International Garden Products became a major player in the horticulture market, purchasing nine well-known nurseries and bulb-supplying companies from 1997 to 2000. I spoke with founder John R. "Jack" Hesse about the economy, its effects and the future of both his company and the industry.

Q. How did IGP do in 2001 and what are your hopes for 2002?

A. IGP had a sales gain in 2001 compared to 2000. However, operating profits were lower than hoped for due to lower sales in our direct marketing and annual and perennial businesses, which were affected by adverse weather.

For fiscal 2002, ending June 30, we're on track and expect increased sales and operating profits. Bookings at several of our business units are above last year and we have record-high revenues at our flowering bulb businesses. We expect our fiscal 2002 revenues and operating income to be well above those of fiscal 2001.

Q. Describe the horticultural companies you feel are most affected by a bad economy.

A. We expect most horticultural companies that grow and supply what are characterized as 'recreational garden products' -- annuals, perennials, roses and woody ornamentals that are accent plants -- to have revenue gains in 2002. Demand for these products is increasing due to aging consumers and the willingness of gardeners to change plants in their landscapes.

We anticipate that in a down economy, many consumers will spend more time on activities at home, including gardening. Adverse effects in 2002 could come in geographical areas where commercial construction moved ahead of demand and where prior commitments on commercial landscape contracts have been completed.

Q. What are IGP's immediate plans? Do you foresee more acquisitions?

A. In 2001-2002, we're tightening and streamlining our business. For example, we recently merged our Dutch Gardens mail-order and direct-marketing business into an affiliate of Gardener's Supply Co. We will, through Langeveld, continue to process and supply bulbs to that entity.

We're looking at other steps to improve efficiencies and profits and will likely focus our efforts in that direction rather than seeking new acquisitions in the next year.

Q. What has been the biggest challenge of pulling together many different, independent nursery production companies and having them operate as one entity?

A. We built IGP through acquiring several of the best ornamental plant businesses in the industry. Each entity had operated separately, obviously, with their own production and sales divisions.

These businesses have operated on a decentralized basis with each general manager having full responsibility for carrying out the business plan, which is approved at the corporate level. We believe there are significant opportunities in supplying retail and wholesale companies with plants and horticultural specialties from several of our business units in separate locations.

As IGP pursues these opportunities, we face the challenge of differing client bases, varying ways of selling/marketing products and differing climates, which make the business of serving customers more complicated.

Q. What are IGP's plans for consumer branding?

A. IGP will continue supporting the Weeks brand this year through product literature, point-of-purchase materials and consumer trade advertising. Over the long term, the IGP strategy is to support the brands of our business units that are well recognized in the trade due to quality, consistency and differentiation.

While all the branding plans haven't been finalized, IGP expects to extend its Weeks branding program, subsequently adding other branding programs such as Briggs (ericacious plants), Iseli (conifers) and Langeveld (flowering bulbs).

Q. Do you think branding will be a major focus for many nurseries this year?

A. I am not privy to other nurseries' programs. However, I believe there's a long-term recognition that branding is critical to establishing, in the minds of consumers, a differentiated and value-added product.

Nurseries able to advance comprehensive branding programs -- incorporating point-of-purchase materials, promotional support, product literature and communications through the consumer media -- will be able to establish identities and separate themselves from the competition. Branding programs are long-term investments. If properly carried out, they should lead to greater market shares and higher profits.

Q. How do you see the horticulture industry evolving?

A. The industry is already evolving and will continue on this path with three categories gaining importance:

* Major primary growers with production locations in optimal climatic areas.

* Regional nurseries that can finish plants started elsewhere and can provide high-frequency delivery of multiple products to area retail outlets.

* Specialty growers who can grow and supply products that are not as available from major or regional growers.

We expect to see several major national production and selling organizations evolve and increase their market shares. They will be institutionally financed, because the nursery industry requires significant capital to support expansion of growing facilities, inventories and receivables.

Certain medium and smaller producers desire to remain independent and maintain their current sizes. That, or they don't have the financial resources available, can't attract institutional resources or prefer higher retained cash flow. These companies can be positioned to maintain their positions over time, but will lose market share to the larger, better-financed entities.

Q. Do you see nursery consolidation continuing?

A. Due to difficulties experienced by some companies that have grown through acquisitions and a more difficult lending environment, the consolidation trend for 2001 and 2002 will likely slow down. As consolidation activities resume, they will be carried out by companies with acquisition experience. They'll be skilled at creating stronger operating vehicles.

It's also fair to recognize that some nursery owners who wish to remain independent can do so successfully if they're sharply focused on specialized product lines and a specialized market.

Q. What's the future for small, regional nurseries?

A. The future for regional nurseries can be better understood in the context of historical trends. The successful regional nurseries that have evolved over the last decade reflect an evolutionary process that began after World War II.

Around 1946-1950, nurseries near large cities field-grew woody plants and grew greenhouse crops for area retail stores. As land and labor became higher priced, these nurseries in effect cashed out their businesses and left the industry.

Supplying retail stores was then left to larger nurseries in optimal climates. As the cost of transportation rose and the demand for more frequent delivery increased, regional nurseries expanded, adopting proven container-growing methodology. They created broad product offerings and established important positions in the distribution chain.

We believe the regional nurseries, often with higher cost structures but with the important asset of proximity to their customers, will most likely team up with those growers in the aforementioned, remote locations to create the industry's most efficient supply chains.

Q. How will horticulture fare in the current economy compared to other industries?

A. Demand for many ornamental plants and horticultural specialties is being buttressed by the spending habits of older consumers. Recent growth in demand has been estimated by government sources at 6 percent per annum, varying by plant type.

IGP believes that with contracted spending by consumers in areas such as electronics, major capital items and travel, horticultural products will continue to expand. Horticulture should be one of the most attractive areas in the U.S. economy over the next several years.

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© 2001 Branch-Smith Publishing