Count Down Picks Up

In many ways, 2004 and 2005 were unusual years for the CropLife® 100. For the first time since the 2000s began, the list of the nation’s top retail organizations remained unchanged in terms of the companies represented on it. This definitely won’t be the case in the 2006 ranking, however. Consolidation is back — and most likely here to stay.

“This is a natural evolution of a maturing market,” says Mike Jackson, president of ABG, Inc. “There are still channel layers of inefficiencies to work out of the system. One of the best ways to accomplish this is by working together more closely and increasing asset efficiencies.”

The largest consolidation event in 2006 was the takeover of Royster-Clark, Inc. by Agrium Retail, owners of Western Farm Service and Crop Pro­duction Services (CPS). The newly combined retailer boasts more than 400 outlets across the country and annual sales approaching $2 billion. More recently, No. 1-ranked CropLife 100 retailer United Agri Products (UAP) announced plans to acquire Louisiana-based Terral Agri­Service (ranked No. 86 on the 2005 CropLife 100 list) by year-end and No. 5 Agriliance formed an alliance with No. 53 Wilco Farmers.

Myriad Reasons Why

According to industry observers, there are several reasons why retailer consolidation has picked up during 2006. Tom Warner, vice president for CPS, says that higher working capital costs and expenses for items such as fuel have put added pressure on retailers to improve their business bottom lines. Coupled with this increased cost of doing business, L. Kenny Cordell, UAP president/CEO, blames a relatively lackluster performance for crop inputs in 2006 as a key driver in consolidation.

“For the past several years, the overall crop input business was growing 3% to 4% annually,” says Cordell. “But for 2006, it looks like the market will probably be down or flat, with fertilizer and crop protection sales off the most. True, seed sales will be up again, but most retailers aren’t in a position where this will help them much. To survive in this kind of environment, your company can’t be just a crop protection company, a fertilizer company, or a seed company. You have to be all three — which is why you look at consolidating with another company that gives you these kinds of market dynamics.”

More To Come

Looking forward, it appears the retail market is primed for more consolidations. “This is not merely a 1-, 2-, or 3-year trend,” says ABG’s Jackson. “We are in the midst of a reinvention of the retailer model. Many assets are out of position or inadequate when compared with logistics requirements and the needs of today’s grower-customers, particularly in the Midwest. Longer term, this presents an opportunity for the supply chain to become more efficient, better manage inventories, and provide more services with fewer locations that are more aligned with the evolving market.”

In part, says UAP’s Cordell, this last point is behind the thinking for his company’s consolidation strategy. “Before we make an acquisition, we do an analysis to see where our distribution system has gaps in its territory,” he says. “We then go out and try to find ways to plug these gaps through acquiring existing retailers in those areas.”

Even so, adds Cordell, retailer giants UAP and Agrium Retail only control approximately one-fifth of the total industry market share combined. “That leaves plenty of room for more companies to pool their resources using consolidation as the catalyst,” he says.

Jackson agrees that consolidation will continue. “If the biggest retailers are on a quest to fill market gaps, that will involve buying several medium-sized companies to do so,” he says. “That’s why I don’t see consolidation slowing down in the next few years, even if market economics significantly improve compared with 2006.”

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