Columbian Cut Flower Industry Loses Leader

Bogotá, March 23rd, 2010. Asocolflores, its Board of Directors, member companies and employees deeply mourn the passing of Ernesto Velez, who served as the president of Asocolflores’ Board of Directors for the past seven years. Ernesto was known not only for the invaluable support he gave to Colombian floriculture in the areas of social responsibility and implementing environmentally friendly practices, but also for his drive, his business vision and the strength to endure through the toughest of times.

Ernesto Velez was also prominent for assuming the role of representing Colombian floriculture in a variety of national and international arenas. He was a member of the Board of Directors of the Society of American Florists (SAF), the American Floral Endowment (AFE), the Flower Promotion Organization (FPO), and the Colombian Society of Farmers (SAC), just to mention a few.

Last year at Proflora 2009, the “Life and Endeavors of a Flower Grower” distinction was bestowed upon Ernesto and his wife Lucie de Velez for being an exemplary floriculturist; the prototypical affiliate all trade associations would like to be able to count on - a true role model for current and future generations. This past January 2010, he was also awarded the IFAS Scholar Award from the Institute of Food and Agricultural Sciences during the Asocolflores Board of Directors meeting for being an outstanding alumnus. Terril Nell, professor and president of the University of Florida’s Environmental Horticulture Department, granted the award.

A graduate of the University of California-Davis with a BS in Agronomy and a post-graduate degree from the University of Florida in Farm Agriculture, Ernesto Velez has held many board of director positions over the past ten years with both US and Colombian farming entities. He also served as a consultant for the World Bank and the Inter-American Bank on farming development projects in Brazil, Paraguay and the Dominican Republic. Together with his wife Lucie de Velez in 1980, he founded the Suasuque S.A. company and was its manager for 30 years.

“Ernesto’s passing represents an irreparable loss, not only for his family, but also for Asocolflores and Colombian floriculture. Ernesto dedicated most of his time to Asocolflores, being proactive by fueling ideas and putting forth proposals. He represented Asocolflores with great dignity at both national and international levels”, said Augusto Solano, President of Asocolflores.

Casey Introduces Bill to Green Urban Areas

WASHINGTON, DC – U.S. Senator Bob Casey (D-PA) introduced the Green Communities Act, S.3055, which would help communities create green strategies to improve quality of life, attract new business and improve the general environment in urban areas.

“Research shows that urban greening not only improves the quality of life for residents, but also attracts new business, generates economic growth and creates jobs,” said Senator Casey. “It is more important now than ever to focus on new ideas that will restore the health of our economy and will get people back to work. That’s why I introduced the Green Communities Act to assist cities in planning, designing and implementing green infrastructure strategies.”

The Green Communities Act creates a new program through the Department of Commerce’s Economic Development Administration. This program will encourage public-private partnership by contracting with five nationally recognized non-profit organizations that will provide technical assistance to 80 municipalities across the United States. After the communities have completed the technical assistance portion, they will be eligible for additional grant funding to help implement their green planning.

The Green Communities Act is endorsed by groups including: America In Bloom, Alliance for Community Trees, American Nursery & Landscape Association , National Association of Clean Water Agencies, OFA – An Association of Floriculture Professionals, Pennsylvania Association of Boroughs, Penn Future, Pennsylvania Horticultural Society, Pennsylvania Landscape & Nursery Association, Perennial Plant Association, Professional Landcare Network, Project EverGreen, Society of American Florists, Tree Care Industry Association and Turf and Ornamental Communicators Association.

The legislation has also been introduced in the House of Representatives by Congresswoman Allyson Schwartz (D-PA).

Fewer sick days in green buildings

Nearly $5 per square foot per year. That's the estimated savings by tenants of environmentally friendly buildings because of fewer employee sick days, according to a study cited by the U.S. Green Building Council. About 55% of respondents in the study also indicated that employee productivity had improved in green buildings.

Source: U.S. Green Building Council

ANLA Management Clinic Blog

In order to stimulate interest in the 2009 ANLA Management Clinic, ANLA developed a one-day blog entitled Managing Through Tough Times. For one jam-packed day, industry leaders, including business owners, consultants, and editors, provided ideas for managing costs, driving sales, targeting new customers and motivating staff in the midst of strong economic concerns. Check out these thought-provoking (and action inducing) blog entries by clicking here.

How will the current retail environment affect green industry sales in the spring?

Quick overview of some of yesterday's December retail data (no real surprises):

Wal-Mart cut fiscal Q4 earnings target about 10%.
Costco posted a 4% drop in December same-store sales.
Family Dollar gained 8%; Same store sales gained 6%.
BJ’s Wholesale had 1.6% sales growth; the lowest in a year.
Sears (the largest U.S. department-store) sales fell 7.3%.
Target same-store sales fell 4.1%.
Macy’s December sales fell 4%.
Gap stores sales fell 14%.
Abercrombie & Fitch fell -24%.
Neiman Marcus reported a 28% drop off.
Limited Brands reported a 10% drop.

Also, a recent DJN press release states:

Food retailers are girding for a "battle" with vendors in the first half of the year as grocers push for lower prices to help shoppers through the recession and food manufacturers resist, Supervalu Inc. (SVU) Chief Executive Jeff Noddle said Wednesday.

With commodity and ingredient costs falling sharply in recent months, supermarket chains have been pushing for lower prices on everything from coffee to soups to help increase sputtering sales. In recent months, both Supervalu and competitor Safeway Inc. (SWY) have switched to a pricing strategy that sells more products at "everyday low prices" rather than relying on coupons or other promotions.

But food manufacturers have been reluctant to roll back their price increases, taken to offset higher input costs, despite some consumer product categories experiencing declines in sales volume of between 3% to 5%, Moody's Investors Service said in a recent report on the sector.

Lastly, from Wednesday's Business Week:

Shoppers are getting used to those 75 percent off sale signs, and that's bad news for merchants who worry they will also have to quickly slash prices on spring goods to attract customers.

Anxieties about how rampant discounts have affected shoppers' psyches and stores' profits are running high...The deep price cuts are making shoppers question the true value of items.

My Commentary:

Obviously, all of the trends above begs the question of whether or not we are "training" consumers to be more price (discount) oriented that they have been in the past. Or, as a friend of mine put it...what is the longer-term psychological impact of the drastic price reductions of the holiday and post-holiday sales periods going to be on the going-forward consumer expectations and purchase behaviors?

Obviously, people are currently spending less than normal; certainly less than justified according to their actual incomes (they are saving more which is good in the long run but bad for the economy in the short run). They are also shopping smarter, focusing on the "value" they derive from each precious dollar spent. So as we have discussed before on this blog, those retailers that have their value proposition clearly delineated will be in a much better competitive position than those who don't.

Without a doubt, several leading lawn & garden retailers are already positioning themselves for price-oriented competition this spring. We have always had a segment of consumers that are price-conscious shoppers and this will obviously bode well for them. Today's economic environment may increase the number of these price-oriented consumers and the real question is by how much.

But the majority of our core lawn & garden consumer base have other things besides price in their value equation. The question is whether or not retail firms have successfully identified what THEIR key customer base truly values and are differentiating themselves accordingly.

Another key point to remember is that even though unemployment is at 7.2% (from today's labor report), we'll still have 93% of the workforce earning a wage. The monies not being spent now will eventually burn a hole in people's pockets (if historical behavior holds true). It will probably take a few more months of spending declines for this hole-burning to take effect, so the economy will likely hit its low point this spring.

The key question then is whether "spring fever" will induce our core customer base to let go of those discretionary dollars burning a hole in their pockets. And, if so, will they be willing to pay the prices we must charge to cover the cost increases we've incurred in the last 2 years? Again, they are much more likely to do so if we appeal to their value equation.

It will also be very interesting to see how President-elect Obama's yet-released-but-being-revamped stimulus plan is eventually structured and even more interesting to see how much of it is actually spent (historically only 20-40% of a stimulus is spent -- the rest is saved or used to pay down debt). But fortunately, many folks will be receiving their tax returns about the time spring season kicks off, which means another influx of funds to burn a hole in their pockets!

Ok, now that we've discussed the retail environment, what does all of this mean for green industry growers? The tougher selling environment at the retail level this spring translates into a need to develop more intensive and collaborative relationships with your customers in meeting the needs of the end consumer – particularly in terms of their value proposition. During the downturn in 2008, those growers that proactively worked with their retailers (and usually these were pay by scan sales) to more closely provide landscape solutions for consumers were the ones who were most successful.

If any of you attended the recent industry webinar entitled, “It’s a Great Time to be in Business” you probably heard lots of great ideas. One of the best quotes that I wrote down during the webinar was “These are the times during which great companies are made.” Bearing that in mind, recall also that there are plenty of companies that have survived the last 50 years, which means they have gone through 11 such recessionary periods. How did they do it? By relentlessly focusing on and emphasizing their value proposition to their key customer base. There's a great lesson there. What is yours?

Coping with a down economy

As promised, here are a few strategies to consider for coping with a down economy. Some of these steps are radical, while others are a more milder form of defense. Implement them according to the conditions you experience in your market area.

1. Conserve your cash. Don't spend a dime on anything that isn't absolutely necessary to your operation. Examine every personal expense you have to find alternatives to any spending patterns.
2. Refinance anything and everything you can. Stretch out the payments because getting cash later on will be difficult as more people will apply for loans and banks will become very picky.
3. Work out a worst-case scenario cash flow projection that projects your company having a decrease in sales. As part of this, determine what expenses will be unavoidable. Look through your cash disbursements. Pre-plan a less expensive alternative to any expense category that you can.
4. Know your costs well because poor pricing can put you out of business faster. Assume that cost-side pressures caused by a recession will last about two years after a recession is over.
5. Beef up your advertising/marketing. Everyone else is cutting back. Now is the time to gain "mind share."
   
6. Slowdowns mean layoffs. Therefore, new hires become available and are sometimes available at a lower rate of pay than your current rate. Take advantage of that fact.
7. If part of your fleet is going to be idle for some time, try to store unused vehicles and get a reduced rate of insurance due to non-use.
8. Selling off assets during a recession is difficult. Nevertheless, selling off unused equipment reduces insurance and registration costs and property taxes. Convert anything you don't need into cash well ahead of any signals that your area will be hard hit.
9. Apply for credit long before you need it. You may have to "borrow" your future, and banks will raise interest rates on high-risk loans as conditions worsen.
10. Look deeper in your own markets. Can you offer your current customer base a more diversified line of products and/or services?
11. Review your business insurance to make sure your premiums have been adjusted for the depreciated value of your vehicles and equipment.
12. Take a look at your estimated tax payments made to the IRS. Decreased earnings call for decreased estimated tax payments.

Cash is "king" during economic slowdowns no matter how mild or severe. Expect your customers to also feel the effect, which means they will pay you at a much slower rate than during the good times. That's precisely the reason that you'll need additional working capital to finance your receivables if nothing else.

Run a cash flow working capital projection using 60 days, 90 days, 120 days and even up to six months to be paid from some of your customers. How much cash do you need to survive? Find the answer to that question. Prepare and save for that eventuality and you'll be ready for a downturn.

Seeley Conference Delivers!

Wow!

It's been 48 hours since we closed to door on this year's Seeley Conference and I am still chewing on some of the stellar presentations that were made.

Jim Marstiller kicked off the conference in good fashion. He is Senior Vice-President of Consulting Services for TNS Retail Forward, a leading management consulting and market research firm specializing in consumer behavior and its impact on retailers, those that supply retailers, and the economy. He is also the author of The Power to Innovate. Jim's talk focused on growth strategies, category reinvention, brand development, and innovative merchandising solutions. For a publication that provides much of his discussion, click here.

I followed Jim on the program (not an easy task I might add) with a discussion I called Industry 2015, which focused on the driving forces and historical trends of the green industry. For an overview of that talk, click here.

That evening, Bill Lipinski, Chief Executive Officer, First Pioneer Farm Credit discussed the difficulties that many businesses had had in expanding while adjusting to the ever-changing business climate. Very few firms have done this successfully for several reasons: (1) the leap from hands-on management to delegating is difficult; (2) there is often a disconnect between strategy creation and strategy execution; (3) there is a hesitancy to change business strategy to the changes going on; (4) a lack of management systems and information; and (5) a lack of an ability to lead.

I opened the Monday morning session with a discussion of the economic drivers underlying differentiation strategies, particularly addressing the nature of perceived value on the part of our customers. Click here for more on this discussion. You can also click on the "differentiation" label on the right hand side of this blog page for more posts regarding this strategy.

The rest of the day highlighted a series of case studies illustrating firms who have been successful in differentiating themselves in the marketplace including Brian Minter of Country Garden and Minter Garden Center, who has one of the premier gardens & garden centers in the Northern hemisphere.

He was followed by Gary Mangum of Bell Nursery, who has been featured in several trade journals articles (click here). Gary discussed the Bell Nursery model and the unique and innovative ways they carry out their own differentiation strategy in servicing Home Depot.

Ball Publishing's Jennifer Duffield White finished off the day by asking whether sustainability in floriculture is a tipping point for producers, retailers and consumers. The last morning of the conference, Peter Moran, Executive Vice President/CEO of the Society of American Florists (SAF), concluded the conference with a discussion of the draft sustainable standards for agriculture currently being proposed by SCS, the firm who is behind the Veriflora certification.

Needless to say, it was a busy 2.5 days but well worth it. If you missed the conference, the only respite you have is that your brain probably hurts less than mine right now.

Floriculture industry statistics available

The latest statistics regarding floriculture industry trends, sales and production levels are now available in "The Changing Floriculture Industry: Fourth Edition" Inside, you'll find more than sixty pages filled with maps, charts and tables. It has twice the data of the previous edition and includes a new chapter entitled "The Floral Consumer" drawing on five years of industry-sponsored consumer research. The report is produced by SAF'S Business & Economic Trends Committee and focuses on floriculture production, importing, retailing and wholesaling. To order this report or to find our more information, click here.

Which crystal ball to believe?

Needless to say, I have been receiving a lot of questions at various meetings on the economic forecast for this year and the prognosis for the Green Industry. I always receive curious looks when I start off saying "It depends on who you're listening to!" Perhaps the following may help to explain. The Federal Reserve Bank of Philadelphia just released its latest survey of professional forecasters and panelists were divided on when the effects of a government fiscal stimulus package would be apparent and how large the effects would be. Thirteen economists reported an effect beginning in the second quarter and 19 think the effect will begin in the third quarter. Two estimated that the effect won’t begin until the fourth quarter, and the remainder didn’t provide answers. The majority, however, expect the stimulus package to have a welcome but moderate effect on the economy. Almost a quarter said tax rebates would have a significant effect on consumer spending, while just 7% expected investment tax credits to have a major impact on business spending. Some 22% said tax rebates would have an insignificant or no effect, while 38% said investment tax credits would have an insignificant or no effect. Overall, economists in the Philadelphia Fed survey raised expectations for GDP contraction this year, but on average still expect the economy to grow, albeit at a sluggish pace. See what I mean!

Effect of Stimulus on Green Industry

To combat the recent slowing of the U.S. economy, Congress is currently working to develop a fiscal-oriented stimulus package. The House has approved its version and the Senate is currently attempting to do the same.

The House plan would send rebates of $600-$1,200 to about 111 million Americans who receive paychecks of $3,000 or more, plus an additional $300 per child, with less available to individuals with income in excess of $75,000 and couples making more than $150,000. The Senate version has checks of $500-$1,000 for a broader group that includes 20 million seniors and 250,000 disabled veterans, and taxpayers making up to $150,000 — or $300,000 for individuals. The Senate package also includes a $14.5 billion unemployment extension for those whose benefits have run out, $1 billion in heating aid for the poor — a program that enjoys broad bipartisan support — and a tax break that allows businesses suffering losses to reclaim previously paid taxes. It includes $10 billion in mortgage bonds to help homeowners refinance their loans and several tax breaks for renewable energy. – Houston Chronicle, 2/06/08.

Recent debate over the ability of the $148-$157 billion stimulus package being considered by Congress to actually bolster the domestic economy begs the obvious question: What will be the potential impact of said stimulus on the economy and how much of it will translate into sales of green industry products and services? Not an easy question to address, but perhaps we can glean from the experience of the 2001 stimulus package to draw some conclusions.

In the summer of 2001, the government mailed a total of $38 billion in $300/$600 one-time rebate checks to two-thirds of U.S. households. A 2004 study by U.S. Labor Dept. economists, Princeton University, and the Univ. of Pennsylvania estimated that the rebates increased aggregate consumption expenditures by about 0.8% in the 3rd quarter of 2001 and 0.6% in the 4th quarter. Two University of Michigan economists found that the tax incentive added 100-200,000 jobs and increased GDP by a scant 0.1 to 0.2%. – WSJ, 1/19-20/08, p.A6.

One other [debatable] point is that University of Michigan economists estimated that only 20 percent of the 2001 stimulus rebate check injection was actually spent on consumer goods. The rest was used to either pay down debt or put into savings. -- Austin American Statesman, 1/19/08, p.A17.

Interestingly, this time around, according to Jason Furman at the Brookings Institute, as many as 57 million households (37% of total households) would receive no benefit under the plan as currently structured.

Of the households that may indeed receive rebate checks this year, the timing of their receipt may have an influence on whether any expenditures are made on lawn and garden products and services. If checks are received by mid-to-late May or early June, there may be opportunity for such spending to occur in lawn and garden retail outlets. Otherwise, the vast majority of purchases may end up on ‘unnecessary plastic objects’ from offshore manufacturers (e.g. China) thereby being a primary stimulus for economies other than ours!

Another point to consider is that rebate checks (by themselves) are not likely to spur any lifestyle changes or fund any major asset purchases. This is in keeping with the late economist Milton Friedman’s “permanent income hypothesis” which said that people do not change their spending habits based on small blips in their income. In short, you can’t fool people into thinking they are richer than they really are.