Grower Success: Maria Costa Smith: Making a Giant By Bridget White

One-on-one about the philosophy, programs and personality behind Costa Color.

In just six years, Costa Color, a family-owned and operatedproduction facility in Miami, Fla., has become one of the largest productionfacilities in the United States, with over 6,300,000 sq.ft. in year-roundbedding plant and seasonal production.

Costa Color’s roots, so to speak, run three generations deepand start in the tomato industry, where current president Maria Costa Smith’sgrandfather started in 1961. In about 1964, Tony Costa, Maria’s father, movedCosta Nursery into ornamentals with foliage and indoor plants. When Capels wentout of business in 1997, the vacuum that was left created an opportunity toenter the color market, and Maria Costa Smith, husband José Smith andbrother José Costa jumped at the opportunity to diversify.

Last year’s purchase of the old Velvet Ridge facility in Asheville,N.C. (now called Costa Carolina), positions Costa for even greater penetrationinto Lowe’s, Home Depot and Wal-mart’s Southeast markets. The two companies,Costa Nursery and Costa Color, are expected to reach $100 million for the firsttime this year. With all of the changes taking place at Costa, we thought itwas time to revisit them with an exclusive interview.

Developing Costa Color

BRIDGET: Do you see any synergies from having foliage andcolor operations?

MARIA: Yes, there isa tremendous synergy. You know color is very much driven by service, and Ithink one of the major benefits, as we roll off more color programs in theSoutheast, is that we’ve been able to coordinate very successfully. We alreadyhave the labor, management and training, so it’s a perfect fit, as far asservice is concerned. Another benefit is that you’re dealing with a lot of thesame buyers for both foliage and color. We’ve also been able to be moreefficient in joining the two. It was definitely a great move for us.

BRIDGET: So what you are saying is that Costa Corporationis growing because both color and foliage are growing, and that’s in partbecause the two are helping each other out?

MARIA: Exactly. Ithink our industry ischanging,especially in the last two years, to where we are no longer farmers. We are nowmerchants, and we had to learn very quickly how to drive sales in the stores.

BRIDGET: So what are some of the ways you are learning tobecome a business instead of a farmer?

MARIA: It has a lotto do with information systems. In today’s store environment, we, the vendor,are now being held completely responsible for the success of the programs. Weare the ones monitoring the sales, margins and all the key indicators for thechain stores to determine whether the program is a success or not.

On a weekly basis, we are looking at these numbers andhaving to make adjustments based on a problem store or a product that is notworking. So with today’s information systems, the vendors are held responsiblefor the success of their program. It’s no longer we sell it to you, you put itin the store and we go back to grow another one. Now, the vendor is watchingbecause we are the ones responsible. It’s almost like our job is to make sure thateach of the stores is successful, and all the key indicators that they’veidentified as important–comp sales, margins, etc.–become our responsibility.

BRIDGET: How do you justify doing this for the store? Itseems to me that the kind of things you’re talking about–maintaining margins,ensuring sale through–those seem to be the kind of functions a retailer wouldtake care of because that’s their core business?

MARIA: The questionto me is not how can we justify it but how could we not do it if we don’t, wewould be dead. If we don’t make sure that they are successful, we are not goingto be their vendors–that’s just the way it is.

Merchandising

BRIDGET: What percentage of your customer base are youmerchandising, and what exactly are you doing for them?

MARIA: For ourcustomers at Costa Color, I would have to say it’s within 80 percent. The onlything that we’re not responsible for is watering, and that’s really one of thebigger challenges. Stores are responsible for watering, yet they don’t do itbecause there is so much turn over. That’s part of the reason why we’re even inthe stores, because it is hard for them to train and keep people for this job.

We don’t write credit when they don’t take care of theplants. It is a sticky issue, but we are working hard to train store personnelto maintain plants because it is in everyone’s best interest.

BRIDGET: So you’re setting the displays, cleaningplants?

MARIA: Well, letsstart from the beginning; we are monitoring the sales in the stores and thenplacing the orders?

BRIDGET: You don’t have a buyer telling you what to bringinto the store. Are you bringing what they need based on what sell-through?

MARIA: We gettogether with the buyers, and set up programs for the different seasons. Atthat point, it’s a vendor-managing inventory. The service program is anyway. Wemonitor what’s selling because you might have something doing good on the WestCoast and bad on the East Coast, of Florida, so it is our job to monitor theinventory levels. A lot of our arrangements are guaranteed sales, so if it isnot selling, we are held responsible. We monitor the inventory sales, placeorders, receive the product, help check it in, put it up, maintain thedisplays, pull the unsellable product and write credits.

BRIDGET: Are your merchandisers helping customers whenthey are in the store?

MARIA: Inevitablythey do. Obviously that’s not our job, nor do they want it to be. Their storeshave justified having full-time staff, based on volume, but you are going toget Á asked questions by the customers. We are glad to help, but that’snot our primarily focus. It’s our customer’s job, and that’s where we should bedrawing the line.

BRIDGET: How often is a merchandiser in each store?

MARIA: It depends onthe volume. We have stores that get worked every day, and we have stores thatget worked 3-4 times each week.

BRIDGET: How many merchandisers do you employ for howmany stores?

MARIA: About 200people for 300 stores across the Southeast; it’s a lot of people.

BRIDGET: Where are you finding the people?

MARIA: It’s a bigchallenge for us. We’re going into the local markets to advertise. We’ve alsoworked very hard to develop a comprehensive training program with videos thatdetails what the performance tasks are.

I think the key to success is having sales managementactually visiting stores. For example, we have an area manager who might coverhalf the state of Florida, a supervisor and five or eight sales people. Thesales people are in the stores regularly, but so is their manager. We havedeveloped a significant hierarchy to make sure that everything is done right.

Expansion

BRIDGET: Whydid you choose to purchase in Asheville instead of building yourself?

MARIA: Economics. Wehad the opportunity to buy a nursery that needed little capital improvement.Velvet Ridge went bankrupt, and we were able to get a good price. If we hadstarted from scratch, I’m not sure we would have chosen Asheville, but it wasan opportunity that we couldn’t turn down.

BRIDGET: There is a big difference between Asheville,N.C., and Miami, Fla. What are some of the adjustments you had to make inproduction?

MARIA: The firstsales were early fall 2002. It’s been a strong learning curve, but we feelhappy with the success. Let’s just say that the learning curve wasn’t as big aswhen we went from foliage to color. This was from color in Florida to color inthe mountains.

There are a lot of differences, but I think the key to oursuccess is being able to develop a system in one state, like a Costa Color Miami,and transplanting that system into another location. We’ve made mistakes, andwe’ll continue to make mistakes until we get at least oneyear under our belt.

It’s a completely different growing condition. I would saythe biggest difference is light levels, and we accounted for some of it but notall.

BRIDGET: Asheville is kind of a long way away from yourcore market.

MARIA: Actually, notreally. A big part of our core market is in the Atlanta area. We now have anursery on each end of our area: one in Miami and one in Asheville. Thedistance from Asheville to Atlanta is the same as from Miami to Orlando, sothat worked out well. A major factor in buying the Asheville facility wasfreight from the bottom of the Florida peninsula to Atlanta.

BRIDGET: This should mean a big savings, since shippingis one of the most expensive parts of doing business now.

MARIA: Well, it wasdefinitely becoming almost prohibitive to ship from South Florida up to NorthGeorgia, and that was a major factor, yes. We needed to have a northernlocation for survival because the freight was killing us in that respect.

BRIDGET: It sounds to me that you essentially divide yourgeographic area in half and ship down from Costa Carolina and up from CostaMiami.

MARIA: Exactly. Oneof the major benefits of having both facilities is that they have differentgrowing conditions. For example, this year, spring is breaking early inour Northern area, and we are able toreact because plenty of product is available in South Florida. And on the flipside, we can’t grow pansies and mums in Miami as well as we can in Asheville.Specific crops at specific times has given us a competitive advantage and amore complete package.

BRIDGET: Let’s talk about your plug facility. When willit be online, and how large is it going to be?

MARIA: Big. We’relooking at 80,000 sq.ft. of plug production. We should be up in another monthand producing plugs for the fall.

BRIDGET: How many of your own plugs do you intend toproduce?

MARIA: I don’t knowwhere we are going to end up. Initially, we are going to do about 50 percent ofour own plugs. We want to be prudent. We don’t want to take a huge leap andsay, “Forget everybody else; we’re going to do this ourselves.” Ithink it’s important to keep relationships with vendors. At the same time, wefeel it’s time for us to vertically integrate. We’ve invested a significantamount of money in a facility to produce plugs, and we hope to leverage it asmuch as possible.

BRIDGET: I think there are a lot of people that would sayyou’ve had a lot of activity in six years and a plug facility is one morechallenge. Why now?

MARIA: We feel verystrongly in our company that if we do not change, we will die. The one thingthat is constant in all Costa operations is we are open to change and aggressiveabout improving our systems. We are willing to invest in things we feel aregoing to make us a better company. We felt we needed to make a change into theservice arena, and we have aggressively gone after that. We also felt stronglythat we could increase our profitability by vertically integrating, and ourfirst big step has been the plug facility. It’s a lot, but the biggest asset wehave at our company, and I know we feel this, is the team that we have built.We feel strongly that the investment in human capital is what allows us tocontinue to change and grow and do things differently.

BRIDGET: How is the company adjusting to the changes?

MARIA: I think thatour biggest challenge is to be lean enough to be profitable, yet have enoughdepth to grow. We suffered growing pains by doing Costa Carolina, perhaps morethan we thought we would. Investment in the team is the secret — building apremiere team that wants to be in the action. The exciting thing about the teamis that it is not just the Costas pushing this project or that project. Ideascome from the management team as a whole, and if it takes a one million dollarinvestment and everyone is comfortable that we can achieve it, then we’re goingto do it.

BRIDGET: It sounds to me that you have a climate aroundthere, of people and of attitude, that isn’t afraid to make a move?

MARIA: No, and ifthey are, they aren’t here anymore. We’re aggressive with what we do, andinevitably, when you are that aggressive, you make some mistakes. That’s okayas long as they are mistakes you can afford. The whole team is very excitedabout the challenges — about growing and tackling neat projects. We really tryto foster that environment.

Branding

BRIDGET: When I visited, we talked about the Miracle GrowProgram. What do you see as its advantages or challenges in relation to thebrands already in the market?

MARIA: I’m not abranding expert, but it seems that there has been a tremendous effort bymany groups to brand that so thatit’s gotten watered down. None of them have been very successful. I think ifanybody can be successful it’s Miracle Grow. They have a strong name and strongcustomer recognition. And, if done right, it could be very successful. I’ll letyou know in a couple of months how it goes, but initially, it seems to be goingquite well. There are some challenges, but it is going well.

BRIDGET: Other than the fact that Lowe’s has asked forthe program, are there any attractions for Costa Color doing it?

MARIA: I think itwould have attractions for any grower because the market is so competitiveanddriven by price points. Thechains are beating each other up to see who can get the product cheaper, andthe Miracle Grow program takes focus away from how low can we go and focuses ongiving the consumer a much better product. I think that allows us topotentially have better margins, better profitability.

BRIDGET: The Miracle Grow product is not cheap. Do youthink there is going to be any problem with that?

MARIA: I’ve had someconcern about it. It all goes down to how much power the Miracle Grow name hasand how much people are willing to pay for it.

BRIDGET: Would you expect higher margins from a productlike this?

MARIA: You’re nolonger competing; you now have a product that no other store has. In otherwords, if Lowe’s is the only store that has Miracle Grow, consumers can’t shopit against anything because there is nothing to compare it to. That in itselfwill allow the price to be maintained, if the demand sticks. This past fall,prices were a nightmare, for example, $.95 on a six-pack of pansies. If youdon’t have the pressure from the competition to have a loss leader, then thatallows people to make a little more money. Neither the chains nor growers aremaking any money when you retail pansies at $.95 per six-pack. As an industrywe should be getting away from that. It’s not healthy; you’re going to drivepeople out of business.

BRIDGET: I see this as the perennial question in ourindustry: How do you stop fighting with each other over price because we allknow that if you don’t offer $.95 pansies somebody is waiting to do it?

MARIA: It gets tothe point where your investment in information systems makes a difference. Idon’t care how many pansies I would have to produce and how much cash flow itwould give me in the fall. At a certain price, it is not worth it. My wish forthe industry is for all of us to have a good grasp on what our costs and cashflow needs are, and when we have that, it gives us the power to say, “I’msorry, we can’t do that.”

BRIDGET: Do you still think that’s the biggest problem wehave right now in our industry?

MARIA: I thinkthat’s a major problem. People not realizing what their costs are and nothaving the guts to stand up and say, “I can’t do it” is number one. Ihave been guilty of this many times myself. And number two is not having enoughlead time. In other words, you put down the pansies, and afterward, yourcustomer says, “Look what this store is selling for or look what thatstore did?” Now, if you want to sell the pansies you already have on theground, you have to lower prices so your customer can price match.

BRIDGET: Is there anything else that you want to add?

MARIA: When you talkabout services, it is important to note that the key to success does not liesolely with the vendor, but also with who you are actually dealing with in thestores — the store personnel have to buy into the program, the operations ofthe company have to buy into it. The companies that are successful haverealized that it is a true partnership — win/win for the customer and thevendor. Ultimately, the one who wins is the consumer, and that should beeveryone’s goal because when the consumer wins, we’re driving margins andprofits. It is no longer a customer, purchase order situation, and it takes ahuge commitment and tons of work.



Bridget White

Bridget White is editorial director of GPN. She may be reached by phone at (847) 391-1004 or E-mail at bwhite@sgcmail.com.



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