As I travel throughout the U.S. visiting different nursery and greenhouse businesses, I continue to observe how this industry has evolved and changed over time. What began as a highly localized industry where plants were grown and sold directly to customers now appears to be dominated by large, multi-state growers who grow and sell their product to big-box retailers such as The Home Depot, Lowe’s, and Walmart.
These “big boxers” have become the “middlemen” in the chain, in turn, selling to the end consumers. Given this trend, I began to wonder if the floriculture and horticulture growth for big-box retailers was driving the local “mom and pop” nurseries out of business. Thus, I decided to trace the industry sales back 60+ years to see what industry trends could be identified, and to determine if, in fact, local “mom and pop” nursery businesses have declined.
I created some basic parameters to guide my research. The wholesale nursery industry consists of two types of growers – floriculture or greenhouses, which grow short-cycling plants and turn inventory in 12 months or less; and horticulture or nurseries, which grow longer-cycling plants and shrubs and turn inventory in greater than 12 months. Both sectors are included in my research.
In reviewing historical industry data, I discovered that prior to 1979 the U.S. Department of Commerce, Bureau of Census performed a periodic Census of Horticultural Specialties in conjunction with the agriculture censuses of 1890, 1930, 1950, 1959, 1969, and 1979. Beginning in 1988, this task was transferred to the USDA National Agricultural Statistics Service (USDA NASS), which currently conducts the periodic census and publishes the Horticultural Specialties report.
As is often the case with government reports, interpreting and comparing historical data is a challenge due to differences in the amount of data collected, the methodology, and the format for each periodic report. This is especially true for the agricultural census, since modern data collection capabilities now allow inclusion of more detailed data than methods used for past reports. While I tried to keep my data analysis consistent, the later reports, especially those prepared by USDA NASS, break data into so many micro-segments that it became difficult to ascertain if every sub-category in my analysis is consistent with those of prior years. However, I believe that the information presented below is fairly accurate for purposes of this analysis, and certainly helps to answer my initial questions.
Facts versus perceptions
As depicted in the first chart below, while total combined annual greenhouse and nursery sales have increased significantly since 1949, the number of producers, (defined as a business with annual sales greater than $2,000), has remained fairly consistent. In reality, greenhouse and nursery production still has a low level of ownership concentration. And, while the industry consists of national, regional, and local businesses, many smaller, family-run operations actually continue to dominate the industry.
Additional analysis on the latest 2014 census data depicts the number of producers for different levels of sales. Depicted in the chart below, while the number of producers has remained relatively stable since 1979, the current distribution of annual sales is significantly skewed to the large, multi-state operations. For ease of comparison, I converted both the sales and the number of producers to a percentage for each sales level. Bottom line, over 70% of the total annual industry sales volume is controlled by 5% of the 20,450 producers counted in the census. Conversely, over 54% of the producers have annual sales of less than $100,000 per year.
So what conclusions can be drawn from this analysis? First, annual industry sales have significantly increased, and the large percentage of this growth has been realized by roughly 1,000, or 5%, of the largest greenhouse/nursery operations in the U.S. Second, local “mom and pop” operations still exist, and continue to thrive in their local communities.
Can large and small producers co-exist?
So, with industry revenues so vastly broken out between very small and very large producers, how can these seemingly diverse operations co-exist? My belief is that this floriculture and horticulture industry parallels the broader U.S. population. Using a consumer food analogy, one could say that a large percentage of the U.S. population has become the “fast food” population whose buying habits support their active, “on the go” lifestyles. But, a smaller percentage of the U.S. population remains highly focused on healthy, unprocessed foods, and seeks and consumes organic and whole foods. Just as there is demand at both ends of the spectrum for food, there is also demand at both ends of the spectrum for floriculture and horticulture.
Many of today’s homeowners and consumers don’t fancy themselves to be master gardeners or landscapers, they simply want flowers, shrubs and trees that look good and are affordable. These consumers are perfectly content to purchase from the big-box nursery departments, and don’t expect a lot of consultation or service when shopping. At the other end of the spectrum are consumers who consider landscaping and gardening a hobby, or even a business. These individuals tend to be more knowledgeable about flowers, shrubs, and trees, and also enjoy and expect to engage with industry experts who exhibit the same passion for floriculture and horticulture during their shopping experience.
The expansion and growth of retail nursery sales for The Home Depot, Lowe’s, and Walmart has been fueled by their partnerships with the larger growers that scale their operations to produce a wide variety of product at a low cost. Conversely, the local nurseries focus more on quality, customer service, and knowledge of local market growing conditions to produce flowers and shrubs that meet the demand of the consumer who takes greater interest in their purchases, and also prefers to buy local.
Both small and large producers appear to have identified, and are catering to, their niche in this industry, and while we may see more evolution and change in the future, it is my opinion that the local nursery businesses will continue to survive amongst the larger operations.
David Branch is a Sector Manager within the Food and Agribusiness Industry Advisors group with focus on the Specialty and Non-Grain Crop sector.
David has over 25 years of lending experience. Prior to joining Wells Fargo, he worked for the Bond & Corporate Finance Group at John Hancock Financial Services where he was responsible for originating and servicing transactions in the forest products, building materials, timber, and paper industries throughout the U.S. and Canada. Previously, he worked at Travelers Insurance Company in Memphis, Tennessee specializing in timber mortgage and agricultural loans and also worked for CoBank in Jackson, Mississippi.
David graduated from Louisiana Tech University with a B.S. in Forestry (Business minor) and earned an M.S. in Forest Economics from Louisiana State University.