Greenhouse Business Management Ben Beale Extension Educator-MCE St. Mary’s County Some slides adapted from Wei-Fe Uva; Cornell Extension
Objectives • Trends in Maryland Greenhouse Businesses • Marketing Strategies for Greenhouse Businesses • Financials-Enterprise Budgeting
Why do we care? • Rising population base of affluent suburbanites in reach of Maryland growers Source:Census 2000 analyzed by the Social Science Data Analysis Network (SSDAN).
Why do we care? • Rising population base of affluent suburbanites in reach of Maryland growers • Growing interest in gardening, landscaping, and plants.
Why do we care? • Rising population base of affluent suburbanites in reach of Maryland growers • Growing interest in gardening, landscaping, and plants. • Horticulture industry is the fastest growing sector in American Agriculture.
Production trends of floriculture crops 6,000 5,000 4,000 Million $ 3,000 2,000 1,000 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 bedding and garden plants potted flowering plants foliage plants cut flowers propagative material and cut greens
Floriculture crops: Average sales per grower 1,600,000 1,400,000 1,200,000 1,000,000 Dollars 800,000 600,000 400,000 200,000 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 West South Midwest Northeast
Now for the Bad News! • The majority of small businesses fail within the first 2 years. • Most folks starting a greenhouse do so because they enjoy growing, not the business side.
SWOT analysis: • The SWOT analysis is simply a tool for organizing your thoughts and determining areas of competitive advantage. • Looks internally at: • Strength • Weaknesses • Looks externally at: • Threats • Opportunities
Cornell Greenhouse Business Summary, 2000 - Growing Greenbacks in Your Greenhouse http://hortmgt.aem.cornell.edu/resources/presentations.htm Wen-fei Uva and Steve Richards Department of Applied Economics and Management Cornell University
2000 Greenhouse Businesses Profile • 29 New York Greenhouses • 12 Eastern NY • 11 Central NY • 6 Western NY • Marketing Channel: • 14 mainly wholesale, 15 mainly retail • Major Crops: • 21 produced mainly bedding/garden plants • 5 produced mainly potted flowers • 1 greenhouse vegetables & herbs • 1 propagative material, 1 cut flowers
Size of Greenhouses Surveyed Wen-fei Uva and Steve Richards Department of Applied Economics and Management Cornell University
Scope of Greenhouse Study: Wen-fei Uva and Steve Richards Department of Applied Economics and Management Cornell University
Wholesale Greenhouse 2000 Income Statement Wen-fei Uva and Steve Richards Department of Applied Economics and Management Cornell University
Cost of Goods Sold: Wholesale • Labor 44% • Plant Material 23% • Packaging Materials 11% • Heating 6% • All Other COGS 16% Wen-fei Uva and Steve Richards Department of Applied Economics and Management Cornell University
Overhead Expenses: Wholesale • Land Rent 18% • Repairs 18% • Depreciation 17% • Insurance 12% • Interest 12% • Other Overhead 23% Wen-fei Uva and Steve Richards Department of Applied Economics and Management Cornell University
Retail Greenhouse 2000 Income Statement Wen-fei Uva and Steve Richards Department of Applied Economics and Management Cornell University
Cost of Goods Sold: Retail • Labor 37% • Plant Material 27% • Hard Goods 7% • Heating 6% • All Other COGS 23% Wen-fei Uva Department of Applied Economics and Management Cornell University
Overhead Expenses: Retail • Depreciation 20% • Insurance 18% • Miscellaneous 15% • Interest 13% • Repairs 11% • Other Overhead 23% Wen-fei Uva and Steve Richards Department of Applied Economics and Management Cornell University
First Question-What is marketing? • Marketing is: • Organizing the resources of the firm toward understanding customers needs and wants and offering products and/or services that meet those needs. (Russell Winer-Marketing Management) • The purpose of a business is to create and keep a customer. To do that you have to produce and deliver goods and services that people value and want at prices and under conditions that are reasonably attractive relative to those offered by others to a proportion of customers large enough to make those prices and conditions possible. (Theodore Levitt-Marketing Theorist) • Doing something for someone(s) better than another can in order to make a profit. (Ben’s farm guess)
Marketing Functions: • Price • Product • Promotion • Distribution
Marketing is finding, developing, and profiting from opportunities Promotion Products Target Market Place Price Your target markets will determine your production and marketing practices, Not vise versa. Slide From: Wen-fei Uva Department of Applied Economics and Management Cornell University
Broad Narrow / Focused Low Cost/Low Price Low- Cost leadership Focus-Niche Strategy based on low cost Best-Cost provider Differentiation Broad differentiation Focus strategy based on differentiation
What Opportunities Exist? • Low-Cost Provider Strategy • Target Market: Chain Super Market and Box Stores • Large Operations with market partnering agreements • Mass market with commodity type pricing • Efficiency based
Wholesale Production-Contract Production • Agreement with landscape and retail operations for production of particular or specialized cultivars • Contractors/builders • Smaller individual retail centers • On-site location advantages
Service Oriented Opportunities • Production of material plus installation or service agreement • Landscaping-Production of “landscape pillows” for high end market • Pick your own/ Plant a tree service • Rentals items -Parties, special occasions, seasonal items, interior-scaping. Mostly container production. • Interior-scapes
Wholesale Production-Specialty Items (differentiated strategy) • Competitive advantage in being able to produce a product of substantial attributes that outside, larger producers can not. • Such attributes include: • Quality • Delivery flexibility • Specialized cultivars branded for specific area • Value added features • Ability to predict future trends and customer desires
Name of the Game:Niche Marketing • Identify markets • Determine special needs • Position yourself to serve those markets • Find out what the larger producers can’t supply: What is too small for them? • Look for ways to differentiate your product, not only from what you grow, but how you grow it, what you do with it, or how you package it, or market it.
Some Examples of Current Niche Market Trends • Fresh, in-season local produce • Color, (white eggplants, blue potatoes) • Nostalgia, (traditional American comfort foods, i.e. corn-on-cob, corn bread, vegetable varieties from several years ago) • Organic foods, people believe it is safer • Edible and cut flowers
Farmer Owned farmers market Community farmers markets Direct sales to local stores Sales to supermarket chains Sales to wholesalers and brokers On-farm sales Contract growers Where are folks selling?
What is Your Profitability? - Using Financial Records to Improve Business Performance Dr. Wen-fei Uva Senior Extension Associate Department of Applied Economics and Management Cornell University Ithaca, NY 14853
What Is Financial Management? • The ability to allocate financial resources in the areas which generate the greatest returns. • Financial Management DecisionsYou Need to Make:
* Pricing Your Product • One of the most critical components of marketing. A common concern! • Critical in achieving sales and profitability • Need to know your COSTS