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Hot Topics Affecting theHot Topics Affecting the Green IndustryGreen Industry

Dr. Charlie HallEllison Chair in International FloricultureTexas A&M [email protected] / EllisonChair.tamu.edu

The Great Recession brought:The Great Recession brought:

• Structural changes in the industry• Structural changes in the industry (shakeout, consolidation, M&A)

• Hypercompetition & cost-centricity

• Decrease in plant quality and numbers planted (= shortages)p ( g )

• Mixed levels of profitability

The long road back to Lake WobegonThe long road back to Lake Wobegon

Are we there yet?Are we there yet?

Leading economic indexLeading economic index

Factors affecting future demandFactors affecting future demand

• Income/wealth (economic influences)Income/wealth (economic influences)

• Size of market (population/demographics)

• Tastes, preferences, and expectations

• Special influences (weather, politics, etc.)

• Price of the product itselfPrice of the product itself

• Prices of substitutes & complements

Employment situation improving?Employment situation improving?

Unemployment rateUnemployment rate

Unemployment claims decliningUnemployment claims declining

Quitting jobs, really?Quitting jobs, really?

Housing recovery?Housing recovery?

Housing prices have bottomed?Housing prices have bottomed?

Significant regional differences!

Significant wealth effects!Significant wealth effects!

Foreclosure ratesForeclosure rates

Positive home improvement outlookPositive home improvement outlook

2011 2012 2013 2014 2015 2016Billion Dollars 269.4 283.0 296.1 313.5 331.9 345.5% Change 3.8 5.0 4.6 5.9 5.9 4.1

Th M h 2012 hThe March 2012 home improvement products market

forecast grew to 5.0%

CRE still laggingCRE still lagging

Consumer confidence reboundingConsumer confidence rebounding

Small business optimism indexSmall business optimism index

HH balance sheet improvingHH balance sheet improving

Median HH IncomeMedian HH Income

Personal saving rate moderatingPersonal saving rate moderating

Retail sales better than expectedRetail sales better than expected

Wealth transfers facilitate spending

Consumer SpendingConsumer Spending

The bottom line?

C di ifC di if

The bottom line?

Consumers are spending, if …Consumers are spending, if …authentic authentic companies offer companies offer products products pp pp

thatthat offer offer valuevalueand areand are relevantrelevant to people’s lives!to people’s lives!and are and are relevant relevant to people s lives!to people s lives!

Effect of future demographics?

Consumer Housing LifecycleConsumer Housing Lifecycle

Demographic effects on housingDemographic effects on housing

• Four major demographic cohorts will set theFour major demographic cohorts will set the housing market in the decades ahead:

• The Older Baby BoomersThe Older Baby Boomers• The Younger Baby Boomers• Generation Y• Immigrants

• The Boomers and Gen Y are ½ of the U.S. population.

Older boomers redefine oldOlder boomers redefine old• Ages 56 to 65 – First boomers became

A</2

"

“seniors” this year ‐ 26 million strong

• Children of the 60’s – have redefined every FS

"

. /&-$<0$+ &

age they entered.

• When will they retire? For most part, not <0$+-&

for years.

• Healthier and more energetic – 60 is the new 50.

Older boomer are…Older boomer are…

• No longer moving TO theNo longer moving TO the suburbs, but AWAY from them.

• RCLCO research shows retiring Boomers want urban amenities.

M i l t j b kid d• Moving closer to jobs, kids, and GRANDKIDS!

Younger BoomersYounger Boomers

• Ages 46 to 54 – "Ages 46 to 54 52 million of them

T d i h b b

""

• Trapped in the suburbs

– Homes are “underwater”

• Their buyers are Gen X

– Smaller cohort with lower incomes

First‐time home buyersFirst time home buyers

• Call them Gen Y Echo Boomers the MillennialCall them Gen Y, Echo Boomers, the MillennialGeneration, or the Obama Generation

• Whatever you call them, they are the new housing/landscape challenge!

Gen YGen Y• Arguably, the brightest, most aspirational, best

d d d h ieducated, and the greenest generation to date.

• 60% of Masters degrees awarded to women• Exhibit “herding” behaviors

"

g

""

Gen YGen Y

• Incomes down last decade "Incomes down last decade

– Men’s down 23%

– Women’s down 3%

• Over 30% are unemployed

C i l h l d b2"

• Carrying large school debt

What will they do in the future?What will they do in the future?

• They will move into the housing market butThey will move into the housing market but what can they afford?

• Still aspire to homeownership but cautious because they witnessed housing bust.

• RCLCO: Want to live in b i durbanized areas

• They will rent for years!They will rent for years!

ET"

The "rental vacancy rate"The rental vacancy rate fell to a decade‐low level of 8.8% in March, the lowest8.8% in March, the lowest vacancy rate since 2002 ‐‐further evidence that large sections of the U.S. population are moving

f i haway from owning a home and towards renting, as the U S becomes more andU.S. becomes more and more of a "Rental Nation."

ImmigrantsImmigrants

• 40 million strong – 13% of households40 million strong 13% of households• Immigrants who arrive between now and 2050 will drive 82 % of the population growth2050 will drive 82 % of the population growth.

ImmigrantsImmigrants

• Larger families and multigenerationalLarger families and multigenerational.

• Ready to move into large suburban homes.y g

• By 2050, Caucasian = 47% of population.

• Gen Y values diversity

ImplicationsImplications

• Housing formation has slowed• Housing formation has slowed.

• Homeownership rate = 62‐64%.

• Expect 1‐2% appreciation in real prices.

• “Underwater” homeowners for years.

• Houses will be smaller and greener• Houses will be smaller and greener.

• Enter the age of the new urbanization.

The suburban century is over.M i th f tMegaregions = the future.

Char‐lanta – 22MSo‐Cal – 21MTor‐Mon‐tawa – 22MSo‐Flo – 15MDal‐Austin – 10MHou‐leans – 10MHou leans 10MCascadia – 9MPho‐Tus – 5MDen‐Bo – 4M

Enter walkable suburban town centers…

…and city centers.…and city centers.

The Great ResetChapter 18 TheChapter 18 The Great Resettle

Consumer behavior simplifiedConsumer behavior simplified

1. Expenditures rise to meet iincome.

‐‐ (C. Northcote Parkinson)

2. People afford what they wantwant.

‐‐ (Lowell Catlett)

What are the implications?What are the implications?

New value proposition!

o Functional/instrumental value

New value proposition!

o Experiential/hedonic value

o Symbolic/expressive value

o Cost/sacrifice valueThe Great Reset

Chapter 17The New Normal

The question comes down to:q

ARE WE RELEVANT?

Benefits of humanBenefits of human--plant interactionsplant interactions

Economic benefits

Eco-systems services benefits

Health & well-being benefitsHealth & well being benefits

Benefits of humanBenefits of human--plant interactionsplant interactions

Economic benefits

Eco-systems services benefitsy

Health & well-being benefitsHealth & well-being benefits

Remember Remember moremore

Learn Learn betterbetter

Faster healingg

Safer

D iDrivers

Benefits of human‐plant interactions

Economic Benefits Environmental Benefits

Health/Well‐being Benefits

•Beautification draws customers & reduces shopping stress

•Boosts occupancy rates

Benefits

•Carbon sequestration• Improved air quality•Attracts wildlife and promotes

Benefits

• Improved concentration and memory retention

•Enhanced learning capacity•Boosts occupancy rates•Generates tourism revenue• Job creation from increased services demanded

•Reduced health care costs

•Attracts wildlife and promotes biodiversity

• Energy cost savings associated with heating / cooling

•Reduced heat and cold damage

•Enhanced learning capacity• Plants generate happiness•Reduced stress and depression•Health and recreation benefits•Accelerates healing process

• Increased property values• Tax revenue generation•Reduced street repairs and maintenance costs

•Upgrade effects of surrounding

•Offsets heat islands•Reduced noise pollution•Reduced soil erosion•Reduced storm water runoffI d t lit

• Therapeutic effects of gardening• Improves relationships / compassion

• Improved human performance / energy•Upgrade effects of surrounding

areas•Revenue from educational programs & special events

• Improved water quality•Reduced urban glare• Effective windbreaks• Increased biodiversity

energy•Medicinal properties• Improved mental health•Reduced community crime•Traffic safety / driver satisfactiony /

Benefits for Gardeners

Great Landscapes Save Money

Plants Can Make You Healthier

Your Community Will Be Better yWith More Plants

Discover What Plants Can Do For You Where You Live Work AndYou Where You Live, Work, And Play

Planting Pride in Our Communities

We enhance quality of life.We enhance quality of life.

If we can position ourselves in such a way that we are viewed as necessities in people’s lives andwe are viewed as necessities in people s lives and not mere luxuries, that is the best recession‐proofing and weather proofing we can doproofing and weather‐proofing we can do.

The Century Oak Tree received the “Famous Tree of Texas” designation from the Texas Forest Service.

Election Year EffectsElection Year Effects

• Every 1% rise in economicEvery 1% rise in economic output in the year before elections gives incumbent candidates an extra 1.2% of the electoral vote.

• Every 1% rise in the l t t tunemployment rate costs

incumbents 2.3% of the votevote.

Regional differences in gas pricesRegional differences in gas prices

Retail Gasoline Prices Have Been Falling for the L 30 D Wh ' h M di C ?Last 30 Days, Where's the Media Coverage?

The new age of energyThe new age of energy

“100‐year” natural gas100 year natural gas

For Every $1 Drop in Natural Gas Prices Residential and BusinessFor Every $1 Drop in Natural Gas Prices, Residential and Business Consumers Save $23 Billion Annually

The value perspectiveMarketing efforts

The value perspective

Objective value (OV) = ∑ of all benefits

Prices of substitutes

?Perceived value (PV) = ∑ of perceived benefits{Consumer’s incentive

to purchase: (PV-P)>0Product or service price (P)

{Firm’s incentive to

{to purchase: (PV-P)>0

Cost of goods sold (COGS)Costs of productionDirect costs

{sell: (P-COGS)>0

Direct costs

$0

Source: Note on Behavioral Pricing, Harvard Business School, 9-599-114.

Price elasticity and revenuePrice elasticity and revenue


Income/wealth (economic influences)Income/wealth (economic influences)

Size of market (population/demographics)

Tastes, preferences, and expectations

Special influences (weather, politics, etc.)

Price of the product itselfPrice of the product itself

Prices of substitutes & complements

What are the implications for growers?What are the implications for growers?

New key success factors!New key success factors!– Better brand managementMore detailed SKU movement analysis– More detailed SKU movement analysis

– Greater efficiency in distribution & logisticsCl i t ti f ti i ti &– Closer integration of genetic innovations & supply levels with consumer demandAssimilation of innovative marketing– Assimilation of innovative marketing technologies

What are the implications for il ?retailers?

10 Trends for 201210 Trends for 2012

1 A continued shakeout of marginal firms and1. A continued shakeout of marginal firms and those who are still overleveraged. Expect another 5 to 10 percent loss of players in the industry before the dust finally settles.2. Equity capital gurus still point to other major black powder acquisitions on the horizon.3 Continued consolidation at all levels of the3. Continued consolidation at all levels of the supply chain. Strange bedfellows will arise (remember coopetition).

4 Vendor lists will continue to shrink slightly4. Vendor lists will continue to shrink slightly among box stores. This necessitates even more contract growing arrangements. We need to develop more sophisticated contracting mechanisms, though.5. Social media will play a bigger role in our industry but in the form of social analytics, gamification and community management/CRM This isand community management/CRM. This is much bigger than just Facebook or Twitter. 6. New applications of “the cloud” will be rolled out this year – good news for inventory management and data disaster recovery. Data is one of our most valuable assets, and the security mechanisms most growers have in place are woefully inadequateplace are woefully inadequate.

7. Natural gas will continue to be a bargain, putting a damper on the alternative fuel investigations going oninvestigations going on.8. On the flip side, diesel exports are going to keep trucking costs high – not good news for an industry that ships heavy stuff like we do.9. A fast‐aging population and a rapidly declining pool of younger workers combined with global competition creates the perfect storm for a serious labor shortage to rear itsstorm for a serious labor shortage to rear its head in 2012.

10. Value will be bigger than ever. Whether you sell to consumers or businesses, customers

b i f d hare better informed. That puts more pressure on you to clearly articulate the value that your product or service delivers – and how you are different than everyone else. In 2012, every y , ycompany’s “value proposition” will be more closely scrutinized by customers.

EllisonChair.tamu.edu

hot topics affecting the - nlae...hot topics affecting the green industry dr. charlie hall ellison...

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