Nursery Industry Overview - Northwest Farm Credit Services

TABLE OF CONTENTS
TABLE OF CONTENTS .................................................................................................. 2
PARTICIPANTS .............................................................................................................. 2
INTRODUCTION ............................................................................................................. 4
BEST PRACTICES ......................................................................................................... 8
GLOSSARY ................................................................................................................... 10
©Northwest Farm Credit Services 2015
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PARTICIPANTS
This Industry Overview* was prepared by the Northwest FCS Nursery/Greenhouse Knowledge
Team:
Questions and comments can be directed to the Northwest FCS Knowledge Center:
[email protected]
*Date of publication: April 2015
Disclaimer: The following material is for informational purposes only and cannot be relied on to replace your own judgment or that of the
professionals you work with in assessing the accuracy or relevance of the information to your own operations. Nothing in this material
shall constitute a commitment by Northwest FCS to lend money or extend credit. This information is provided independent of any
lending, other financing or insurance transaction. This material is a compilation of outside sources and the various authors’ opinions.
Assumptions have been made for modeling purposes. Northwest FCS does not represent that any such assumptions will reflect future
events. Past industry trends are not to be considered a guide to future events and actual future events may be materially different f rom
projections.
©Northwest Farm Credit Services 2015
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INTRODUCTION
Nursery Industry Overview
Nursery Crops refer to plants grown for environmental as well as ornamental purposes and they
generally last for many seasons. This sector primarily consists of outdoor landscaping plants,
including trees, shrubs and ground covers. Also included are unfinished plant materials (such as
seedlings, plugs, cuttings and young plants), bulbs (includes corms, rhizomes and tubers), sod (turf
grass), and plants sold as nursery stock for ornamental, environmental or food production
purposes. See Glossary of Nursery Terms for the description of each segment in the Nursery
Industry.
Floriculture plants are grown primarily for ornamental and decorative purposes and typically live
one season. Examples are cut flowers, cut cultivated greens, potted flowering plants, potted foliage
plants, and bedding and garden plants. Floricultural crops are predominantly grown under
protective cover such as plastic or glass greenhouses. This segment accounts for over a third of
total horticultural sales.1
1
USDA Census of Horticultural Specialties. 2009.
©Northwest Farm Credit Services 2015
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Marketing Infrastructure
Suppliers of plant material rely upon effective marketing practices and distribution networks to
establish market niches and serve customer needs. The on-time delivery of quality plants will often
give one supplier a competitive advantage over another. The ability to educate customers on what
plant material to buy and how to care for it will often distinguish one retailer/supplier over a
competitor. Examples of wholesale supply and retail networks include:
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Large wholesale producers who predominantly supply product to the chain stores;
Re-wholesale growers who offer regionally specific nursery products for immediate pickup or
delivery to landscape professionals;
Intermediaries such as brokers and importers who facilitate the transactions of domestic and
international growers and retailers;
Self-contained businesses with vertically integrated growing, landscape contracting and retail
garden center operations;
Retailers, including independent garden centers, florists, home centers, mass merchants and
other chain stores;
Garden centers that typically sell trees, shrubs, other plants, seeds, bulbs, mulches and an
assortment of other garden supplies to the general public.
Very few retailers carry a mix of all major nursery industry crops such as ornamental nursery crops,
cut flowers, potted flowering plants, foliage plants and bedding/garden plants. Retailers vary not
only in the selection of plant material offered, but also in the quality, quantity and size of product
offered. Consequently, most consumers shop at several retail locations to find what they need. The
lack of knowledge by most consumers about nursery plants enables mass marketers to offer a
generic selection of plants that include dominant varieties and colors. Consumers seeking quick
solutions to landscaping challenges are attracted to chain stores that offer an acceptable variety of
plants at reasonable prices. Those consumers who shop primarily at garden centers often cite
educational benefits, helpful service and quality of plant material as reasons for buying there.
The destination of plant material, particularly for Northwest producers, is larger metropolitan
markets in the Midwest and East Coast. Accordingly, access to trucking is critically important for
most producers. The larger producers who are able to fill trucks and ship product often have a
competitive edge over smaller producers who pool orders with others to move product to market
destinations.
Nursery Industry Cycles
Prior to the current cycle, the last significant downturn in the nursery industry occurred in the early
1990’s. Since that time and until 2007, national statistics showed rapid growth in all segments of
the industry, in response to extraordinary growth in the housing industry and perceived consumer
wealth. Easy access to credit fueled much of the consumer spending spree throughout the 1990’s
and most of the past decade.
The recession that began in December 2008 led to a significant reduction in demand for plant
material throughout the United States. Consequently, fewer producers were able to stay in
business. A summary of events and key lessons learned during the nursery industry downturn
include the following:
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Profits in any industry will attract new entrants, tough competition and tight margins. Nursery
industry profits attracted new producers and expansion through 2007.
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Systems that incent growth soon overcapitalize an industry, leading to oversupply. The rapid
expansion of nursery sales contributed to an excess supply phenomenon throughout the
marketplace prior to the recession.
Expansion of inventory must match demand for product. Rapid growth of inventory depleted
liquidity and triggered more reliance on credit on the part of producers.
Price compression and fierce competition existed to move inventory.
The recession triggered a shutdown in consumer spending nationwide.
Buyers apprehensive about the economic recession reduced orders.
Deep price discounts on plant material occurred throughout the marketplace to create cash for
operating expenses and debt payments.
Business failures occurred throughout the country.
Inventory shortages have emerged and quality has suffered.
The nursery industry is beginning to rebound from the down–cycle. A full recovery will depend
upon continued improvement in the job and housing market to restore consumer confidence
and spending.
Product differentiation, product quality, product availability and customer service will ultimately
determine the survivors.
The recovery underway is driven by supply shortages that result from fewer producers and
inconsistent replanting to maintain a normal supply rotation in recent years. Potential profit
opportunities over the next several years are possible and relate to an improving housing industry
that will create additional demand for product.
Northwest Perspective
The top three nursery stock producing states in the United States are California, Oregon and
Florida. The majority of nursery sales from the Pacific Northwest come from the state of Oregon.
Although the USDA no longer completes annual statistical reporting for the U.S. nursery industry,
the state of Oregon sold 13.8 percent of all nursery stock production throughout the United States
in 2009. Oregon’s nursery sales peaked in 2007 at $988 million, with product sold by nearly 2,100
nurseries.2 By the end of 2011, sales dropped to $641 million and the number of nursery
operations within the state declined to 1,800. Of these remaining producers, 70 operations
producing $2 million or more in sales accounted for 69 percent of total nursery sales within the
state of Oregon.3
The chart below provides a historical perspective of Oregon nursery sales and illustrates the effect
of the recession and recent recovery.
2
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USDA-NASS Oregon Field Office. “Oregon Nursery and Greenhouse Survey 2007.” September 2008.
USDA-NASS Oregon Field Office. “Oregon Nursery and Greenhouse Survey 2010.” September 2011.
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Oregon Nursery Sales
$1,200
988
$1,000
745
Millions
$800
$600
$400
641
410
$200
$0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Oregon Department of Agriculture through 2013
Final statistics on 2014 sales have yet to be compiled. Producers surveyed in 2014 reported that
sales were up 11 percent for 2014, which contributes to our estimate of at least $800 million in
sales of nursery products for 2014.
The following is a summary of observations from producers surveyed recently:
1. Seventy six percent (76%) expect sales to increase more than 10 percent in 2015. Over 22
percent of these producers expect sales to increase 15 percent or more in the year ahead.
2. Nearly 60 percent of producers surveyed expect to regain sales lost during the recession.
3. The market is no longer oversupplied and buyers are willing to accept price increases for
2015 if they are assured of adequate supply to meet customer needs.
4. In response to the question on what economic factors will impact sales in 2015:
a. 37 percent believe the rebound in housing starts will have the greatest impact;
b. 49 percent attribute growth in sales to improved consumer confidence.
5. Key threats to the nursery industry by those surveyed include:
a. Inadequate labor - 44 percent;
b. Government regulation – 22 percent
c. Buyer controls over pricing and conditions of delivery – 22 percent
d. Lack of adequate transportation 5 percent
e. Other factors – 7 percent
6. Nearly 60 percent of producers surveyed are over 55 years of age and expect to retire
within the next 5 to 10 years.
7. Key challenges facing those who take over the nursery relate to access to labor, financing
and business planning.
The overall outlook for the industry is positive, and sales are expected to be higher along with
profits. Challenges noted above will impact all producers. However, the industry should benefit
from the growth in housing starts that are expected to recover to prerecession levels over the next
two years, and consumer confidence that is already at a 7 year high,
©Northwest Farm Credit Services 2015
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BEST PRACTICES
Producers willing and able to make tough decisions and commit to strategic long-term planning will
position themselves to take advantage of a recovering industry. These best business practices are
based on observation of (and feedback from) industry leaders and include the following:
Business Planning
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Develop, maintain and execute a business plan tailored to the business.
o Focus on activities that maximize returns.
o Position the business to take advantage of a recovering industry by ‘right sizing’ for
the future.
 Identify the correct size and scope for the next several years.
 Make sure labor and staff levels match business plan and operational needs.
o Attend financial workshops and seminars sponsored by Northwest FCS.
Develop budgets to contain costs.
o Differentiate needs versus wants.
o Manage cash reserves.
o Set liquidity goals that target adequate current assets to cover current liabilities
without liquidating inventory.
Establish roles and responsibilities for all employees.
o Define management responsibilities, authorities and chain of command.
o Make sure the right people are employed in the right positions.
o Rely on your team to execute day-to-day operations.
Customer Service
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Provide unwavering commitment to customer service.
o Consistently provide customers with product on time and in excellent condition.
Provide education and information.
o Educate retailers and the end consumer on caring for plant material to maintain a
marketing edge.
 Garden centers, landscape professionals and retailers prefer doing business
with those suppliers who provide education for their sales staff and
customers.
Relationships matter.
o Develop positive relationships with re-wholesalers, garden centers, retailers, and
mass market retailers.
o Commit to quality face time with existing customers to maintain solid business
relationships.
o Communicate openly and honestly with suppliers, creditors and customers which
fosters relationships built on trust.
Quality counts.
o Replace inferior product expeditiously and consistently to maintain relationships.
o Maintain the quality of plant material for consistency and satisfaction of consumers’
needs.
Inventory Management
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Adopt a consistent methodology for inventory valuation.
o Valuation methodology should remain consistent year after year although this may
be challenging on a multi-year inventory.
o Valuing inventory at the lower of cost or market is a best business practice.
©Northwest Farm Credit Services 2015
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Maintain high quality inventory.
Maintain a diverse product mix.
o Those producers able to fill orders with a diverse mix of products are best positioned
to hold onto market share and to withstand economic downturns.
Reduce excess inventory to cover cash needs and limit unnecessary expenses.
o Be realistic in your assessment of future inventory requirements, pricing, and market
demand.
Marketing Plan
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Develop or maintain a marketing plan for the business that matches the business plan.
Maintain and build market share by:
o Attending trade shows
o Maintaining frequent contact with customers
o Bundling products and services
Understand market limitations and opportunities.
o Producers who best adjust production to market demand have the greatest chance
of long-term survival.
©Northwest Farm Credit Services 2015
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GLOSSARY OF TERMS
1. Bare Root Segment: Represents all growers that ship their plant material absent any soil
medium. Inventories consist primarily of shade trees and fruit trees. Desired species of
trees are generally grafted onto a rootstock that is then grown out to 1-3 inch caliper tree.
Those trees are then dug out of the ground and all soil is shaken from the root ball and then
shipped to other nurseries, landscapers or retailers.
 Bare Root material typically has a 3 to 4 year turnover and does not have the cost in
shipping compared to container/B&B growers.
 Shipping season is focused around January through March.
 Markets are national.
2. Ball & Burlap (B&B): Plant material is grown in the soil until maturity when it is dug in a
root ball (soil is left on the roots) and covered with a burlap cloth or placed in a pot for
shipping. B&B material can be grown larger and more cost effectively then Can Yard or Pot
in Pot, but requires more space per unit, high quality soils and has more exposure to
weather related stress. Further shipping costs are higher as the root ball is heavier than the
medium used in pot grown material.
3. Can Yard: A large graveled area used to grow plants in plastic pots.
4. Container/B&B Segment: Represents the segment of the industry that raises perennial
plant material in Can Yards, Greenhouses, Pot-in-Pot and/or field grown material that is dug
ball and burlap (B&B). Most plant material is for use in landscapes, but food bearing plants
are increasing in popularity.
 Plant material has a 2 to 7 year turnover.
 Primary shipping season is late February through May.
 Markets are national.
5. Greenhouse Segment: Represents growers that focus on annual/perennial bedding
plants, hanging baskets and garden starts. Operations require smaller land masses to
operate and frequently are comprised of climate controlled greenhouses.
 Plant material typically has a 4 to 6 month turnover.
 Shipping season is focused April through June. Secondary seasons are June
through Labor Day and November through December (mostly Poinsettias).
 Market focus is generally regional.
6. Greenhouse Structure: Large hoop structures that are typically covered with a shade cloth
year-round and with plastic in the late fall through early spring. Some are heated, but the
primary purpose of the structure is to protect plant material from extreme colds in winter
and excess heat/light in the spring/summer. Permanent greenhouse structures are square
buildings with retractable roofs to allow for natural sunlight and an enhanced growing
environment for plants.
7. Pot in Pot: Large permanent pots buried in dirt or gravel yards that hold smaller diameter
pots similar to those used in Can Yards. Commonly utilizing drip irrigation, this setup can
accommodate larger volume pots than seen in Can Yards.
©Northwest Farm Credit Services 2015
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