Retailers, like growers, are at some level slaves to factors they can’t control, most notably the weather. Given this reality, the retailer’s base business plan could be summarized by a single statement: “Control What You Can.”
The 2008 and 2009 season have shown us what happens when even this simple adage doesn’t deliver, and retailers expressed their anxiety in an electronic survey conducted by CropLife® magazine.
The e-mail survey, conducted in October, was designed to take a quick pulse of the retail manager’s perspective on current threats and opportunities to their business. Respondents were asked to rank 20 threats and 20 opportunities on a 1 to 5 scale, where 5 would indicate a major threat or a major opportunity.
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In 2003, this same “threats and opportunities” survey, in a much more in-depth format, was conducted by Purdue University using the identical list of opportunities and challenges, which we included for each statement in the chart.
The Biggest Threats
Clearly, the threat of competition for business from two fronts — direct sale from manufacturers to growers, and broker sales of inputs from cash-and carry-retailers — have risen in the minds of retailers. And access to quality employees, while not ranking as high on the average score, was mentioned second most often as a “major threat."
On the opportunity side, precision agriculture practices, including precision application, have risen significantly. Sales of seed, forging partnerships with manufacturers, and selling private-label products continue to round out the top 5 as they did in 2003. Retailers are working hard to control what they can.
Top Of Mind: Consolidation, People
Independent of the survey, retailer interviews conducted for this report and information gleaned from the CropLife 100 research highlighted two concerns discussed by retailers: Rightsizing service areas and employee recruitment and retention.
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 upby 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,” says Kennedy. “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,” says Sutton. “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.”
Over the years, a continuing concern among ag retailers has been finding and keeping quality employees. During 2009, as the general economy tanked and many workers found themselves without jobs, some ag retailers say it is easier to find employees.
“We’ve got a policy here: If the right person comes along, we’ll hire them whether or not we’ve got a job for them,” says Tim McArdle, executive vice president and chief operating officer for Brandt Consolidated, Springfield, IL. “With these kinds of workers, we don’t want to lose the opportunity to keep them.”