Profit is not a dirty word When I looked around the classroom at Texas A&M University earlier this year, I saw the heads of growers nod in unison when Peter Konjoian asked how many of them had seen their margins fall over the last few years. Konjoian of Konjoian's Floriculture Education Services, and Texas A&M University associate professor Terri Starman were the featured speakers at a profitability seminar conducted by OFA and the university in January. Konjoian said the lower margins have coincided with a mounting feeling among greenhouse growers that their profession isn't as much fun as it used to be. He pointed out that in 2002, for the first time since he had been tracking the results of the USDA Floriculture Crops Summary, the number of U.S. commercial greenhouse operations fell below 10,000. Konjoian expects the number of growing operations to decrease further as the floriculture industry continues to consolidate. USDA is scheduled to release the results of its 2003 Floriculture Crops Summary on April 27. While many growers have focused on expanding their product line with the newest varieties, Konjoian said far fewer growers have expended the same effort to enlarge their customer base. That's not to say that growers aren't constantly looking for new customers. But how many growing operations, Konjoian asked, have a full-time or even part-time marketing person? And our industry, unlike some others that are competing for consumers' non-discretionary dollars, has done a woeful job of marketing its product. Just ask GMPRO marketing columnist and Michigan State University professor Bridget Behe how much industry funding has been designated for floriculture marketing research during the last five years. Most recently she has been looking at increasing sales of carrots, organic apples and chestnuts because those industries are willing to fund market research. Regardless of what growers think of national flower brand programs, they are the closest thing our industry has to a national marketing program. As the big-box stores push our industry closer to being a commodity market, is it too late to reverse the path we are headed down? Konjoian said there are plenty of examples of other agricultural industries that have taken the commodity route including apples, cranberries, hogs and dairy. He asked the growers if they thought crops like poinsettias and garden mums have already gone the way of the commodity market. Most growers in the audience said they thought they had. Konjoian said a critical question that growers must ask themselves is whether they are going to continue to expand their production capacity or will they choose to expand their customer base. Choosing your 'flavor' of profitability Starman told growers they have several options when choosing how they are going to compete in the fragmented floriculture industry. These include duplicating an operation in "formula facilities"; becoming the most efficient, low-cost operator; specializing by product type or customer type or focusing on a limited geographic area. Growers who choose to specialize by product type can do so through quality, value, service, convenience and selection, she said. Starman said growers have options when it comes to deciding how they are going to increase their profit margins. These include increasing prices through differentiation whether in the product itself or through services. Costs can be lowered through improved labor efficiency with mechanization, outsourcing inefficient activities or increasing product volume. Inventory turnover can be increased through scheduling to move the product out more quickly or to tweak the product mix so that sales match production. Other margin-raising options include reducing overhead expenses and/or refining overhead allocation methods such as classifying promotion, travel and trade show participation as overhead. Finally, growers can reduce the age of accounts receivable, including offering discounts if bills are paid within 10 days. Starman has made available a greenhouse cost accounting spreadsheet on the Texas A&M University Web site (http://aggie-horticulture.tamu.edu/ floriculture/index.html). Send this article to a friend Enter your e-mail address: Enter your friend's e-mail address: Click the image below to send: © 2004 Branch-Smith Publishing