a road map to a more profitable future! · 4 7 the cost-price squeeze for growers retail...

1

1

A Road Map To a A Road Map To a More Profitable More Profitable

Future!Future!

Dr. Charlie HallDr. Charlie [email protected]@ag.tamu.edu

2

DISTRIBUTION &LANDSCAPE FIRMS

MINING

OIL WELLS

FORESTRYFISHERIES

Extractive & Manufacturing

PAPER MILLS

PRINTED MATERIALS:(Catalogs; signs; packaging)

Wrappings,Containers

Packaging materialsLabels

Irrigation materials

PLASTICSMANUFACTURING

PETROLEUMPRODUCTS

FERTILIZER;PESTICIDES

CHEMICAL PLANTS

FERTILIZERPLANTS

METAL WORKING

TOOLS &MACHINERY

Production

AG COLLEGES;RESEARCH FARMS

Nursery& Greenhouse

Firms

Marketing

Consumption

RETAILING• Garden centers• Retail nurseries• Retail greenhouses• Florist shops• Plant stores• Supermarkets• Discount mass merchants• Home improvement centers• Farm markets• Flea markets• Mail order• Electronic marketing

INDIRECTMARKETING

FIRMS

• Installation• Maintenance• Storage• Transportation• Financing• Information

FUNCTIONS• Brokers• Landscape contractors• Lawn maintenance firms• Re-Wholesalers• Terminal market firms• Cooperatives• Auctions

DIRECTMARKETING

INSTITUTIONAL• Schools• Hotels; Resorts• Hospitals• Restaurants• Interior landscapes• Malls• Corporate landscapes• Public buildings• Community parks• Churches

IMPORTS:• Columbia, The Netherlands,• Ecuador, Mexico, Canada, • Guatemala, Australia, Israel,• England, Costa Rica, Hawaii,• Philippines, Japan, China,

Africa

EXPORTS:• Market Area to

Market Area• Other states• Canada• Europe

TRADE PRESS & PUBLICATIONS

Trade AgreementsTrade Barriers & Import RestrictionsAPHIS/PPQPatents, Royalties & CopyrightsEnvironmental ProtectionPesticide and other chemical regulations

TRADE

ASSOCIATIONS

Regulatory

2

3

Results of Market Complexity

• More markets mean more places for distribution and quality problems to occur

• More producers and suppliers = more competition

• Less individual firm control; limited market influence

• More of a need for market know‐how and knowing your market!

• Increased relationship risk!

4

State of the Industry

Where are we now?

3

5

U.S. nursery and greenhouse grower cash receipts, 1994-present (1,000 dollars).

$0$2,000,000

$4,000,000$6,000,000

$8,000,000$10,000,000

$12,000,000$14,000,000

$16,000,000

$18,000,000

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

p

Industry has shown recession resistance and a strong correlation to housing starts.

6

Average annual growth rate,1967-2004.

• In the 1970’s: 13.64%13.64%

• In the 1980’s: 9.91%9.91%

• In the 1990’s: 4.64%4.64%

• In the 2000’s: 3.56%3.56%

2.2%2.4%

5.4%4.6%4.8%

4.4%2.0%

9.3%4.6%4.9%

4.6%1.9%

5.6%4.3%

11.9%7.2%

8.4%12.6%

9.5%5.6%

14.3%12.8%

9.8%7.0%

14.6%13.1%

17.1%10.4%

20.7%15.2%

10.9%18.0%

10.5%5.8%

3.2%3.7%3.9%4.1%

20042003200220012000199919981997199619951994199319921991199019891988198719861985198419831982198119801979197819771976197519741973197219711970196919681967

Year

Source: USDA Situation & Outlook, 1967-2004.

4

7

The CostThe Cost--Price SqueezePrice Squeezefor Growersfor Growers

Retail consolidationFewer buyersOversupply

• 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

8

Nursery and greenhouse crops consumption by household, 1994-2006.

$112$117

$122$131$132$135$139$143

$149$152$152

$146$147

$90

$100

$110

$120

$130

$140

$150

$160

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

5

9Source: National Gardening Surveys, NGA.

$33,

519

$33,

404

$37,

734

$39,

635

$38,

371

$36,

778

$35,

208

$34,

000

30,00031,00032,00033,00034,00035,00036,00037,00038,00039,00040,000

Mill

ions

($)

1999 2000 2001 2002 2003 2004 2005 2006

Total U.S. household lawn and garden retail sales, 1999-2006.

10Source: National Gardening Surveys, NGA.

05,000

10,00015,00020,00025,00030,00035,00040,00045,00050,000

2001 2002 2003 2004 2005 2006

Mill

ions

($)

Total U.S. household lawn and garden retail sales vs. lawn/landscape services, 1999-2006.

DIY L&G activities = $34.1Bn in 2006

L&L services = $44.7Bn in 2006

6

11

Trend in Total U.S. Housing Starts

12

The CostThe Cost--Price Squeeze Price Squeeze for Service Firmsfor Service Firms

Retail price pressureLowball competitorsOversupply

• 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)

7

13

Signs of a maturing industrySigns of a maturing industry

Slowing demand breeds stiffer competition.

More sophisticated buyers demand price alignment.

Greater emphasis on cost reduction and service.

Product innovation & new end uses are harder to come by.

Industry profitability falls due to decreasing margins.

Mergers and acquisitions reduce number of industry rivals.

14

Future of the Industry

Where are we headed?

8

15

Economic recession ahead???Economic recession ahead???

• High oil prices ($100/barrel).

• Housing market adjustments.

• Credit market recalibration.

• Low dollar.

• Falling stock market.

16

Trend in Consumer ConfidenceTrend in Consumer Confidence

9

17

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

18

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

10

19

Mega Trend #1: Outdoor Living“The demand for outdoor living goods and services has only just begun to blossom.”

2005 Survey of Luxury ConsumersUnity Marketing


20

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 in 2004

Unity Marketing 2005


11

21

Mega Trend #9: Eco ChicGardening With Nature

22

Mega Trend #9: Eco-Chic• Healthy living trend is gaining

force in all aspects of our lives.

• Newsweek says environmentalism “appears to be on the upswing.”

• 66% of U.S. consumers reported in 2004 that they use organic products at least occasionally. That's up from 55 percent in 2000.

• The Organic Trade Association says annual sales of organic products in the US leapt from $1 billion in 1990 to $20 billion in 2005.

12

23

• In keeping with the healthy living trend, consumers are seeking sustainable gardening principles.

• As a result, there is a shift to get plants off chemicals and on a healthier, holistic lifestyle.

Mega Trend #9: Eco-Chic

24

Mega Trend #9: Eco Chic

• National Gardening Association reports that some 5 million American families are using all-natural gardening methods

• NGA predicts that the demand for earth friendly products could "quadruple in the next few years.”

13

25

What do YOU need to do to minimize marketing risks and compete successfully in a maturing market?

Your future?

26

Internal responses…

1. Continue to tear apart the value chain and reengineer to reduce costs (lean flow).

2. Analyze resources & capabilities to determine competitive advantages.

3. More effective financial management (cash flows, benchmarking, etc).

14

27

• Top ranking athletes excel across a set of activities:– The winner accumulates the most points among all events.

– They win some events, but not all.

– They know their own strengths & weaknesses and focus their training in these “must‐win” events.

– They spend remainder of training time being minimally competitive in the other events.

Best-in-class companies are like decathletes

28

• Best‐in‐class companies excel across a set of processes:– They beat competitors in some areas but not all.

– They are not best‐in‐class in all performance areas, but are in those that match strategies and priorities.

– They know their core competencies and those of their competitors.

– They spend most of their resources in areas they know they must win and minimally competitive in other areas.

Best-in-class companies are like decathletes

15

29

External strategic responses…

1. Become a low‐cost operator and play the volume (commodity) game.

2. Differentiate in some way ‐ specialize by product, service, customer type, or geographic area.

3. Increase customer value via horizontal and/or vertical coordination.

30

Many firms are becoming increasingly automated leading to improved cost performance.

Examples of cost minimization strategy

automationautomation

16

31

As firm size increases, economies of scale and scope lead to decreasing per unit costs.

sizesize

32

My thoughts…

• All of these technologies have been used to decrease costs of production, successfully.

• While some firms have a ways to go, many have stretched their production dollars as thin as they can be stretched. Lean manufacturing is important, but will only take us so far.

17

33

Therefore…

• Any meaningful increase in margins in the future (for most firms) will have to come from the demand side of the equation (price).

• There is but one way to accomplish this – by successfully differentiating ourselves in the mind of customers!

34

Examples of differentiation strategies

• New plant introductions.

• Innovative packaging & labeling.

• Advertising and branding efforts.

• Generic promotions.

• Value‐adding services.

18

35

new plant introductionsnew plant introductions

Plant SelectionsPlant Selections

36

While new products have generated interest, the product life cycle has shortened!

Time

0

Dol

lars

Intro

duct

ion

Gro

wth

Mat

urity D

eclin

e

Sales

Profits

19

37

innovative packaginginnovative packaging

flats

38

brandingbranding

20

39

40

branding + advertisingbranding + advertising

21

41

•Good For Your Sole – a national campaign for the Stepables® brand of plants, a line of groundcovers that withstand foot traffic.

•Each variety has its own 7‐by‐11‐inch display card with care information and each plant is accompanied by the foot‐shaped Stepables® tag.

Under the Foot Plant Co.

42

www.plantdelights.com

22

43

““sustainablesustainable”” brandingbranding

44

Paradox of choice?

• the paradox that more choices may lead to a poorer decision or a failure to make a decision at all. It is sometimes theorized to be caused by analysis paralysis, real or perceived, or perhaps from rational ignorance (when the cost of educating oneself outweighs any potential benefit).

23

45

Spot/CashMarket Specification

Contracting

StrategicAlliances Formal

Cooperation

VerticalIntegration

Characteristics of “Invisible‐ Hand”Coordination

Self Interest

Short‐term Relationship

Opportunism

Limited Information Sharing

Flexibility

Independence

Mutual Interest

Long‐term Relationship

Shared Benefits

Open Information Sharing

Stability

Interdependence

Characteristics of “Managed”

Coordination

THE VERTICAL COORDINATION CONTINUUM

NOTE: The diagonal line represents the mix of invisible‐hand and managed coordination characteristics found in each of the five alternative strategies for vertical coordination. The area above the diagonal indicates the relative level of invisible‐hand characteristics and the are below the diagonal indicates the relative level of managed characteristics

Source: Peterson and Wysocki. 1998 AAEA Symposium

46

Examples of Coordinated MarketingExamples of Coordinated Marketing

24

47


48


25

49

Cost of goods sold (COGS)

Product price (P)

Perceived value (PV) = ∑ of perceived benefits

Objective value (OV) = ∑ of all benefits

{Firm’s incentive to sell: (P-COGS)>0

{Customer’s incentive to purchase: (PV-P)>0 (economic utility)

$0

Marketing efforts

Prices of substitutes

Source: Note on Behavioral Pricing, Harvard Business School, 9-599-114.

?

Importance of marketing efforts

50

Relationship between price elasticity and total revenue

26

51

Long-run Industry Pricing Equilibrium

Price SMCS1

S2

D2

D1

LS

MCAC

Output

(a) Typical Firm0

Price

Quantity

(b) Total MarketQ2

0 q1 q2 Q3Q1

P1

P2

52

Ellisonchair.blogspot.comEllisonchair.blogspot.com

27

53

Questions?Questions?

Dr. Charlie HallDr. Charlie [email protected]@ag.tamu.edu

Ellisonchair.tamu.eduEllisonchair.tamu.edu

a road map to a more profitable future! · 4 7 the cost-price squeeze for growers retail...

Documents