March 2010 Big Grower

Consolidation: The Good and the Bad By Dean Chaloupka

It is no secret that big box retailers have been consolidating their supplier base in the lawn and garden category. Efficiency (cost reduction) and higher profitability are the goals, with much of the work and costs shifted to suppliers (growers). Suppliers take on the burden in return for getting more stores, product lines and, ultimately, sales. They, in turn, have some of their needs contract grown by suppliers who were cut out or dropped.

Consolidation pushes to keep things simple. In an environment where low cost is key and supplier grades (and future business) are based on how well suppliers drive retailers' profitability, risk is the first thing to be eliminated. The thought process on product to select is encapsulated as "bread and butter," "narrow and deep" and "footstep drivers": choosing well-known items to sell at a high rate.

But this does nothing to address a consumer's desire to decorate her home with new items. Consider the implications of this when we are in a period when many consumers have turned to large home improvement or mass merchants as a place to shop for this reason.

Big box retailers also choose to consolidate for consistency across a large number of stores and geographic areas. Having one supplier across a region or states makes planning for this much easier. Ad planning is easier, production to meet the ads is easier and container sizes are more consistent. In the end, consolidation means there are fewer moving parts.

Also lost, though, is the micromarket product selections that more growers would have included in their mix if given the ability to do so. They know the local tastes and supply accordingly. Trying to do this with a consolidated supplier base is usually impossible.

The number of growers seeking new ideas is dropping. All has seemed well on the supply side if growers who were dropped grow for others who remain in contact with the retailers. Are they the same company, though? In most instances, the contract growers supply what they are told. These companies aren't motivated to seek out the newest varieties. They don't have the competitive drive. They no longer have the motivation to take the risks or invest in the trials to grow these new species or varieties correctly.

Missed Opportunities

Big box retailers have become the go-to place for many U.S. consumers for their plants. These retailers have had three key attributes going for them: price, convenience and a diverse supply base to meet consumer needs.

Arguably, selection has never been as good as an independent garden center's, but the diversity of suppliers has allowed retailers to meet most needs. Independent garden centers differentiated themselves on knowledge, customer service, quality and selection. Many have suffered as they attempted to compete with the big boxes in a tough economic climate, and some didn't survive at all. Those that have made it through are strong.

As consumers have shown in the past year, they work on their homes and beautify them in tough economic times. They have continued to shop in the big boxes' garden centers as they repair and beautify the space where they spend most of their time. What must be of concern is that more people are coming in the door, but we are choosing to offer them less. Retailers and their suppliers have an opportunity to solidify customer loyalty and expand consumer interest, and both may be driving them to seek alternative places to shop to find new and interesting plants. Consolidation may be a good short-term strategy, but it does nothing for long-term strength.

The Forecast

If winter is any indicator — extreme cold in Florida and the Southeast, massive snowfalls in the mid-South and mid-Atlantic regions, rain in California, warm temperatures in the Northwest — our industry is in for a wild ride this spring.

Consumers in areas affected by negative winter weather patterns will surely be ready to get out and garden. But if recent weather trends hold, growers and retailers need to be ready.

Make connections with growers in other regions and know how you can buy or sell product if needed. Anticipate needs in advance. Don't wait until inventories are low or sell-through percentages are high; you'll be too late to react, respond and replenish. If weather is bad, the promotions you planned six months ago are meaningless. Promotional tools such as e-mails and website news/coupons, which can change weekly or daily, can make all the difference.

We know weather trumps all, so buckle up.