Benchmarking your Business: Take aim

The U.S. green industry has witnessed some extreme changes since the crash of 2008. The embattled consumer stopped spending, plant sales went into a slump and nursery stock wasn’t moving. The process has been slow, but the industry is recovering.

The Green Industry Research Consortium, made up of university horticulturists and economists from across the U.S., surveyed the industry in 2014 (based on 2013 sales) and acquired benchmark data from thousands of firms. The consortium’s previous survey was in 2008. Examine this survey and data to make better production and marketing decisions. If you’re curious how the industry responded in 2008, find the report here: http://bit.ly/1Ncgug9.
 

A look ahead

While some would say the U.S. economy is due for a recession this year, the economic indicators point in a different direction. There’s nothing holding us back from having a great 2015. We’re going into this spring season better off than we have been.

Even though last year started out with a negative GDP, 2014 averaged out to be the best year since recovery from the Great Recession began. And while there is still a 1.9 percent gap between the U.S. potential and the actual GDP, it’s shrinking. That’s based in large part on the personal spending of consumers. In the fourth quarter, those expenditures were 65 percent of the GDP.

Gross private domestic investment, such as new inventory or equipment, has been on an upswing since the recovery began, which is a good sign of growing business prospects.

When it comes to income, more and more people are joining or rejoining the workforce regardless of how long they’ve been out of work, dropping the unemployment rate to 5.7 percent.

Americans are spending more today than they did prior to the recession. And beyond the increased consumer confidence, which means more spending, low gas prices should mean huge savings for contractors in terms of fuel and supply costs.

The housing market is increasing, but hasn’t returned to pre-recession levels. That could change this year as excess stock is taken off the market.

Overall, the green industry is doing better than it was, but it’s still a bit overleveraged. Banks are starting to loosen up credit, particularly in the housing sector, and low fuel prices will mean lower distribution costs. That, along with increased consumer confidence and lower unemployment rates, puts the industry in the best shape it’s been in years. There are a lot of forces but there’s nothing that’s going to rear its ugly head and cause us to really shrink back and see our economy suffer.
 

How it works

The research team compiled a list of 110,000 registered growers and plant dealer firms in all 50 states of the U.S. A stratified random sample of 32,000 firms was contacted for the survey, with 15,000 firms via mail and 17,000 firms via email. After screening out duplicate and outlier responses, 2,657 valid responses were included in the analysis, representing an 8 percent response rate.

A full report summarizing the 2014 National Green Industry Survey is expected to be released in May 2015 as a Southern Cooperative Series Bulletin. An economic impact analysis of the U.S. Green Industry is planned for release in mid-2015.

Financial and in-kind support for this project was provided by the Horticultural Research Institute, the University of Florida, Texas A&M University, and the USDA multi-state research program.

Explanation of research
Number of respondents, employees and sales reported for 2013, by region, in the U.S. green industry survey

The number of survey respondents in 8 U.S. regions, after screening out duplicate responses and outlier values, totaled 2,657 firms, representing an 8 percent response rate of firms contacted. The number of employees reported, including full-time, part-time, temporary and seasonal workers and management, totaled more than 38,000. Total annual sales reported were nearly $4 billion, with the largest sales for the Southeast region ($1.06 billion), followed by the Midwest ($877 million), Pacific ($525 million), and Northeast ($486 million). Refer to map in Figure 2 for states included in each region. Note that Alaska and Hawaii (not shown) are included in the Pacific region.

Sales
Distribution of green industry firms by period established

The number of U.S. green industry firms established during each decade increased steadily from the 1970s through the 2000-09 period. The drop in number of firms during 2010-14 may be due to continuing economic weakness following the recession of 2007-2009, and consolidation within the industry, as well as the shorter time period evaluated (5 years vs. 10 years).

Green industry employment distribution by employee type
More than half (54.2 percent) of employees in the green industry were full-time/permanent, followed by temporary/seasonal workers (42.7 percent). A small share of employees (3.1 percent) were foreign nationals working in the U.S. under the H-2A Visa program.

Distribution of green industry sales by plant type
The top five specific plant categories reported by the surveyed firms as a share of total sales were bedding plants/flowering annuals (17.6 percent), deciduous shade and flowering trees (9.0 percent), herbaceous perennials (8.6 percent), deciduous shrubs (7.3 percent), and bedding plants/vegetables/fruits/herbs (5.8 percent). Miscellaneous other unidentified plants represented 10.5 percent of sales. The bottom five plant types were azaleas (1.5 percent), vines and groundcovers (2.3 percent), propagated material (liners, cuttings, plugs, etc., 2.4 percent), narrow-leaved evergreen shrubs (2.5 percent), and tropical foliage (2.7 percent). In addition, native plants represented 17.1 percent of total sales reported.

Distribution of green industry firm annual sales
About two-thirds (67.6 percent) of sampled firms reported annual sales less than $250,000, while 16 percent had sales between $250,000 and $999,000, 10 percent had sales from $1 to $4.9 million, and 6 percent had sales of more than $5 million. 

Distribution of green industry sales by product form
The largest product form category reported by surveyed firms was containerized plant material, representing more than 73 percent of total sales. The second largest identified category was balled/burlapped (8.1 percent), followed by bare root plant material (7 percent). Other product forms were 8.6 percent of reported sales. A relatively small percentage of sales were accounted for by in-ground containers (1.9 percent), balled/potted/process balled (0.7 percent) and field-grown bags (0.3 percent).

Share of green industry sales at wholesale or retail
The distribution of total reported sales was 40.2 percent retail and 54 percent wholesale. Note that the percentages do not sum to 100 percent because some respondents did not report these data.

Distribution of green industry wholesale sales by market channel
Wholesale sales were categorized into six major market channels. The largest market channel was landscape firms (28.4 percent), followed by re-wholesalers (20.1 percent), home centers (e.g., Home Depot, Lowe’s, etc.; 19.9 percent), single location garden centers (16.7 percent), mass merchandisers (e.g. Walmart, Kmart, 10.3 percent), and multiple location garden centers (4.6 percent).

Share of green industry total sales by various marketing practices
Information was collected on various types of marketing practices used. Note that these categories are independent, each representing the share of total sales reported. About one-fourth (26 percent) of sales transactions involved negotiating price and terms. Sales for product contracted in advance comprised 17 percent of total sales. Sales brokered for other growers represented 8 percent of sales. Sales to repeat customers represented 89 percent of sales.

Inter-regional trade flows in the green industry
The U.S. regions with the largest share of total plant product sales to other regions were the Appalachian (35.1 percent), Mountain (25.4 percent), Great Plains (19.2 percent), Southeast (19.1 percent) and Southcentral (12.3 percent) regions. The Northeast, Pacific and Midwest regions had less than 10 percent of total sales to other regions.

Factors determining prices for the green industry
Among nine factors that determine product prices, “cost of production” was indicated as “very important” by 60.6 percent of respondents, followed by “grade of plants” (44.5 percent), “product uniqueness” (42.1 percent), and “market demand” (39.9 percent). Then, following “other factors” (34.2 percent), the next most important factors included “other growers’ prices” (27 percent), inventory levels (18.2 percent), last year’s prices (16.8 percent), and inflation (12.7 percent).

Factors affecting geographic range of business for the green industry
Among seven broad factors potentially affecting the geographic range of business conducted by green industry firms in 2013, “transportation” was indicated as “very important” by 40.8 percent of firms, followed by “plant offerings” (36.5 percent), “production” (28.0 percent), “personnel” (25.2 percent), and marketing issues (17.4 percent), while debt capital and equity capital were generally rated as “not important.” 

Distribution of green industry sales by method of transaction
The largest method of sales transaction was in-person sales, representing about 47 percent of total sales, followed by transactions conducted via telephone (21.2 percent). A relatively small percentage of sales were transacted via the Internet (3.3 percent), trade shows (1.5 percent), and mail order (1.2 percent).

Distribution of advertising media expenditures by green industry firms
The largest category of advertising media expenditures in 2013 was the internet, representing 19.4 percent of total expenditures, followed by trade journals (15.2 percent). Miscellaneous other unspecified advertising media represented 13.9 percent of expenditures. The next largest advertising media categories were radio/TV (12 percent), social media (11.7 percent), Yellow Pages (7.9 percent), and trade journals (6.3 percent). Relatively small expenditures were made for print/CD catalogs (4.5 percent), newsletters (4.2 percent), gardening publications (2.9 percent), and billboards (2.1 percent). In addition, total advertising expenditures represented 4 percent of total sales.

Factors impacting green industry businesses
“Market demand” and “weather uncertainty” were rated as “very important” factors affecting the overall health of the U.S. green industry by 49 percent and 46 percent of respondents, respectively. The next most important factors were “own managerial expertise” (29 percent), “ability to hire competent hourly employees” (27 percent), “labor” in general (27 percent), “water supply” (22 percent), and “competition/price undercutting” (22 percent). “Ability to hire competent management”, as well as “debt capital” and “equity capital” were generally regarded as “not important.”

Production

Irrigation water sources used by green industry firms
The predominant source of irrigation water was groundwater wells, used by more than half (55 percent) of the surveyed green industry firms in 2013. City water was sourced by 27.2 percent of firms, and natural surface water by 23.1 percent. A relatively small share of firms used recaptured (10.4 percent) or reclaimed (4.3 percent) water sources. Note that respondents were allowed to choose multiple sources, so the percentages do not sum to 100 percent.

Integrated Pest Management practices used by green industry firms
Among 22 different Integrated Pest Management (IPM) practices, the most commonly used by the green industry firms in 2013 was, “remove infested plants,” reported by 72 percent of firms. A majority of firms used cultivation and hand weeding (61.9 percent) and “spot treatment with pesticides” (52.7 percent). Other frequently used practices included “elevate or space plants for air circulation” (47.2 percent), “inspect incoming stock” (46.1 percent), and “alternate pesticides to avoid chemical resistance” (42 percent). The least common practices were “use sanitized water foot baths,” “treat retention pond water” and “soil solarization/sterilization,” all used by less than 5 percent of firms.  

Irrigation water application methods used by green industry firms
The most widely used water application method in the green industry in 2013 was overhead irrigation, reportedly used by 53.3 percent of firms. Drip irrigation was used by 36.8 percent of firms. Approximately one fifth of the firms (19.9 percent) used other methods, including hand watering, and only 4.8 percent used sub-irrigation, such as ebb/flood systems. Again, respondents were allowed to choose any of the sources applicable, so the percentages do not sum to 100 percent.