Regional benchmarking survey: Sales processes

Features - Industry Analysis

Part three of the survey examines market channels, sales outlets

In spite of its growing importance, production and management practices followed in the nursery and greenhouse industry have not been well documented. This article is the third of a series that profiles the regional differences of sales methods among U.S. commercial nurseries.
The National Nursery Industry Survey is conducted every five years by the Green Industry Research Consortium of agricultural economists and horticulturists from 24 land-grant institutions in the U.S. This 2003 data is the latest information available. Results for the 2008-2009 National Nursery Survey will be available in 2010. The survey data were broken into eight geographic regions: Appalachian, Great Plains, Midwest, Mountain, Northeast, Pacific, South Central and Southeast.

Sales methods
Nursery sales in 2003 reported by survey respondents totaled $2.73 billion, which represented average sales of $1.15 million per firm. More than half (55 percent) of firms had sales of less than $250,000, 21 percent of firms had sales of $250,000 to $999,000, 18 percent had sales of $1 million to $9 million, and 2.3 percent had sales more than or equal to $10 million. Approximately 4.5 percent of firms did not provide sales information. Firms with at least $1 million in sales represented 20 percent of respondents and accounted for 88 percent of total sales reported. This distribution in sales illustrates the diversity of companies included in these results.
Overwhelmingly, the nurseries surveyed (98.1 percent) operated a business in only one state. The average age of nursery businesses was 23.6 years, representing a range of new to long-established companies.
We asked several questions about selling methods including information on domestic sales, sales at wholesale versus retail, market outlets, types of sales transactions, and repeat customers.
Nurseries could sell at either wholesale or retail, or both. Nationwide, 36.4 percent of the surveyed firms sold plants only at wholesale and 18.9 percent sold only at retail. Approximately 45 percent of nurseries had a mix of wholesale and retail sales.
The average percentage of wholesale sales ranged from 30.7 percent in the Great Plains region to 74.2 percent in the Southeast (Fig. 1). Nurseries in the Appalachian (66.6 percent) and Pacific (64.6 percent) regions also had a high average percentage of sales at wholesale. Generally, the coastal regions nurseries had a higher percentage of wholesale sales compared to interior regions.
Retail sales as a percentage of total sales were highest in the Great Plains region (67.2 percent), followed by the Midwest (52.8 percent), Northeast (50.4 percent), Mountain (49 percent), and South Central (43.7 percent) regions. Average retail sales were lower for the Pacific (34.6 percent), Appalachian (32.6 percent) and Southeast (23.1 percent) regions. The higher share of sales at retail for firms in the interior regions may be due in part to their location in areas of lower population density.

Market channels
The U.S. nursery industry has a high level of trade among producing firms, with sales to other growers now accounting for the largest share of sales to any single market channel. Historically, many nursery growers have engaged in brokerage for other producers in order to make-up large orders, or as a service by companies with well developed marketing programs. Overall, about 49 percent of firms reported having some brokerage activity in 2003. This ranged from a high of 60 percent in the Mountain region to a low of 45 percent in the Appalachian and Pacific regions. Among firms engaged in brokerage, brokered sales accounted for 32 percent of total sales, whereas for all firms, brokerage represented 15 percent of sales. Brokered sales represented the highest share of total sales in the Great Plains region (18.9 percent), and the lowest share in the Appalachians (11.2 percent).
Overall, 8.7 percent of firms exported to international markets, representing 0.61 percent of total sales. More nurseries in the Pacific region exported plants (1.8 percent of total sales) compared to firms in other regions.

Sales outlets
Nursery firms sold plants through a variety of outlets. Sales to landscape companies accounted for the greatest percentage of wholesale sales (30.7 percent) in all regions, except the Pacific region (Fig. 2). Nurseries in the Midwest (41.2 percent) had the highest average percentage of sales to landscape companies of any region, similar to nurseries in the Mountain (36.1 percent), Southeast (33.7 percent), and Appalachian (32.3 percent) regions. Nurseries in the Pacific (15.4 percent) region had a lower average share of sales to landscape companies than other regions.
Generally, the second largest customer group was rewholesalers. Producers in the Pacific (30.1 percent) and Southeast (30.0 percent) regions had the highest percentage of sales to rewholesalers while nurseries in the Mountain (10.3 percent), Midwest (15.2 percent), and Northeast (15.9 percent) had the lowest.
Garden centers with one location (14.4 percent) were generally the third largest type of customer. Nurseries in the Northeast (20.2 percent) and Great Plains (18.9 percent) had the highest sales to single location garden centers, while nurseries in the Midwest (11.4 percent) and Southeast (11.2 percent) had the lowest.
Sales to mass-merchandisers accounted for less than 10 percent of sales. Growers in the Pacific (8.5 percent) region had the highest percentage of sales to mass-merchants, while nurseries in the Midwest (1.1 percent) and Great Plains (1.4 percent) had the lowest. Sales to multiple-location garden centers or home centers generally accounted for less than or equal to 5 percent of sales. Nurseries in the South Central (5.2 percent) region had the highest share of sales to multiple-location garden centers. Sales to home centers averaged only 2.5 percent of sales and did not vary statistically across regions.
Pacific region nursery sales were quite different from sales in other regions in that rewholesalers (30.1 percent) were their most important outlet, whereas landscapers were the most important outlet for all other regions (30.7 percent). Nurseries in the Pacific region also sold a higher percentage of products to mass merchandisers (8.5 percent) when compared to other regions (3.6 percent). Both of these segments historically distribute a greater volume of product than traditional free-standing garden centers. 

Sales contracting
Forward production contracting is an important strategy to reduce market risk for nursery products by establishing a price and quantity to be sold in advance. Some 30 percent of survey respondents reportedly engaged in this practice in 2003. While contracted sales accounted for only about 11 percent of total sales nationwide, it accounted for 37 percent of sales for the firms that engaged in this activity. The share of contract sales was highest in the Pacific region (16 percent) and lowest in the Great Plains (9 percent). Commonly, production was contracted with retail garden centers and other producers, each representing 10-20 percent of survey respondents regionally, although these percentages did not differ statistically. Miscellaneous other buyers also were an important market for contract sales, with the highest share of firms in the Mountain (24 percent) and South Central (23 percent) regions, and lowest in the Great Plains (10 percent). Mass merchandisers were a significant market for contracting for a relatively small percentage of all firms (5.2 percent), most commonly in the South Central region (11 percent), and this outlet represented about 9.3 percent of total sales in the industry. 
By Alan W. Hodges, University of Florida, awhodges@ufl; Charles R. Hall, Texas A&M University,; Bridget K. Behe, Michigan State University,; Jennifer H. Dennis, Purdue University,; and Robin G. Brumfield, Rutgers University,