Grower Success: Maria Costa Smith: Making a Giant

April 18, 2003 - 12:42

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

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

Costa Color's roots, so to speak, run three generations deep
and start in the tomato industry, where current president Maria Costa Smith's
grandfather started in 1961. In about 1964, Tony Costa, Maria's father, moved
Costa Nursery into ornamentals with foliage and indoor plants. When Capels went
out of business in 1997, the vacuum that was left created an opportunity to
enter the color market, and Maria Costa Smith, husband José Smith and
brother 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 penetration
into 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 first
time this year. With all of the changes taking place at Costa, we thought it
was time to revisit them with an exclusive interview.

Developing Costa Color

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

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

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

MARIA: Exactly. I
think our industry is changing,
especially in the last two years, to where we are no longer farmers. We are now
merchants, 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 to
become a business instead of a farmer?

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

On a weekly basis, we are looking at these numbers and
having to make adjustments based on a problem store or a product that is not
working. So with today's information systems, the vendors are held responsible
for the success of their program. It's no longer we sell it to you, you put it
in the store and we go back to grow another one. Now, the vendor is watching
because we are the ones responsible. It's almost like our job is to make sure that
each of the stores is successful, and all the key indicators that they've
identified as important--comp sales, margins, etc.--become our responsibility.

BRIDGET: How do you justify doing this for the store? It
seems 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 would
take care of because that's their core business?

MARIA: The question
to me is not how can we justify it but how could we not do it if we don't, we
would be dead. If we don't make sure that they are successful, we are not going
to be their vendors--that's just the way it is.

Merchandising

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

MARIA: For our
customers at Costa Color, I would have to say it's within 80 percent. The only
thing that we're not responsible for is watering, and that's really one of the
bigger challenges. Stores are responsible for watering, yet they don't do it
because there is so much turn over. That's part of the reason why we're even in
the 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 the
plants. It is a sticky issue, but we are working hard to train store personnel
to maintain plants because it is in everyone's best interest.

BRIDGET: So you're setting the displays, cleaning
plants?

MARIA: Well, lets
start from the beginning; we are monitoring the sales in the stores and then
placing the orders?

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

MARIA: We get
together with the buyers, and set up programs for the different seasons. At
that point, it's a vendor-managing inventory. The service program is anyway. We
monitor what's selling because you might have something doing good on the West
Coast and bad on the East Coast, of Florida, so it is our job to monitor the
inventory levels. A lot of our arrangements are guaranteed sales, so if it is
not selling, we are held responsible. We monitor the inventory sales, place
orders, receive the product, help check it in, put it up, maintain the
displays, pull the unsellable product and write credits.

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

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

BRIDGET: How often is a merchandiser in each store?

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

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

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

BRIDGET: Where are you finding the people? style='font-weight:normal'>

MARIA: It's a big
challenge for us. We're going into the local markets to advertise. We've also
worked very hard to develop a comprehensive training program with videos that
details what the performance tasks are.

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

Expansion

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

MARIA: Economics. We
had 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 had
started from scratch, I'm not sure we would have chosen Asheville, but it was
an 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 in
production?

MARIA: The first
sales were early fall 2002. It's been a strong learning curve, but we feel
happy with the success. Let's just say that the learning curve wasn't as big as
when we went from foliage to color. This was from color in Florida to color in
the mountains.

There are a lot of differences, but I think the key to our
success 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, and
we'll continue to make mistakes until we get at least one style="mso-spacerun: yes"> year under our belt.

It's a completely different growing condition. I would say
the biggest difference is light levels, and we accounted for some of it but not
all.

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

MARIA: Actually, not
really. A big part of our core market is in the Atlanta area. We now have a
nursery on each end of our area: one in Miami and one in Asheville. The
distance from Asheville to Atlanta is the same as from Miami to Orlando, so
that worked out well. A major factor in buying the Asheville facility was
freight from the bottom of the Florida peninsula to Atlanta.

BRIDGET: This should mean a big savings, since shipping

is one of the most expensive parts of doing business now.

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

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

MARIA: Exactly. One
of the major benefits of having both facilities is that they have different
growing conditions. For example, this year, spring is breaking early in style="mso-spacerun: yes">
our Northern area, and we are able to
react because plenty of product is available in South Florida. And on the flip
side, 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 a
more complete package.

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

MARIA: Big. We're
looking at 80,000 sq.ft. of plug production. We should be up in another month
and producing plugs for the fall.

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

MARIA: I don't know
where we are going to end up. Initially, we are going to do about 50 percent of
our own plugs. We want to be prudent. We don't want to take a huge leap and
say, "Forget everybody else; we're going to do this ourselves." I
think it's important to keep relationships with vendors. At the same time, we
feel it's time for us to vertically integrate. We've invested a significant
amount of money in a facility to produce plugs, and we hope to leverage it as
much as possible.

BRIDGET: I think there are a lot of people that would say
you've had a lot of activity in six years and a plug facility is one more
challenge. Why now?

MARIA: We feel very
strongly in our company that if we do not change, we will die. The one thing
that is constant in all Costa operations is we are open to change and aggressive
about improving our systems. We are willing to invest in things we feel are
going to make us a better company. We felt we needed to make a change into the
service arena, and we have aggressively gone after that. We also felt strongly
that we could increase our profitability by vertically integrating, and our
first big step has been the plug facility. It's a lot, but the biggest asset we
have 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 to
continue to change and grow and do things differently.

BRIDGET: How is the company adjusting to the changes? style='font-weight:normal'>

MARIA: I think that
our biggest challenge is to be lean enough to be profitable, yet have enough
depth to grow. We suffered growing pains by doing Costa Carolina, perhaps more
than we thought we would. Investment in the team is the secret -- building a
premiere team that wants to be in the action. The exciting thing about the team
is that it is not just the Costas pushing this project or that project. Ideas
come from the management team as a whole, and if it takes a one million dollar
investment and everyone is comfortable that we can achieve it, then we're going
to do it.

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

MARIA: No, and if
they are, they aren't here anymore. We're aggressive with what we do, and
inevitably, when you are that aggressive, you make some mistakes. That's okay
as long as they are mistakes you can afford. The whole team is very excited
about the challenges -- about growing and tackling neat projects. We really try
to foster that environment.

Branding

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

MARIA: I'm not a
branding expert, but it seems that there has been a tremendous effort by
many groups to brand that so that
it's gotten watered down. None of them have been very successful. I think if
anybody can be successful it's Miracle Grow. They have a strong name and strong
customer recognition. And, if done right, it could be very successful. I'll let
you know in a couple of months how it goes, but initially, it seems to be going
quite well. There are some challenges, but it is going well.

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

MARIA: I think it
would have attractions for any grower because the market is so competitive
and driven by price points. The
chains are beating each other up to see who can get the product cheaper, and
the Miracle Grow program takes focus away from how low can we go and focuses on
giving the consumer a much better product. I think that allows us to
potentially have better margins, better profitability.

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

MARIA: I've had some
concern about it. It all goes down to how much power the Miracle Grow name has
and how much people are willing to pay for it.

BRIDGET: Would you expect higher margins from a product
like this?

MARIA: You're no
longer competing; you now have a product that no other store has. In other
words, if Lowe's is the only store that has Miracle Grow, consumers can't shop
it against anything because there is nothing to compare it to. That in itself
will 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 you
don't have the pressure from the competition to have a loss leader, then that
allows people to make a little more money. Neither the chains nor growers are
making any money when you retail pansies at $.95 per six-pack. As an industry
we should be getting away from that. It's not healthy; you're going to drive
people out of business.

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

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

BRIDGET: Do you still think that's the biggest problem we
have right now in our industry?

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

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

MARIA: When you talk
about services, it is important to note that the key to success does not lie
solely with the vendor, but also with who you are actually dealing with in the
stores -- the store personnel have to buy into the program, the operations of
the company have to buy into it. The companies that are successful have
realized that it is a true partnership -- win/win for the customer and the
vendor. Ultimately, the one who wins is the consumer, and that should be
everyone's goal because when the consumer wins, we're driving margins and
profits. It is no longer a customer, purchase order situation, and it takes a
huge commitment and tons of work.

About The Author

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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