Top Of Mind: Consolidation
During interviews with the CropLife editors for the State of the Industry report, retailers expressed several business concerns. One of those was the ongoing challenge to rightsize their service areas.
For much of the early 2000s, ag retail consolidation moved along at a fairly brisk pace. According to data compiled in its annual CropLife 100 retailer survey, CropLife magazine found that an average of six ag retailers disappeared from the CropLife 100 listings each year between 2000 and 2007.
During the boom years of 2007 and 2008 this slowed to a crawl, but still there were significant mergers. This included No. 1 ag retailer Agrium Retail purchasing then No. 7 Royster-Clark and then No. 2 United Agri Products, which resulted in a significant reduction in the number of retail locations operated by CropLife 100 retailers that were either closed or spun off. By the end of 2008, the number of retail outlets under the control of organizations in the CropLife 100 had fallen from 3,418 to 3,064, a drop of 354 locations.
Given the uneven market conditions that dominated late 2008 and the whole of 2009, conventional wisdom would have been that many more ag retailers would be swallowed up by larger rivals or neighbors because of unhealthy bottom lines. Yet, a funny thing happened — the number of total outlets represented within the CropLife 100 grew by 215, to 3,280. Two things seemed to be happening: CropLife 100 retailers, traditionally larger and better financed than smaller competitors, bought competition from outside the list; and mergers of equals made two mid-range retail organizations that much larger.
The question now is this: In which direction will consolidations head in a hard-to-predict 2010, up or down? Opinions are varied.
According to Dan Kennedy, general manager for Ritter Crop Services, Marked Tree, AR, consolidation should pick back up in 2010.
“The average cost of inputs today is much higher than it was five years ago, so retailers will have bigger sales,” Kennedy says. “But it will cost more to buy these inputs at the retail level, so retailers will need to increase their credit lines to get them, which increases their risk. With all this in mind, I think the smaller companies are bound to disappear or merge as their cost pressures get too great.”
Brent Sutton, president and general manager for Growers Fertilizer Inc., Lake Alfred, FL, agrees. “Volume is the key in this business and some of the large national companies want to be the biggest,” Sutton says. “So they’re going to continue to gobble up some of the smaller guys.”
However, another group of retailers isn’t so certain consolidation will be a big trend in 2010. “In our trade territory, we are pretty much as spread out and small as we can be and still deliver products to customers,” says Roger Gordon, general manager for Grainland Coop, Holyoke, CO. “I don’t see an opportunity for consolidation to continue where we are located.”