Did you do your homework?

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1 Industry 2015: The Maturing Marketplace Dr. Charlie Hall Did you do your homework? 1. Yes 2. No 3. What homework? 63% 27% 10% Yes No What homework? 1

2 Ellisonchair.blogspot.com MINING FERTILIZER PLANTS METAL WORKING TOOLS & MACHINERY AG COLLEGES; RESEARCH FARMS CHEMICAL PLANTS FERTILIZER; PESTICIDES OIL WELLS PETROLEUM PRODUCTS PLASTICS MANUFACTURING Extractive & Manufacturing FISHERIES FORESTRY PAPER MILLS T R A D E A S S O C I A T I O N S Production Marketing TRADE PRESS & PUBLICATIONS Consumption DIRECT MARKETING Nursery & Greenhouse Firms DISTRIBUTION & LANDSCAPE FIRMS FUNCTIONS Installation Maintenance Storage Transportation Financing Information RETAILING Garden centers Retail nurseries Retail greenhouses Florists Supermarket floral depts. Discount mass merchants Home improvement centers Farm markets Mail order & internet sales Wrappings, Containers Packaging materials Labels Irrigation materials INDIRECT MARKETING FIRMS Brokers Landscape contractors Lawn maintenance firms Re Wholesalers Terminal market firms Cooperatives Auctions PRINTED MATERIALS: (Catalogs; signs; packaging) INSTITUTIONAL Schools; Churches Hotels; Resorts Hospitals Restaurants Interior landscapes Malls Corporate landscapes Public buildings Community parks EXPORTS: Market Area to Market Area Other states Canada Europe IMPORTS: Columbia, The Netherlands, Ecuador, Mexico, Canada, Guatemala, Australia, Israel, England, Costa Rica, Hawaii, Philippines, Japan, China, Africa Regulatory Trade Agreements Trade Barriers & Import Restrictions APHIS/PPQ Patents, Royalties & Copyrights Environmental Protection Pesticide and other chemical regulations End Consumer 2

3 What sector do you represent? 33% 1. Growers 4% 2. Importers 4% 3. Wholesalers 11% 4. Retailers 7% 5. Media 7% 6. Associations 15% 7. Academia 20% 8. Other Economic Influence of the Green Industry Nursery & Greenhouse Production Lawn & Garden Equipment Manufacturers Jobs: Labor/ Wages Resident Population Employee Households Plant Products Personal & Business Taxes Consumer Household Spending (Induced Effects) Wholesale & Retail Trade Local & State Government Landscaping Services Sector Green Industry Purchased Inputs (Indirect Effects) Input & Service Suppliers Wholesale & Retail Distribution Rest of Local Economy Commodity and Service Exports/Imports Local Consumption & Intermediate Demand Imports (Leakages) Rest of United States and World Economy Goods & Services (Money Flows) 3

4 Economic Sectors of the Green Industry Lawn & Garden Equipment Mfg Greenhouse Manufacturing* Landscaping Services Landscape Architectural Services Flower, Nursery Stock And Florist Supplies Wholesalers Lawn & Garden Equipment & Supplies Stores Florists Building Material & Supplies Dealers* Food & Beverage Stores* General Merchandise Stores* Industry Sector Nursery & Greenhouse Growers Farm & Garden Machinery & Equipment Wholesalers* * Merchandise or product line sales of horticultural goods represents a portion of overall business NAICS Code What is the economic contribution of the green industry to the U.S. economy? 1. Dunno, but it s big! 2. $148 billion 3. $16,250,300, million jobs 5. Who cares? 42% 33% 13% 10% 2% Dunno, but it s big! $148 billion $16,250,300, million jobs Who cares? 4

5 Total Economic Impacts of the U.S. Green Industry, 2004* Output ($Bn) Impact Measure Employment (jobs) Value Added ($Bn) Labor Income ($Bn) Indirect Business Taxes ($Bn) Green Industry Total ,964, * 2002 values expressed in 2004 dollars (GDP Implicit Price Deflator, U.S. Department of Commerce) Which of the following is NOT an industry issue? 1. Immigration reform 2. Health care & insurance 3. Estate tax repeal 4. Water legislation 5. Price of beer 6. Sustainablility 91% 2% 5% 0% 2% 0% Immigration reform Health care & insurance Estate tax repeal Water legislation Price of beer Sustainablility 5

6 supplement existing green building and landscape guidelines facilitator certifying agent accrediting agent 6

7 Yes Are we in economic recession??? 1. Yes 2. No 51% 49% No 7

8 Core inflation holding steady (just don t t eat or drive!) 8

9 Big hit with minimum wage increase +41% +25.5% 2007 $ $ $7.25 Weak Dollar, but Rebounding Increases P of imported inputs 9

10 Erratic Stock Market Wealth effects on consumption??? Impacts on consumer confidence??? Trend in Consumer Confidence 10

11 Retail Sales Showing Resilience How many recessions have we had since 1948 (last 60 years)? 21% % 32% 15% 0%

12 A necessary evil??? Naturally, no politician acknowledges the self evident implication: that recessions, though unwanted and hurtful to many, are not just inevitable; sometimes they're also necessary to prevent the larger and longerlasting harm that would result from resurgent inflation They treat every potential recession as a policy failure when it is often simply part of the business cycle. Robert Samuelson, Washington Post What is the #1 consumer megatrend? 1. Container gardening 2. Outdoor living 3. Recycling plastic pots 4. Eating organically 53% 4% 38% 4% Container gardening Outdoor living Recycling plastic... Eating organically 12

13 Top 10 Mega Trends in Last 5 Years #10 D(S)IFM #9 Gardening with Nature #8 Branded & Supersized #7 Small Space Gardening #6 Annuals Come Back #5 Water #4 Color, Color, Color #3 Container Gardening #2 Decorating the Outdoors #1 Outdoor Living Source: Garden Media Group Mega Trend #1: Outdoor Living Homeowners are now viewing their inside and outside space as a whole. Backyards and patios now serve as playgrounds, living rooms, home offices and kitchens. Source: Garden Media Group 13

14 Have you (or someone you know) recently installed an outdoor living area? 60% 1. Yep 40% 2. Nope Mega Trend #1: Outdoor Living The demand for outdoor living goods and services has only just begun to blossom Survey of Luxury Consumers Unity Marketing Source: Garden Media Group 14

15 Mega Trend #1: Outdoor Living Outdoor living products and services, reached $62.5 billion in 2004 Plants accounted for only 31% of the total market. Unity Marketing 2005 Source: Garden Media Group Outdoor Living #1 Trend 14% of luxury home consumers purchased garden, outdoor, lawn and patio products in 2006 Down slightly from 16 percent in 2005 But they spent more on garden and outdoor items in 2006 The Luxury Report, 2007: The Ultimate Guide to the Luxury Consumer Market 08/01/07 UNITY MARKETING,

16 Luxury Outdoor Spending Average spending up 23.5%, from $7,992 in 2005 to $9,874 in 2006 Super affluents spent $12,868, Over 40+ households $10,022 Young affluents spent $9,839 Men spent 19.9% more than women $11,045 for men $9,212 for women The Luxury Report, 2007 Luxury Outdoor Purchases Furniture for decks and outdoor living is #1 with 42 % buying furniture 26% bought BBQ grills 21% purchased decorative pots & planters, and lighting accents The Luxury Report, 2007 Leaf Bed Mahogany Wicker from Alfresco Home 16

17 Mega Trend #1: Outdoor Living 40% of the Luxury Market said this year they plan to invest in a major outdoor living project Some 45% spent on average $1,000 on luxury garden enhancements for their yard Look for plasma screen televisions, Viking grills, and outdoor fireplaces complete with art over the mantel Source: Garden Media Group Opportunities with Upscale Market Sell em Service Gardening D(S)IFM Do Some of It For Me 62% do not own luxury patio furniture 72% do not own outdoor shelters, pergolas, gazebos, awnings, etc. 78% do not have outdoor water features Campania Faccia Planter 17

18 Outdoor Living Report 2006 StandPoint Need help and guidance with the vision Consumers want style, selection and quality at affordable prices Homeowners are overwhelmed with the not so small task of creating an outdoor living space or garden Want in store displays where they can interact with the product Source: Garden Media Group Mega Trend #1: Outdoor Living It s not about gardening. It s not about the Latin name or even a name at all. It s about bringing the inside out. It s about living. It s all about the verbs... relaxing, entertaining, decorating, cooking, reading, working, exercising or just sitting. Source: Garden Media Group 18

19 Mega Trend #9: Eco Chic Gardening With Nature Which of the following is not a part of gardening for the greater good? 1. Gardening for self gratification 2. Concern and heightened awareness for the environment 3. Cradle to cradle lifestyles 4. Reduce reuse recycle Gardening for self gratif... 51% Concern and heightene... 0% Cradle to cradle lifestyles 36% 13% Reduce reuse recycle 19

20 Gardening for the Greater Good The Networked Self is much more ecologically aware See ourselves as instrumental parts of a much greater picture Feel personally responsible to understand and engage with the whole Actress Daryl Hannah, Ed Begley Jr., & Will Ferrell are also active supporters of eco-causes. Gardening for the Greater Good Faith Popcorn calls this the SOS trend Save Our Society a responsibility trend We pick brands and companies that are good for society Spend our time and dollars to build up society We feel responsible for society 20

21 Mega Trend #9: Eco Chic Healthy living trend is gaining force in all aspects of our lives. 66% of U.S. consumers reported in 2004 that they use organic products at least occasionally. That's up from 55 percent in The Organic Trade Association says annual sales of organic products in the US leapt from $1 billion in 1990 to $20 billion in Mega Trend #9: Gardening With Nature In keeping with the healthy living trend, consumers are seeking sustainable gardening principles. As a result, there is a shift to using fewer chemicals as a part of a healthier, holistic lifestyle. 21

22 Mega Trend #9: Eco Chic National Gardening Association reports that some 5 million American families (4%) are using allnatural gardening methods NGA predicts that the demand for earth friendly products could "quadruple in the next few years. Gardening for the Greater Good A safe place for pets & family Choosing and installing plants that are easy on the earth, rather than simply enhancing and beautifying the space Watering less & cutting back on chemicals 22

23 Mega Trend #9: Gardening With Nature $160 Nursery and greenhouse crops consumption by household, $150 $140 $130 $131 $132 $135 $139$143 $149 $152 $152 $146 $147 $120 $110 $112 $117$122 $100 $

24 Total U.S. household lawn and garden retail sales, Millions ($) 40,000 39,000 38,000 37,000 36,000 35,000 34,000 33,000 32,000 31,000 30,000 $33,519 $33,404 $37,734 $39,635 $38,371 $36,778 $35,208 $34,077 $35, Source: National Gardening Surveys, NGA. Consumer Gardening Trends In 2007, 71% of U.S. HH (82 of 115M) participated in L&G activities 67% lawn care (55M HH) 42% indoor houseplants (35M HH) 42% flower gardening (35M HH) 37% landscaping (31M HH) 30% vegetable gardening (25M HH) 26% container gardening (21M HH) Source: 2007 National Gardening Survey, NGA. 24

25 Consumer Gardening Trends Average 2007 Expenditures: $428/HH (+7%) Lawn care $208/HH Indoor houseplants $34/HH Flower gardening $71/HH Landscaping $350/HH Vegetable gardening $58/HH Container gardening $48/HH Source: 2007 National Gardening Survey, NGA. Consumer Gardening Trends Highest level of participation from: 55+ years of age; years of age College graduates Married HH Income $75,000 2 person HH, no children, South Source: 2007 National Gardening Survey, NGA. 25

26 Why do people not garden more? 1. Costs too much 2. No time 3. Hayfever 4. Brown thumb 5. NASCAR 13% 9% 0% 2% 76% Costs too much No time Hayfever Brown thumb NASCAR Reasons for not gardening Source: Bill Calkins, Ball Horticultural Company 26

27 Total U.S. household lawn and garden retail sales vs. lawn/landscape services, Millions ($) 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 L&L services = $44.7Bn in 2006 DIY L&G activities = $34.1Bn in Source: National Gardening Surveys, NGA. Trend in Total U.S. Housing Starts 27

28 Consumer Gardening Trends Outlets used for purchasing (M HH): Mail order/internet Feed/Seed Stores Supermarkets 8% 9% 12% Hardware Stores 24% Independent GCs 31% Mass Merchants Home Centers 37% 40% Source: 2007 National Gardening Survey, NGA. 28

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33 $18,000,000 $16,000,000 $14,000,000 $12,000,000 $10,000,000 U.S. nursery and greenhouse grower cash receipts, 1994 present (1,000 dollars). $8,000,000 $6,000,000 $4,000,000 $2,000, p $0 Industry has shown recession resistance and strong correlation to housing starts. 33

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39 The average annual growth rate of grower level sales has since 1967? 1. Increased 2. Decreased 3. Stayed the same 4. Don t know 66% 13% 15% 6% Increased Decreased Stayed the same Don t know Year % 4.1% 3.9% 3.7% 3.2% 5.8% 5.6% 4.3% 5.6% 4.6% 4.9% 4.6% 2.0% 4.4% 4.8% 4.6% 5.4% 2.4% 2.2% 1.0% 1.0% 1.5% 7.0% 8.4% 7.2% 9.8% 9.5% 9.3% 10.5% 10.9% 10.4% 12.8% 14.3% 12.6% 11.9% 15.2% 13.1% 14.6% Average annual growth rate, % 18.0% 20.7% In the 1970 s: 13.64% In the 1980 s: 9.91% In the 1990 s: 4.64% In the 2000 s: 2.87% Source: USDA Situation & Outlook,

40 Since May 2007, the Prices Paid by Farmers Index (crop sector) has risen by 1. 14% 2. 23% 3. 27% 4. 35% 5. 50% 35% 20% 18% 10% 16% 14% 23% 27% 35% 50% 40

41 The Rising Cost of Gettin By Chemicals 7% Fuel 49% Fertilizer 69% Containers 11%+ Machinery 7% CPI 4% *** price increases since May

42 The Cost-Price Squeeze for Growers Retail consolidation Fewer buyers Oversupply Product tags/labels JIT delivery, setup & care Barcode/pre-pricing Returnable shipping equipment Pay-by-scan Take back unsold product Consistent pricing Continuous volume replenishment Rising input costs (e.g. fuel) Labor availability The Cost-Price Squeeze for Service Firms Retail price pressure Lowball competitors Oversupply Rising fuel costs Labor costs (wages) and availability (H2B) Increased costs of materials (top soil, mulch) Increased workers compensation rates Cost of health care insurance Increased equipment costs Regulatory compliance (air & noise) 42

43 Emotional reactions to rising costs? These staggering costs have us scared to death We are surviving, but profit wise, it s s a squeeze. Costs of energy, labor, fumigants, pots, polyethylene, delivery everything is going up. It s really beginning to hurt. Quotes from article in Florists Review. MAY 10, 1979! Signs of a maturing industry Slowing demand breeds stiffer competition. More sophisticated buyers demand price alignment. Greater emphasis on cost reduction and service. Topping out problem in adding production capacity. Product innovation and new end uses harder to come by. International competition increases. Industry profitability falls due to decreasing margins. Mergers and acquisitions reduce number of industry rivals. 43

44 So the $64 question is this What do firms need to do to compete successfully in a maturing floriculture market? 44