Green roofs are not only a significant part of sustainable development but represent a potentially significant market for Green Industry products and services. Dr. Brad Rowe, Associate Professor in the Dept of Horticulture at Michigan State recently presented a seminar on this timely topic. Click here to view his presentation.
Economic indicators point to uncertain times in 2008
Stimulus package debate
Will the economy be stimulated by the House/White House stimulus package? Jason Furman, a advisor to President Clinton, and author-economist Steven E. Landsburg discuss the U.S. economy and the recently announced stimulus package. Click here to hear a good synopsis of both sides of this issue.
State of the Union
Early in his SOTU speech, President Bush highlighted two hot-button issues on the Hill — the economic stimulus package and earmark reform. “The temptation will be to load up the bill,” Bush said of the stimulus plan. “That would delay it or derail it, and neither option is acceptable.” Those lines drew applause from the GOP side of the aisle, but not from Democrats. It’s worth noting what Bush didn’t say — that he would veto the package if the Senate tinkers with it too much. For the complete transcript, click here.
Economics of Bidding and Estimating
Landscape service firms must do 2 things if they are to make money in today’s competitive Green Industry environment — (1) develop an accurate estimate of hourly field-labor costs and (2) develop a system to fully recover overhead expenses. Once this is accomplished, generating realistic (and profitable) bids and estimates becomes a much more straightforward task. Benchmarking the firm’s performance relative to similarly-sized businesses is also a mandatory managerial task for those who desire to see their business grow and prosper. More detailed information can be found in a presentation delivered at the recent education seminar held by the Southeast Texas Nursery Growers Association. Click here to view this presentation.
Economic Damages from Drought in Southeast
So far, 35,000 out of the 79,000 green-industry employees in Georgia have lost their jobs, with another 30,000 in jeopardy of losing their jobs due to the historic drought. “The only ones left are pretty much the owners and their families,” said Sherry Loudermilk, exec. dir. of Ga. Green Industry Assoc. The industry in Georgia lost $3.15 billion in 2007 alone. Loudermilk has some suggestions about how the national green industry can help. GMPRO editor David Kuack also reports on how the Southeast drought is putting a big hurt on horticulture.
Profitability in a Maturing Marketplace
There is little doubt that the green industry has been characterized with unprecedented growth, innovation, and change over the last couple of decades. Yes, the fact that the green industry in the United States represents $148 billion in economic impacts and almost 2 million jobs nationally is impressive. The fact that nursery and floral production still represents one of the fast growing sectors in agriculture means profitability in the industry has been evidenced otherwise such growth would not have occurred. However, slowing growth in demand tighter margins (along with other aforementioned factors) point to a maturing market. Survival in the next decade will require a progressive mindset and perhaps a willingness to strengthen existing or develop new core competencies (which may incur greater risk).
While the crystal ball may be somewhat fuzzy in terms of the growth and nature of consumer demand, there is little doubt that innovativeness will continue to be a requisite skill in ensuring the survivability and profitability of green industry firms in the future. As the new competitive character of green industry maturity begins to hit full force, any of several strategic moves can strengthen a green industry firms’ competitive position including pruning the product line, improving value chain efficiency, trimming costs, accelerating marketing and sales promotion efforts, and acquiring struggling competitors.
For more on this subject, click here.
Why you need a stategic business plan!
This morning has been filled with the stories and helpful advice of Dr. Pete Johnson at the 2008 TNLA Management Workshop regarding the ins and outs of strategic business planning. Pete contends (and I agree) that many companies today roll their eyes when the mere words strategic plan are mentioned. However, there are some very important reasons as to why companies should engage in this process. Besides those mentioned in the previous post (regarding the economic state of our economy), here are a few more to consider:
- It serves as a roadmap for your business – provides a basic sense of direction and helps maintain focus on business objectives.
- It is necessary to obtain capital from investors and/or bankers – to determine true economic potential relative to risks involved.
- It helps evaluate business structure alternatives – reality check to protect you from proceeding with an idea that doesn’t make good “business sense.”
- It provides a benchmark to evaluate results of previous strategies.
Economic Outlook for 2008
Robert Barr, an economist in Washigton, D.C. says we’re in for more rough sledding well into 2008. Even the chairman of the Federal Reserve has announced that he expects the economy to “slow noticeably.” Still, it doesn’t appear that we’ll skid into a recession in the coming six to nine months as the economy continues to go through some critical realignments, but the mood will likely hang heavy until at least next summer. Let’s take a look at what the economy is having to battle.
- High oil prices. With prices nearing $100 a barrel as of mid-November 2007, consumers are seeing higher prices at the pump, and $4 per gallon during 2008 isn’t out of the question. For consumers, the higher price acts like a tax hike, leaving less to spend elsewhere.
- Housing market problems. Home values are in retreat after many years of forceful increases. The most adversely affected may be those homebuyers of the past couple of years who really couldn’t afford the loan’s terms and were counting on higher home prices to help them refinance when it came time for the monthly payments to readjust. Oops. Foreclosures are up dramatically, especially on exotic loans to borrowers without strong credit records. Still, the problem is relatively contained – if you don’t need to sell or refinance your home over the next year, any declines are only on paper (and, for the most part, follow years of strong gains).
- Credit market recalibration. The credit markets are now trying to determine just what the right price is for a given pool of underperforming mortgage loans. With appraisals in question and foreclosures on the way up, these loans are far riskier than Wall Street had previously reckoned. The uncertainty has endangered many home lenders and mortgage investors in general. Wall Street is working through a credit realignment that will take several more quarters to resolve.
- Low dollar. The dollar has weakened significantly, which is driving up the cost of imports. This is good news, generally, for American domestic manufacturers and the domestic tourist industry (American tours are cheaper for overseas visitors). Floral buyers who purchase foreign-grown flowers will likely find little relief from the low dollar this year.
- Falling stock market. Equity values are struggling, having given up a lot of ground in November 2007. Consumers feeling less wealthy because of shrinking investment portfolio values and declining property prices can’t be expected to keep spending at the rates seen during the last several years.
So, why not a recession in 2008? Because the economy remains fundamentally strong. Productivity growth toward the end of 2007 was strong, and employment growth remains decent. The Fed loosened monetary policy in the fall of 2007 and is expected to make more significant easing moves during the first half of 2008. This will make the high-profile economic realignments easier to manage.
How can they sell it at that price?
Let’s face it. Business in the Green Industry is competitive and sometimes cut-throat. In recent years, I have had many growers ask me the question: What do I do when another grower is selling product in my market at a price that is below my break-even cost? While there is no perfect answer to this question, I have included several tried and true suggestions below.
- Sharpen your sales skills. For example, educate buyers regarding your unique selling proposition in terms of your quality, value, service, convenience, and selection relative to the competitor(s). Also emphasize the historic “win-win” relationship you have shared with the buyer – assuming you have one of course. Some examples might include: a) that you have been there when they needed you, b) that you did not gouge them with extraordinary price increases when availability of a certain product in the market was low, c) that the low prices obtained from the undercutting grower are simply not possible at the quality level you typically provide.
- Go and buy as much of the competitor’s product you can and use it as part of your own inventory – assuming it is of comparable quality or could be within a short period of time.
Match the price in the short run. A marginal pricing strategy (where selling price is greater than your variable costs but less than total costs) can be used in the short run, but remember that it is not sustainable in the long run. With this strategy, you are attempting to “wait out” the competition until theoretically they go out of business or can no longer afford to compete in your market. This is considered to be more reactive in nature, whereas the first two options are more proactive. You must emphasize to the buyer that this is a one-time phenomena; that you are only doing this because you value their business.
- Consider the nature of the product they are selling in your market. If the product they are selling in competition to yours has become “commodicized” – that it has become a commodity item that many are starting to grow and carry – then you have the option to quit growing it, or grow a different size, form, cultivar, or variety. In other words, tweak the commodity so that it becomes a differentiated product.
- Examine your production system and the associated costs of production for that product. It may be that you are using a system that increases your relative costs of production. To do this, you may have to visit other growers, attend educational conferences and workshops, or participate in field tours.