November 2000

The Fourth Annual State of the Industry Report By GPN Staff

With our heartfelt thanks to the 209 GPN readers who completed and returned detailed surveys earlier this year, we present the Fourth Annual State of the Industry report – a detailed look at how the floriculture industry fared in 1999.

For the second year in a row, Summit Plastic Co. lent its support as a co-sponsor. Likewise, for the second year in a row, Accountability Information Management, Inc. (AIM, Palatine, Ill.) tabulated the information received from our respondents to provide detailed breakouts of grower information by size and type of operation, and by region.

Because we don’t have the space to offer more than a portion of this information, we also are offering the complete Fourth Annual State of the Industry Report. See p.50 for more information.

In 1999, the largest average overall (fixed, shade and field) operations were in the Central region (1.77 million sq. ft.) and in the West (2.03 million sq. ft.). Note that “total production” includes field production in addition to fixed cover and shade production.

Two respondents from the Central region reported sizable production areas under shade in 1999. One respondent indicated 2.1 million sq. ft. of shade; the other reported 1.3 million sq. ft. As a result, the overall average production area in the Central region increased by more than 1 million sq. ft. from 1998.

The South (191,400 sq. ft.), the West Coast (171,025 sq. ft.) and the Mid-Atlantic region (159,401 sq. ft.) reported the largest average fixed cover production areas in 1999. The average production area under cover for all respondents in 1999 was 135,920 sq. ft., down by about 15,000 sq. ft. from 1998.

About 95 percent of respondents provided usable data on size of operation.

Based on a rough interpretation of the data, growers with 50,001 to 100,000 sq. ft. of production space, along with growers with 25,000 sq. ft. or less of production space, tend to incur the highest production cost per square foot.

Growers with 25,001 to 50,000 sq. ft. of production appear to produce crops at the same cost per square foot as do those growers with more than 500,000 sq. ft. of production. However, note that production cost per square foot increased by 40 to 50 percent or so for both categories of growers from 1997. Indeed, only growers with 50,001 to 100,000 sq. ft. of production saw a decrease in production cost per square foot from 1997.

The overall production cost per square foot in 1999 ($5.83) is somewhat misleading, reflecting as it does the average cost per square foot reported by Central region growers ($2.91) as well as the average cost per square foot reported by Mid-Atlantic growers ($8.86) and Western growers ($7.80).

We are very hesitant to draw inferences from our year-over-year production cost data until we have accumulated a data bank representing at least five years. (Note, for instance, that production cost per square foot appeared to have more than doubled in the Mid-Atlantic region from 1997.)

However, we have received anecdotal reports that a number of hydroponic greenhouse operations have been launched over the past two years in the West and on the East Coast. This technology-intensive form of growing may partially explain the increased cost of operation noted in select regions.

About 38 percent of respondents provided usable information on production cost per square foot (the lowest response rate for any area of inquiry).

Among all respondents who provided information for this category, the average cost of labor in 1999 was $5.83 per square foot, with labor costs accounting for 34 percent of the overall cost of production. Compared to 1998, labor costs appear to have declined slightly among growers with 50,001 sq. ft. or more of production space, while holding steady for growers with 25,000 or less sq. ft. The exception is the category of growers with 25,001 to 50,000 sq. ft., whose labor cost per square foot increased by 11 percent from 1998.

On a regional basis (bottom chart at left), growers in the Central region (who reported an overall 1999 production cost per square foot of only $2.91), incurred an average labor cost that accounted for 39 percent of overall production costs.

The Northeast was the only region in which labor cost on average accounted for less than 30 percent of overall production in 1999. Indeed, growers in the Northeast, along with those in the West, reported that labor costs as a portion of overall production costs declined by 9 percent and 8 percent, respectively, from 1998. Conversely, growers in the Mid-Atlantic region reported that the portion of production costs consumed by labor increased 7 percent from 1998.

About 69 percent of respondents provided usable data on cost of labor as a portion of overall production costs.

In our previous survey, 12 percent of respondents said they offered in-store service in 1998. The percentage of respondents offering this type of service (cleaning and watering plants, tidying up display area, training store clerks, assisting with customer education, etc.) dropped to 9 percent in 1999.

In-store service was most prevalent last year in the Mid-Atlantic region (16 percent), the Central region (13 percent), the South (11 percent) and on the West Coast (12 percent). Six percent or less of respondents based in the Midwest, the West, and on the West Coast offered this service.

Based on size of operation, nearly one-third of respondents with more than 500,000 sq. ft. of production space offered in-store service in 1999, while about 5 percent of respondents with 25,001 to 50,000 sq. ft. offered in-store service. No respondent with 25,000 sq. ft. or less offered in-store service.

Fifteen percent of respondents said they offered guaranteed service (grower owns the plants until they are sold to consumers) to their retail customers in 1999, which is comparable to the percentage that said they offered this service in 1998.

Guaranteed service was most prevalent in the West (25 percent), the Mid-Atlantic region (22 percent), the Midwest (18 percent), and on the West coast (19 percent). Ten percent or less of respondents in the remaining regions offered guaranteed service.

About 90 percent of respondents provided usable data on special services to retail customers.

Based on a two-year comparison of survey findings, we might engage in some modest trend-spotting: The overall percentage of plant material purchased through brokers declined from 39 percent in 1998 to 30 percent in 1999. Meanwhile, the percentage of plants purchased directly from plug producers increased to 7 percent in 1999 from 2 percent in 1998. Likewise, the percentage of plants grown inhouse by seed or from stock cuttings increased to 47 percent in 1999 from 42 percent in 1998. The percentage of plants purchased from propagators (primarily the producers of vegetative cuttings) dropped slightly from 15 percent in 1998 to 13 percent in 1999.

Here is another example in which survey data would appear to support anecdotal evidence over the past couple of years, suggesting that a number of growers have been reevaluating (and in many cases revamping) their traditional methods of procuring plant material.

About 85 percent of respondents provided usable data on their overall source of plant material.

As with container crops, most bedding plant categories, as a percentage of the overall bedding crop, held fairly stable through 1998 and 1999. Note that the pie chart only shows 1999 data. The only change of note is the crop category of vegetables and herbs – listed separately in 1998, herbs accounted for 4 percent of the overall bedding crop, while vegetables accounted for 12 percent; in 1999 the combined category of vegetables and herbs accounted for 13 percent of the overall crop.

About 58 percent of respondents provided usable information on bedding crops grown.

Types of Container Crops Grown

Compared to 1998, the percentage of the overall 1999 container crop accounted for by poinsettias (10 percent), perennials (10 percent), vegetative geraniums (14 percent), begonias (3 percent), and New Guinea impatiens (5 percent) was the same or within one percentage point. In other words, the market for these crops held stable over the two years. Foliage registered a statistically significant gain in 1999 (16 percent) over 1998 (13 percent), while pot mums (4 percent) and roses (2 percent) dropped by two percentage points from 1998. Note that the pie chart shows only 1999 data. About 73 percent of respondents provided usable data on container crops grown.

Impatiens, which accounted for 14 percent of our respondents’ overall 1999 bedding plant crop (as shown on p. 33), accounted for 11 percent of overall crop sales income earned in 1999.

The two categories in which income generated by sales outpaced the amount produced (by percentage of overall bedding plant crop) were perennials (10 percent of overall bedding production, 12 percent of overall sales income) and seed geraniums (4 percent of overall crop, 5 percent of overall sales income). Overall sales income earned by pansies, mums and petunias dropped slightly in 1999, while vinca held stable at 5 percent.

Income earned by respondents with crops in the “Other” category also outpaced the amount produced (29 percent of overall bedding production, 33 percent of overall sales income). This category includes dozens of bedding plant species, making them too numerous to list.

About 67 percent of respondents provided usable data on bedding crop sales.

The foliage plant market has seen its ups and downs over the years, but 1999 proved a good year based on data from our respondents. Foliage, which accounted for 15.3 percent of our respondents’ overall 1999 container crop production (as shown on p. 33), accounted for nearly 18 percent of overall crop sales income earned in 1999.

Two other container crop categories generated sales income that outpaced the amount produced (by percentage of the overall container crop): orchids (6 percent of production, 7 percent of overall sales) and perennials (10 percent of overall container production, 12 percent of overall sales income).

As with the 1999 bedding plant crop, the percentage of overall sales income earned from crops in the “Other” category (26 percent) outpaced the percentage of these plants in overall container crop production (22 percent).

About 74 percent of respondents provided usable data on container crop sales.

Of the 209 growers who responded to the survey, 147 provided their gross annual sales volume for 1999. The average was $2,456,599.

The following is the response rate by 1999 sales volume.

• 22 percent reported that they grossed $250,000 or less

• 12 percent reported grossing $250,001 to $500,000

• 31 percent reported grossing $500,001 to $1,000,000

• 10 percent reported grossing $1,000,001 to $1,500,000

• 9 percent reported grossing $1,500,001 to $3,000,000

• 5 percent reported grossing $3,000,001 to $5,000,000

• 7 percent reported grossing $5,000,001 to $10,000,000

• 4 percent reported grossing more than 10,000,000

Among those who reported that their gross annual sales volume increased from 1998 (52 percent), the average level of increase was about 13 percent. Among those who reported that their gross decreased from 1998 (31 percent), the average level of decrease was about 15 percent. The remaining 17 percent said their gross was roughly the same in 1998 and 1999.

The two charts on this page provide a breakdown of annual sales volume by region and by size of operation. About 40 percent of respondents provided usable data on annual sales volume.

On a regional basis, respondents from the Central region had the largest average gross sales volume in 1999 ($8.3 million), followed by respondents from the South ($3.2 million), respondents from the West ($2.04 million) and respondents from the West Coast ($2 million). The average gross for respondents from the Midwest was $1.9 million, and the average gross for respondents from the Mid-Atlantic region was $779,000.

By size of operation, the average gross in 1999 ranged from $98,323 for respondents with 25,000 sq. ft. or less of production space to $1.9 million for those with 100,001 to 500,000 sq. ft. Respondents with more than 500,000 sq. ft. had an average gross of $9.2 million.

Peat remains the media of choice among our respondents; the percentage of peat constituting the overall media mix has held stable at 41 percent over 1998 and 1999. The second leading component, bark, constituted about 11 percent of the overall mix in 1998 and 1999.

The one increase among media components was registered by coconut fiber/coir, which constituted 4.6 percent of the overall media mix in 1999, compared to 3 percent in 1998.

Soil/compost constituted 11 percent of the mix in 1999 (similar to 1998), vermiculite constituted 4.7 percent (6 percent in 1998), perlite constituted 10.6 percent (11 percent in 1998), and rockwool and foam each constituted 1.3 percent (each constituted 1 percent of the mix in 1998). Mushroom substrate (not a separate category in 1998) constituted 0.7 percent of the mix in 1999.

Other media components (among them sand, gravel, lava, and various proprietary mixes) constituted 9.7 percent of the mix in 1999.

The percentage of overall media mixed inhouse by respondents increased significantly in 1999 (43.4 percent) from 1998 (34 percent).

About 86 percent of respondents provided usable data on growing media.

When asked what types of containers they expect to use more of over the next several years, more than half our respondents indicated round pots, followed by square pots (47 percent of respondents), and containers with more depth (28 percent).

Thirty percent of respondents also indicated they would go with larger tags, while 12 percent said they will go with more hanging baskets; large pots and containers also were mentioned by 12 percent of our respondents.

The goal of one respondent is to go with 100-percent biodegradable square pots within the next three to five years. Some other container types mentioned by individual respondents are decorative plastic pots, plastic bags, Styrofoam blocks, peat pots, web pots, and 3- to 5-gallon pots.

About 82 percent of respondents provided usable data on container trends.

When asked if they plan on increasing production of particular crop categories, 13 percent of our respondents said they intend to grow more foliage, followed by orchids (12.6 percent), poinsettias (9.8 percent), and cutflowers (9.4 percent). Slightly less than 9 percent of our respondents said they plan on growing more perennials, while increased bedding plant production is in the works for slightly less than 9 percent.

The percentage of respondents who said they intend to produce more bedding plants dropped 6 percent from our last survey, while the percentage of respondents who said they intend to produce more perennials dropped about 7 percent.

Pertaining to crop trends, note that a decline in intended crop increase does not necessarily signify a drop in production numbers, but merely a decrease in the number of respondents who intend to increase the number of plants they might already be growing.

About 8.6 percent of our respondents said they intend to produce more plugs for sale, and 3.5 percent said they intend to produce more cuttings for sale. About 6 percent said they intend to produce more vegetative annuals.

Slightly less than 12 percent of our respondents said they plan to increase production of a diversity of other crops, which we’ve lumped into the category of “Other.”

About 68 percent of our respondents provided usable data on crop trends.

Gross annual sales volume (see p.38) provides a good measure of a grower’s productivity, but net profit, as they say, is what puts food on the table. Slightly more than 50 percent of our respondents said their net profit increased in 1999 over 1998 (by an average of about 13 percent). About 30 percent of our respondents said their net was about the same in 1999 as in 1998. Slightly under a fifth of our respondents said their net decreased in 1999 over 1998.

On the basis of size of operation, 57 percent of respondents with 25,000 sq. ft. or less of production space said their net increased in 1999 by an average of about 7 percent over 1998. All other respondents in this category reported that their net was about the same. The highest percentage of respondents reporting a decrease in their net were those with 100,001 to 500,000 sq. ft. of growing space (22 percent) and those with 25,001 to 50,000 sq. ft. (21 percent). Almost 75 percent of respondents with more than 500,000 sq. ft. of production space reported an increase in their net (at an average increase of 9 percent), while 5 percent reported a decrease (at an average decrease of 15 percent).

The only region from which 40 percent or less of respondents reported an increased net from 1998 was the South (40 percent).

About 70 percent of respondents provided usable data on net profit.

Reflective of a generally flush economy, 34 percent of our respondents said they increased the number of employees working for them in 1999. The average hiring increase by those expanding their work force was about 14 percent. Only 9 percent of respondents said they had fewer employees in 1999 than in 1998. The payroll stayed the same among the remainder of respondents.

One finding of note, however, is that none of the respondents with 25,000 sq. ft. or less of production added employees in 1999

. On the other hand, only 13 percent had fewer employees in 1999 than in 1998.

The respondents who reported the largest number of new employees in 1999 were those with 100,001 to 500,000 sq. ft. of production space (average workforce increase of 15 percent), and those with 25,001 to 50,000 sq. ft. of production space (also 15 percent).

The Northeast and Central region were the only regions where less than 30 percent of respondents reported that they had more employees in 1999 than in 1998.

The employment hotspot was in the West where 53 percent of respondents reported that they increased their payroll in 1999.

About 78 percent of respondents provide usable data on hiring of new employees.

A three-year comparison of automated equipment ownership shows that the percentage of respondents who monitor production with environmental controls has held steady at about 65 percent.

In the broad category of what has become characterized as “Dutch”-style automation, the percentage of respondents who said they have installed rolling benches dropped 15 percent from 1997 to 1999. About 13 percent of respondents who provided data on automation trends for last year’s survey said they planned to install rolling benches in the near future; ten percent of respondents to this survey said they planned on doing so.

The percentage of respondents who have installed automated transport systems has hovered in the 12-percent to 15-percent range over the three years we’ve tracked this data. We can suggest from the data that roughly 10 percent to 12 percent of respondents have purchased automated transplanters over the past three years.

About 80 percent of respondents provided usable data on automated equipment purchases.

This may come as a surprise to some growers, but respondents on average spent less money on greenhouse chemicals last year ($13,707) than in 1998 ($24,128). The only chemical category that took a bigger bite of growers’ pocketbooks was herbicides – $3,057 on average in 1999 compared to $2,632 in 1998.

On the flip side of the coin, respondents spent on average $6,642 less on insecticides and fungicides in 1999 than in 1998. Specifically, $5,978 on average was spent on insecticides ($8,070 in 1998) and $4,562 on average was spent on fungicides ($9,112 in 1998).

Respondents spent on average $1,923 on chemical growth regulators in 1999 and $1,600 on biological controls in 1999; in both cases, this represented a reduction in money spent of more than 50 percent over 1998.

On average, respondents spent $2,250 on other chemicals, including bactericides, rooting hormones, mulloscocides, and repellents.

On a regional basis, respondents from the Midwest and Northeast spent on average less than $10,000 for greenhouse chemicals, while respondents from the South and on the West Coast spent on average more than $15,000.

On the basis of size, respondents with 25,000 sq. ft. or less of production space spent on average $7,038, including $2,979 for insecticides and $3,000 for fungicides. (Note to manufacturers and distributors of herbicides: Only respondents with more than 500,000 sq. ft. of production space spent more on herbicides ($10,580 on average) than did these small growers ($5,163 on average.)

Respondents who reported 25,001 to 50,000 sq. ft. of production spent the least on greenhouse chemicals ($2,050 on average), while, not surprisingly, respondents who reported more than 500,000 sq. ft. of production space spent the most ($45,270 on average). Respondents in the 50,001- to 100,000-sq.-ft. category spent $6,522 on average, while those with 100,001 to 500,000 sq. ft. spent $11,288 on average.

About 77 percent of respondents provided usable information on greenhouse chemical costs.

Incidentally, we initially were skeptical of the disparity between the financial outlay for chemicals in 1999 compared to 1998. However, the phrasing of the question in this survey (“Approximately how much did you spend on the following chemicals in 1999?”) is identical to the phrasing of the question in the 1998 survey, as is the breakdown of chemical categories (insecticides, fungicides, growth regulators, etc.). Likewise the percentage of respondents who provided usable data for this survey is virtually identical to the percentage who provided usable data in 1998 (74 percent).

Respondents sold the same portion of their overall crop (23 percent) to garden centers in 1999 as they produced for their own retail operations. Incidentally, reader and marketing surveys conducted by GPN over the past two years lead us to estimate that 30 percent to 40 percent of our readers have retail operations of various sizes.

We reported last year that respondents sold 11 percent of their overall crop to mass merchandisers in 1998. In 1999, respondents sold 8 percent of their crop to the big box stores. Supermarkets and other food outlets accounted for 6 percent of the 1999 crop (8 percent in 1998), retail florists accounted for 5 percent (9 percent in 1998), landscapers accounted for 7 percent (9 percent in 1998), and government/institutional accounted for 2 percent (1 percent in 1998). The most significant decline was in the portion of overall crop sold to brokers (6 percent in 1999 compared to 11 percent in 1998), while the most significant gain was in the portion of overall crop sold to wholesalers (12 percent in 1999 compared to 3 percent in 1998).

The remainder of the 1999 crop was sold to interiorscapers, farmer’s markets, other growers and miscellaneous sources.

About 95 percent of respondents provided usable information on crop sale outlets.

Among the 52 percent of respondents who indicated that they use the Internet for business-related purposes, 76 percent said they browse the ‘Net for product information, while 38 percent said they have purchased products via the ‘Net. Other uses include finding information on other companies (31 percent) and seeking tips and pointers on business practices (22 percent). Within the “Other” category were a number of uses, including “selling product,” “managing customer accounts,” “browsing in catalogs,” and “getting weather forecasts.”

Among those respondents who do not currently have access to the ‘Net, 63 percent said they intend to do so within the next year, and 37 percent said they plan to do so within the next three years. In other words, all respondents who indicated they currently did not have ‘Net access believe they will be on the ‘Net in the foreseeable future.

More than 80 percent of those respondents with more than 500,000 sq. ft. of production area said they currently have ‘Net access compared to 33 percent of those respondents with less than 25,000 sq. ft.

About 90 percent of respondents provided usable data on Internet access and uses.

Asked what they would consider purchasing on the ‘Net, 38 percent of respondents said they would purchase seeds and plant material (although only 7 percent said they had actually purchased these products on the ‘Net). Other products more than a third of respondents said they would consider purchasing on the ‘Net (percentage who said they actually purchased products over the ‘Net in parenthesis) are tags and label (3 percent), containers (2 percent), greenhouse chemicals (2 percent), and fertilizer (1 percent).

Interestingly, although only 24 percent of respondents said they would consider purchasing greenhouse equipment over the ‘Net, 3 percent said they had actually done so.

About 88 percent of respondents provided data on Internet purchasing.

Based on the regional representation of GPN readers, we anticipated that in comparison with the West and the Central region, a higher number of respondents would report from the Northeast, the South, the Midwest, the West Coast, and the Mid-Atlantic region (those regions with large population centers).

Indeed, 21 percent of respondents are based on the West Coast, followed by 20 percent in the Midwest, 18 percent in the South, 15 percent in the Northeast, and 10 percent in the Mid-Atlantic region. The West and Central region are represented by 8 percent and 7 percent, respectively, of overall respondents. The bulk of our survey findings include regional breakouts to ensure that readers throughout the nation can gauge the state of the industry at the regional level.

Note: one percent of respondents did not indicate the region in which they are based.

Growers with 100,001 to 500,000 square feet of production space constitute 42 percent of overall respondents. This is followed by growers with 50,001 to 100,000 sq. ft. (21 percent), growers with more than 500,000 sq. ft. (16 percent), growers with 25,001 to 50,000 sq. ft. (15 percent), and growers with less than 25,000 sq. ft. (5 percent). One percent of respondents did not indicate size of operation.

Almost a third of our respondents said they intend to increase their use of “reduced-risk” pesticides (products with lower re-entry intervals, lower toxicity ratings and less environmental impact) by 10 percent to 20 percent in 2000. Another 17 percent said they intend to increase their use of reduced risk pesticides by 50 percent. Nine percent of our respondents indicated a planned increase of more than 50 percent.

Conversely, 22 percent of our respondents said they do not intend to increase their use of reduced-risk pesticides in 2000, while 7 percent pegged their intended increase at less than 10 percent.

About 62 percent of respondents provided usable data on use of reduced-risk pesticides.

In late January, we mailed 1,500 surveys to a randomly selected cross-section of GPN readers who had reported on subscription qualifying cards that they are wholesale growers. Included (but not limited to) are growers who also indicated that they have one or more retail outlets, provide landscaping services, or both.

GPN received 209 usable surveys from responding readers. Data from these surveys were recorded and tabulated by Accountability Information Management, an independent consulting firm based in Palatine, Ill.

To ensure that data for each area of inquiry (i.e., production cost per square foot, crops grown, gross sales) was as accurate as possible, AIM calculated an overall average for each inquiry based only on surveys in which sufficient information was provided. For instance, information regarding “Sources of Plant Material” (p. 32) is based on data provided by the 198 respondents who properly completed that section of the survey.

To the fullest extent possible, we have endeavored to provide year-over-year data. This enables interested readers to track the performance of key industry sectors and to perhaps detect trends in production practices, consumer preferences, etc. As previously noted, all findings for 1999 and 1998 are based on data compiled and tabulated by AIM. Findings for 1997 are based on data compiled and tabulated inhouse by GPN. (Data gleaned from growers in 1996 for our first State of the Industry Report does not appear in year-over-year comparisons because the methodology used for that survey is not compatible with that of subsequent surveys.)

The manner in which GPN compiled data in 1997 is similar in most respects to the manner in which AIM compiled data for 1998 and 1999. However, readers also should factor a fair degree of variance into comparisons of data compiled by GPN with data compiled by AIM.

All findings presented in this survey are accurate to the degree that respondents provided accurate information regarding their operations. AIM also detected “data input” error in some categories (typos,