Why Raising Prices too much in the Nursery Business in GOOD TIMES will create BAD TIMES later

Drunken sailor alert.

When business is poor in the nursery trade, many nurseries get too aggressive reducing prices and therefore leave money on the table.  I warn of that.  This other than a full liquidation.  Pricing lower doesn't increase demand, much.  People buy what they need and if they need it they will pay a fair price.  You do not create significant incremental demand with a lower price. 

On the other hand, pricing too HIGH in good times has an effect that many don't grasp.  Nurseries have good customers, people who have bought from them for years and who use them as core suppliers.  When a nursery gets too far out of the center of the price spectrum as many do in these good days the net result is they become to existing customers an unreliable supplier.  I am not talking about brand new customers, yes you can gouge them a few times but at some point they will walk away.

What happens too often in these markets is long time customers drift away, cease to call, find other suppliers.  Not always cheaper either.  Sometimes these suppliers are just more consistent.  Predictable.  Quality the same, but without the drama.

Sure you are selling everything you can dig or grow, the question is, when the market turns as it always will, can you get those burned over customers back?  Will your desire to capture an additional ten or twenty dollars per tree from your existing customer base require you to spend much more money you won't have then to try to woo them back later? 

It's a false economy (unless you are intent at going out of business) to raise prices too quickly or too radically.  There is a perception that the marketplace has when a radical increase in price is made, it signals desperation or incompetence.  We see that too much and it's causing upheaval.

So where is the right price point, if you were doing your job well up till now you will be slightly below the averaged up price of your high priced competitors and slightly above the low priced ones.  And you will have a "Deal" for the volume buyer.  A too high price Can cause you to MISS business and burn customers you cultivated for a long time.  Right pricing is an art.. learn it.  It starts with throwing out the high price outliers and the bargain basement sellers.  Then start analyzing the middles.  Find the price that will work.

The longest operating nurseries profitable in the USA are that way because they have been consistent and at the right price for a long time. They didn't have to liquidate when things got tough, they didn't have to fire sale, they simply kept their price structure within the range of sanity for decades.  Always just on one margin or the other.  Never a price leader up or down.  I won't name them here, but they are the ones who survived and prospered in the hard times and cultivate new business in the good times that will stay with them in the days to come.

 

 

Overrunning Headlights

The cyclical nature of the nursery business has many people convinced good times are here to stay, nothing to worry about, welcome to the Cabaret.

There is a lot of overhang right now. A lot of people who are still trying to come out of it all.

There are a lot of people in the nursery business who have raised prices so high that in the end it is going to become hard to back down.

AND PRODUCTION....

Already I can see more trees in the ground than anyone knows.  This means that in a few years with any kind of economic slowdown, there will be another crunch, oversupply, and prices plummeting.

BUT LAUGH DANCE and don't think about tomorrow.

You would think we would learn.. but we don't.

A TURN AROUND

Its been a while since I last posted.  In fact a year. 

Things are really different today.  It's a new time. A new cycle.

Product is very short..  because while business was poor, no one planted anything.  They just harvested.  There are still some large trees in the market.. but not as many. 

Containers are short but since the cycle is so fast, not that short.

Now we enter this phase and as always happens new planting will blossom everywhere until in a few years we will go back into surplus.  The booming times right now have less to do with a robust market but that thing are so short.

There are still nurseries just squeaking by.  I am contacted by banks who are asking what the collateral is worth on the nursery they are financing.  I go and make an appraisal of the stock. 

The optimum size in the bell shaped curve of demand is from 2-3"  That's where sales take place, that's where money is made.  When product is too small, or when it is way overgrown (large) there is a much weaker demand.  It is a bell shaped curve the top of which is 2 1/2" caliper.

Below 1" B&B there is almost no market and above 5" also almost no market. The mythology that I'll leave it in the ground an it will become more valuable simply doesn't work. 

The market now takes better marketing... they won't just COME to you.  So do well. Sell well.  Turn the product when it's ready..

 

 

SPRING 2014 NEW LIFE

What a difference a couple years make.  Two years ago I was being BEGGED to sell trees that were in huge surplus for any amount possible.  Those days are now gone.

The problem is now there are no trees available from 2-3".  Still lots and lots of 5-8" trees no body wants and a smattering of 1" Trees.  You would have to be a fool to dig a 1 1/2" tree right now.  If you just grow it on a little bit you will sell that tree for nearly double what you did.

So what are nursery people doing.  What we always do.  Like lemmings to the cliff you can't buy a budded liner.  The sources are all dried up. I suspect a serious arm wrestle will take place.

What this means is in a few years huge quantities of trees will come available and surplus in about 5 years.

There are surpluses in evergreens.  Not huge, but they are there.

Arborvitae are still in huge supply.

What is not are the shrubs of fancy cultivars.  The luxury landscape architects have had in picky choosy is going away.  We are getting down to fewer.  It's about time, with over 200 flowering crab cultivars, 250 spirea cultivars, and a burgeoning hydrangea palate, the idea that you will find in any quantity the plants you need to fit is becoming a myth.

Of course I am glad to see the growing use of native plants.  More all the time.

So, here we go, fire up the roller coaster.  UP DOWN UP DOWN WHEEE

 

A Hint of Positive in the Spring

I have been traveling an great deal the last few months.  Dealing with several companies and lenders who have been on the road to recovery.  I want to report that things have reached a tipping point.

Inventory is now officially short in many catagories.
Liners to replace inventory is short
Container growers have dialed back
New contracts are now on line.
The reality of the situation has evaded most.

I will offer a complete analysis, but that is what is happening.

Look forward to a better spring.

Evaluation of the Current Nursery Marketplace: 8-8-2012

Nursery Market Evaluation 8-8-2012 Gene Redlin Expert Horticultural Evaluations You received an update on the wholesale nursery marketplace this spring.  After in depth visits with nurseries around the nation I am reporting the following as of this date: Spring Season Better Dry Weather hurt sales, helped construction Short Dig Season spot shortage Cities struggle to buy Dead Tree Landscapes Gator Bags Everywhere...helping/? Future death loss from the drought Low growth liners from 2012 Doughnut Hole Availability Shortages spotted Specific Spot Market Analysis Good Fall Sales Coming The Election and Spring 2013 implications Liner Purchases Delay Weather Pattern affects Housing and Commercial Construction Starts Change Change Change Full comments on all these issues follow: Spring turned out better than expected.. Sales were up…somewhat, not extraordinary, but better. Extreme dry weather in many parts of the country slowed summer sales, but the offset is that a great deal of construction that drives sales has been completed in the dry weather creating new demand.  The short dig season from the early spring has created spot shortages in certain categories.  The perennial "longages" continue.  Red Maple (other than Autumn Blaze) has continued to be weak. Cities are trying hard to plant within a shorter palate which now excludes ash trees of all kinds.  YET, there seems to be a hesitancy to use up the maple surpluses.  I have been reviewing bid lists and see over and over again the specification of trees that just aren't there.  Tree form Japanese Lilac is a continuing battle.   There are a large number of dead trees in landscapes and streetscapes.  They are everywhere you look.  It's a sad sight.  YET…they are not  being replaced at a reasonable pace.  Even the cost of removal has become prohibitive.  At some point wind will do the job.  It's unsightly, but It belies a difficult economic climate.  I am told by foresters that they would plant, but the money available isn't there. Ten years ago they would all be replaced by now. Gator watering bags are everywhere.  I see water trucks nursing them. It is questionable that this is doing as much good as people hope.  I know it has done great things for the Tree Gator company.  The death loss from the drought and heat this summer will be greater than we believe.  We are beyond permanent wilting with a large portion of recently planted landscape.  Even with a good wet fall it won't be enough to save many of the trees planted in the last few years and that have languished in the drought. Spring planted liners are slow. Unless they were on a drip irrigation system, in nurseries, they didn't put on much growth.  We can expect the doughnut hole of availability to continue and even grow to 1"-1 ½" and 3" Plus.   Not many middle ground sizes.   The continued reduction in nursery acres and reduced lining out is beginning to create shortages.  This won't be the bonanza some hope, this will be spotty.  I don't expect the nursery industry to respond quickly to this situation.   Many have been fooled once too often to go overboard.  Money has been short and sales uncertain.  We are in very conservative times. The market buzz for fall looks like the fewer survivors will see better sales then they thought.  Buyers will have to become more flexible in their demands.  Much of what is being specified by architects is vapor stock.  Plants pulled from a plant guide book and placed on a job by an architect without knowledge of the industry availabilities.  Substitution will be the word of the day. However, those nurseries who insist in growing fewer and fewer varieties are finding themselves unable to respond to even basic quote requests.  This will reduce sales. As a result of all of the above, Some nursery stock values are firming…slowly.  Some species more quickly than others.  A demand and price evaluation on evergreens shows the following: Spruce Firmer Pine Neutral Douglas Fir Weaker Concolor Fir Firmer Hemlock Firm and holding Arborvitae continues weak, no hope in sight Yews Steady in a quiet market Boxwood…steady to a bit weaker Rhododendron steady to firmer Upright Junipers steady to firmer Spreading junipers weaker There are niche markets that continue to hold up Hydrangeas Some of the sculptured and shaped evergreens Japanese Maples, particularly the Red Leafed I forecast a pretty good fall season, driven however by availabilities.  If you don't have them to sell, no matter how good your demand flow is, you won't sell as much.  There is enough economic activity to keep things going into winter.  It will be equal to fall 2011 (or a bit better).  You must have something to sell to be part of this. Spring 2013's market will have a linkage to the fall elections.  If conservatives capture the senate or senate and presidency, there will be knee jerk reaction  optimism driven solely by hope and change.  It's not about politics, people are hungry for better in governance. If the current administration survives and the house and senate remain as they are, there will be a greater headwind to any recovery so needed to build back.  The tax increases and implementation of difficult policies already online to come into being will take a hard toll on the marketplace.  Optimism is low now.  This will drive it lower.  That will be a demand driver. This fall's election is a harbinger for 2013.    I suspect that many people will hold off buying liners and expanding further without some assurance that the government is not going to become even more intrusive and oppressive.   Nurseries are by nature conservative;  No matter your politics. Weather patterns nationally are not driven by global warming (when it's hot it's global warming, when it's a cold winter it's just weather according to the experts), but by a shifting el Niño - la Nina pattern in the ocean.  It has been difficult but we have seen this before.  Actually we have seen worse.  This too shall pass.  Climates change.  Shift.  It all has an effect. An economic impact.  Evaluating and apprising the net effect of  the change is what I do. Housing starts, construction starts and other indications point to a decent fall coupled with less supply from fewer acres then a year ago and could point to a decent 2013 but there are many uncertainties.  It is best to have all the tools at your disposal as you consider actions to be taken in your business over the next year or two. This much is certain, there is nothing as certain as change right now.  Not all change is considered improvement. Psychology tells us that most change is perceived as LOSS.  Yet there can be no improvement without change.  Knowing which is which is critical in the years to come. The  next evaluation of the state of the Nursery Economy will be end of year, after the election which will inform our 2013. To contact me for assistance in the appraisal, evaluation and  economics surrounding your exposure in this marketplace--  Gene Redlin CAGA (Conducting Certified Appraisals) Expert Horticultural Evaluations St Charles IL Phone 630-513-5105 (Byron Nursery Phone) Fax 630-513-5127 Email generedlin@att.net You are receiving this because at one time I have conducted an appraisal for you or your company, been consulted for or are a known part of the wholesale nursery marketplace.  These observations result from daily involvement in the nursery trade on a national level as a broker and evaluation expert.  They are my own observations informed by not only experience, education (BS Horticulture/ BA Botany) but by the Sr Executive level positions I held before I came into the business in 1991. This background has helped me understand long range supply / demand cycles which trained my eye to spot business trends and place proper values on inventories.

Sometimes Bad News is just BAD...that's why they call it BAD

The other day I was traveling to a nursery.  Driving thru the country I saw the corn dwarfed and drying out.  I know enough about agriculture to tell you, this isn't going to be good.

I also saw a lot of dead trees, in the landscape, in the nursery.  Drought had taken them. 

There are a large number of dead trees in the landscape.  Anything planted in the last 3 years that is not well rooted in is dying.  The heat and drought is taking a huge toll.  Add to that the devastation of the Emerald Ash Borer and we have a denuded landscape in many places.

This is causing many to say, what does this mean.  Some try to put a happy face on all this and claim that it means we are about to see a huge increase in sales because of replacement.  The question is by who?  I live near a commercial complex well planted with now dead trees in the landscape.  Mostly ash.  They were mature.  They will be cut down.  Will they be replanted?  I don't know.

The problem is, who is going to pay for this?  The landlord of the property? 

The street trees dead up and down our streets will be very expensive to replace.  The municipalities don't have the money its going to take to replace them right now.  This problem isn't going away easily. 

I am not sanguine about this.  We don't have a good market, money is short, governments are pinched and like a hurricane, much has been destroyed by the heat and drought. 

Sometimes bad news is just bad.