Industry Leader Forecast

January 23, 2004 - 07:05

We put five of your peers to the test to see what they foresee as the biggest issues facing the industry in 2004.

Oh, if only we each had a crystal ball. We could see into
the future and be prepared for those late-coming springs or the newest product
trend or the economy's ups and downs. It would make life a little boring, but
our financials would look a lot better.

Since we haven't yet tapped into the supernatural, we
thought a collection of educated guesses would be the next best thing; hence
GPN's 6th annual "Industry Leader Forecast." We polled several of
your peers on what they think will be the biggest issues facing commercial
greenhouse growers over the coming year. From economic changes to customer
service to buying habits, find out what to look for in 2004.

Teamwork

All segments of the market working together. That is what I
would like to see in 2004 and beyond. We have so many avenues being pursued in
this great industry that we need to find a way to each build on the efforts of
the other. We have "big boxes," smaller chains, independent garden
centers, grower/retailers, mass producers, specialty growers, distributors of
genetics and other inputs, producers of plant inputs, breeders and
manufacturers. We are all trying to find our place, and it normally is at the
expense of others in our segment of the market.

Each one of us is trying to establish an identity that will
help carry us into the future. Our company is a partner in The Flower Fields,
which is a branding program run by breeding companies. Proven Winners is a
brand established by a group of production companies. Simply Beautiful is the
product of a distribution company. MiracleGro Plants is an effort by a
fertilizer manufacturer. Growers are differentiating their plants from the
grower down the street through the use of containers, branding or some other
means. Independent garden centers are highlighting their differences from the
big boxes in the area through selection and perhaps plant quality. The big box
retailers are all trying to be different from each other through branding, pricing
or some other means.

What we aren't doing is working together to make the total
picture bigger and better than the pieces. And that is what I think the
industry is poised to do. Those of us at the breeding, production and
distribution levels need to work with the growers to give them more control
over, and benefit from, the products they sell. We can't continue to
"pull" (read force) products through them. We can get retailers
excited about our efforts, but we need the grower to produce it before we actually
have a product for the retailer to sell. In my particular case, I am also
dependent on the distribution companies to get my products to the grower, so
that he can get them to the retailer. If there isn't benefit to them, it isn't
going to happen.

So, my prediction is that this is the year that we start to
make that happen. We shouldn't be competing with each other. We should be
working together to make the gardening industry grow -- all of us. Then we will
truly be successful.

-- Joel Goldsmith

Goldsmith Seeds

Gilroy, Calif.

Survival in the Land of Mass Merchandisers

As we look to 2004, the obvious issues (concerns) jump out.
Higher energy costs, higher fuel cost, higher overall production cost and
higher major medical costs for our employees are just a few that come to mind.
I think if you were to ask major retailers the same question, they would echo
the same comments I listed above. (By the way, we did ask and that's what they
told us.)

Also of concern are questions/comments such as:

*                     Can
a large grower continue profitability to serve several mass merchandisers? With
custom programs such as private label branding and different pot size or flat
configurations, the risks get higher and higher for the grower.

*                     Can
our industry continue forward without a more formal, legally binding
customer-to-grower purchase order commitment program? In my way of thinking,
that would benefit both the customer and the grower.

*                     How
do distribution channels remain open to new breeding and varieties coming from
small breeders? With the tremendous consolidation and vertical integration
continuing with the distributor, some great genetics are not making it to the
market place.

*                     Merchandising
(service) at store level as well as leaving racks behind at stores is now the norm.
What will be next and is our industry ready for the next
"requirement" from our customers? Some thoughts would include
pre-pricing all products like packs and 4-inch, or maybe a pay scan program.

*                     Last,
I'm concerned about more consolidation of some very good companies because of
financial, economic or environmental issues. We saw several good companies fall
by the wayside this year. I know it is inevitable; I just hate to see it.

A Christmas wish for Santa (yes, it is late but I'm always
late, Santa understands): Major merchandisers (retailers) all take a 15-percent
increase in retail prices and allow the growers a little breathing room. By the
way, the customer will pay more; everyone has seen the exit surveys.

-- David Edenfield

Smith Gardens, Inc.

Bellingham, Wash.

Washington in 2004

Washington is never short on challenges, and predicting what
will happen is an art that no one, so far as I know, has perfected. That said,
here are some of the current issues of importance to floriculture, and what I think
might happen in 2004 on those issues.

First of all, we will see brought to fruition a completed
certification program for import of geranium cuttings from the offshore
production facilities of the major production companies. In fact, that program
is being finalized as I write these words. The certification program, built on
the clean stock production practices of the companies and adding some new
requirements, is the culmination of nearly two years of effort by the U.S.
Department of Agriculture, Society of American Florists (SAF), the American
Nursery and Landscape Association (ANLA) and the industry itself. It's
important because over 70 percent of geraniums sold in the United States
originate in offshore cuttings and without this certification program, those
imports would no longer be allowed. Many people have done a lot of work to make
this dream a reality, and it's the best Christmas present I could have possibly
asked for!

On another very important front, the agricultural
immigration reform legislation will be passed this year. Grassroots support is
imperative to this legislation's success, and the legislation is important to
everyone in agriculture. More than 70 percent of today's agriculture labor
force is estimated to be undocumented because employers have no reliable way of
verifying legality of worker identification and have no workable guestworker
program. S. 1645 and H.R. 3142 (the "AgJOBS bill") are our best hope
of solving this serious problem, and passage is a top priority for the industry.
If you have not yet contacted your senators and representative, please do so --
contact me for more information.

We'll be making a push this year to increase the funding for
the Floriculture and Nursery Research Initiative (Congress still has not passed
a final budget for the U.S. Department of Agriculture, but must do so quickly
after it returns to work in January). This year, funding should remain level at
$6 million annually, which has been a big accomplishment in a year of draconian
budget cuts. Next year, we want to see an increase in that funding level.

SAF is working on many other issues of importance: continued
ability to use methyl bromide, continued availability of important chemicals, a
move to update overtime compensation rules, passage of the Association Health
Plans legislation, permanent passage of estate tax repeal, crop insurance
expansion and reform of existing sales tax structures, just to name a few. Your
individual voice can make a difference. All too often, business people and
employees think their voices don't matter. But by joining together as an
industry, floriculture can, and will, be heard in Washington!

-- Lin Schmale

Society of American Florists

Washington, D.C.

From the Land of Legislation

Whereas previously we thought of issues of the marketplace
as our largest challenges, we are now seeing governmental regulations at the
top of our list, and there are several that come to mind. While laudable in
their goals they put a lot of pressure on companies such as ours.

In California all tailwater and the first one half inch of
rainfall in any 24-hour period must be retained on site. The goal of running a
cleaner operation with less impact on the environment is one that we support --
but it is difficult for a large outdoor operation that drains the rain of
several hundred acres, not to mention the water from our own irrigation.
Likewise, having multiple small locations can be equally tough to ameliorate.

California has passed a health insurance regulation that
asks companies with more than 200 employees to cover the health insurance needs
for employees and family. This can add a $6,000-8,000 yearly cost for employees
that may be earning $18-20,000 per year -- a very large percentage increase.
California's Workman's Compensation crisis is well known, and now it turns out
that the unemployment insurance system is likewise in trouble and will be
augmented by a 50 percent increase in premiums.

Beyond the above top-of-the list items, there are still interesting
challenges in the marketplace. Each national retailer is looking to
differentiate their program. For the grower, this leads to shorter production
runs and increased complexity due to customization. At Altman Plants we believe
that each customer deserves to be treated separately, but certainly achieving
this in an efficient manner is a learning process.

Also coming soon from a national retailer near you is
UCC.net. This improvement in the product identification system will improve EDI
but will require a significant investment in software and systems as well as a
learning period for growers and retailers alike.

There are definitely some tough challenges out there, but
that is what makes life interesting.

-- Deena and Ken Altman (not pictured)

Altman Plants

Vista, Calif.

Channel Specific Worries

The strength of the mass marketers will continue to polarize
growers . . .forcing those who service them to become even more efficient,
while at the same time they will have to start the learning curve to accommodate
the "pay by scan" activities and responsibilities that will roll out
in 2005.

Those choosing to supply the independent garden centers will
have to help them differentiate their products and programs from the mass
marketers . . .it's no longer the sole responsibility of the independent garden
center retailer to create this differentiation, but rather a partnership
between retailer and grower that will result in relationships that both can
benefit from.

-- Stan Pohmer

Pohmer Consulting Group

Minnetonka, Minn.

Going in the Right Direction

My 2004 forecast for the industry is that it will keep going
in the direction it is going . . .but . . .Bridget probably expects me to use
more than 18 words to make that statement, so I'll elaborate some.

About 10 years ago, a major industry change took place:
several growers starting taking control over the way their product looked in
the big box garden centers. These growers were outside of Florida and
California, where service programs had been the norm for years. As we in the
industry had long complained, the chain stores were not caring for plants at
retail, and they were not about to start. These farsighted growers realized
that this situation was an opportunity for them to differentiate their product
from other suppliers. These growers immediately saw significant increases in
same store sales and sell through. Today, merchandising is not an option -- it
is a requirement to do a large amount of business with the home centers. There
are greenhouse operations now that have more employees working in the retail
stores than they have in the greenhouse.

The next step in this evolution is now starting, as a small
group of growers see the opportunity to take even more control at retail. The
stores' ability to accurately track vendor sales and percent sell through is
facilitating these changes. The stores can easily see when a certain vendor has
increased sales and profit. We are now breaking through a barrier in the
relationship between growers and big box stores -- a few growers are finding
ways to make themselves needed by the chains. The grower may be giving a
guarantied sale, but in return, the grower is exclusive in the store and is
getting more control over what product is put where and even controlling the
price point in some cases. Also, the grower is getting a higher wholesale
price! In one situation we will see this spring in a major market, the grower
will control the entire color section of the store and do everything except
ring up the sale. The grower is taking advantage of this opportunity and has
developed a completely new and innovative marketing plan to enhance the
appearance of the stores and the product. Yes, the next step is individual
growers having more control but only the operations that are innovative,
willing to take significant risks and have a positive approach to the
situation.

As I write this, it is the tail end of the poinsettia
season. I've seen plants poorly displayed, not removed from sleeves, dying from
lack of water, dying from being flooded in a pot cover that does not drain --
this is a situation that has gotten ridiculous in too many chain stores. The
retailers cannot and are not going to care for the plants (sound familiar?).
The poor sell through is hurting growers due to reduced demand for restocking
the same store. We are on the cusp of seeing a few growers take more control of
the poinsettia situation. It will not take much in-store service to greatly
improve the quality of the product offered at retail.

Barring weather problems, it looks like the industry could
have a very good year. Spring should be very strong -- have a good one!

-- Jim Barrett

University of Florida

Gainesville, Fla.

About The Author

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

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