive world of foliage. The question everyone was asking was would these skills transfer to bedding?

Despite similarities, the two markets are very different, and other growers have struggled making the transition. But not Costa. The company is even starting to apply some of its foliage skills to bedding, namely how to handle multiple, competing retailers.

On the foliage side, Costa has serviced Home Depot, Lowe's, Wal-Mart and a host of grocery chains for decades. With the recent addition of Home Depot as a customer in the Florida market, Costa now services approximately the same customers in bedding. How do such fierce competitors feel about the arrangement, we asked Smith. "Hopefully, we're a good enough solution that they tolerate it," he said.

Smith said the entire family works very closely together to cultivate its success, and he is extremely proud of the teamwork of all of his employees. "We have an awesome team of employees here that is continually working to develop solutions for our customers," Smith remarked.

Smith said Costa's formula comes down to two factors: making each customer feel special through dedicated resources and people and maintaining integrity by not sharing competitive information. "It's one of our biggest challenges," explained Smith. "It's a challenge coming up with enough programs that are good enough and not having the same program in every chain we go to. I think one of our strengths is that we try to develop fairly deep ties with our biggest customers and more than just at the sales/buyer level. We focus on marketing, transportation, information technologyÉdifferent fronts to make the business better for all of us."

More Than Plants

Certainly anyone supplying color to a mass merchant these days knows that a good in-store merchandising program is part of doing business. Costa views its merchandising program as an opportunity to stay in tune with the needs of the end consumer.

Through a separate company called Garden Vision, Costa has negotiated a contract with Lowe's to merchandise all live goods in 218 stores in the Southeast.

"Obviously, this was sticky," said Smith about being a third-party merchandiser. "Lowe's made it crystal clear for us that if this program was going to work, we had to maintain a separation between our selling arm, the Costa sales team and this merchandising team."

Merchandisers are not connected with the grower, as is the typical arrangement. They don't call in outages, and they don't favor Costa's product.

Now, instead of having one sales/merchandising person cover two stores, Costa has the same person cover 12 stores and focus only on sales; everything else is handled by a service company, either Garden Visions or one of four other companies Lowe's contracts with.

From a grower's perspective, Smith argues using a third-party merchandiser is actually cheaper. "You've got to imagine a dozen companies sending service reps into the same store," explained Smith, "and those 12 people each have cars, and those 12 people would each go from store to store to store. They would spend half their time behind a windshield; now all those inefficiencies are eliminated."

Working All Angles

As if production and merchandising were not enough to keep one company busy, changes in shipping on the foliage side are starting to create tremendous opportunity, said Smith. One of Costa's largest customers recently ended its collect-freight program where the company sent trucks to small growers to pick up orders as small as 25-50 cubes, and Smith expects other customers to follow suit. This leaves a lot of small growers with no way to get their products to some of the big box stores.

"There's no question that our distribution capabilities have really given us a lot of opportunities to grow the business," said Smith. "It's become more difficult for people to deliver product to the stores because freight minimums have gone up and freight charges have gone up. And the fact that we have critical mass going to all parts of North America makes it easy for us to roll other programs into ours."

Smith said some of the buyers at his larger customers are now approaching Costa to incorporate other growers' products and include them in the Costa shipment. Smith said it is much more efficient and cost effective for multiple nurseries to ship their products together. Sometimes those are items Costa grows, but oftentimes they are not. The potential for profit can be very good with, for example, specialty items. Because the product cannot get to the store any other way, the customer is willing to pay a little more for it, and Costa takes advantage of shipping costs it's already paying.

If this expansion into shipping sounds simple, Smith warns it's not. "I don't handle all that," Smith explained. "We have shipping and transportation experts to do that. There's no way I could handle this company if I tried to be an expert about everything. We sold $13 million in 1993. Next year, we'll sell more than $200 million, 15 or 16 times that, and my life is not 15 times more complicated than it was in 1993. The reason it's not and the reason I can still sleep at night is because we have a great team. We've got a great thing going, but we are never satisfied with the status quo. Our entire team will continue to work hard to reach an even higher level of success."