The Changing Face of the Landscape Industry
Contractor Overview | Distribution Overview
Irrigation Overview | Size of the Market
Growth of the Market | Background | Forecast

 

 

The importance of the green industry to the economy of the United States is mind boggling. Here are some stunning statistics. We at Irrigation & Green Industry magazine have calculated our segment, i.e., landscape, turf care, irrigation, etc., of the market at $70 to $75 billion annually. Nursery Retailer magazine states that the overall volume in the garden and nursery classification is approximately $105 billion. The combined total that the industry generates is a staggering $180 billion plus annually.

Sales in our segment of the market were up 10% to 12% in 2004, and up between 3% to 4% in 2005, so in January 2006 when the market started off with a bang (although power equipment was still in hibernation) everyone was hoping for a very strong year.

As 2006 progressed, sales of power equipment did not take off as expected; however, irrigation continued to grow at a phenomenal rate. By July, in the height of the season, this pattern continued. In August, to generate some activity, power equipment manufacturers were offering special promotions. That helped move equipment, especially lawn mowers, while the irrigation segment of the market began to slow. By the end of September, distributors of irrigation components started to give back some of the gains. As we go to press (October) it looks like the year 2006 will end up with landscape and irrigation products up 8% to 15%, which includes the increased cost for material, and the power equipment segment will be from flat to down as much as 7%.

We’re seeing some major consolidation within the power equipment market. This is long overdue. The market cannot support all the brands, and consolidation will continue into 2007.

The green industry market is split between contractors who work in the commercial sector and those who concentrate their efforts in the residential area. Commercial property includes office parks, office buildings, shopping centers, etc. Also included in this segment are homeowner associations (HOA), condominiums, and residential apartment complexes.

The residential market encompasses all private residential homes and some very small apartment buildings, perhaps six or eight units. These markets continue to grow.

The commercial sector, however, has experienced some changes. In the past, a developer would submit an architectural plan to his local building and safety department and he would get the necessary plans to build. Today, in many parts of the country, it is mandatory that the developer submit plans for landscaping and irrigation for the project, along with the architectural plans.

If the landscape and irrigation plan does not meet the requirements set by that municipality, it will kick the plan back to the architect and landscape architect for a new design or a re-design.

Landscaping is not taken lightly by the various municipalities. They realize the importance of greenery; it helps cleanse the air, it helps generate oxygen, and equally as important, it beautifies the properties.

New housing has been a boom for the green industry. Although the market has slowed down substantially this year, new housing starts continue. Also, many homes are being renovated and landscapes updated.

As older homes continue to appreciate, investing in an updated landscape and installing irrigation systems becomes a smart move. Not only can homeowners enjoy their new landscape, it enhances the home’s value as well. This too has kept the landscape contractor busy.

The landscape industry is a mobile one. All of the work is done on the client’s site, so the landscape contractor has to move his material and equipment from site to site. He needs vehicles to move men and equipment. Although the diversification of vehicles varies, pickup trucks are the mainstay.

Landscape contractors work outdoors; they build the landscapes, mow the lawns and trim the shrubs on the client’s site, so when the weather is inclement, this industry shuts down. The weather pattern in many parts of the country has been changing. For the past number of years, rain in certain parts of the United States, particularly the Northeast and Midwest, has been lingering through May into June and sometimes into early July. It makes it difficult, if not impossible, to work outdoors.

As plants and trees grow larger and landscapes mature, the more valuable they become. With expenditure in the billions of dollars, property owners have to protect that investment, and that means proper watering. Over-watering or no watering will cause the plants to die, and replacing large, mature plants and trees is very costly.

Property owners have a tendency to over-water, to the consternation of the landscape contractor and the water purveyor. Water is an important factor in landscaping, and conserving this precious resource will play a more important role in the future.

The Changing Face of The Landscape Industry

New Challenges for the Landscape Industry

As the landscape industry becomes more complex, landscape contractors face new challenges. They realize that they need more than just technical skills to be successful. They must also possess the business skills that are integral to the success of any business. New technology and new techniques will change the image of the landscape contractor. Recently, the financial market and some investment groups began taking a closer look at our industry. We will see their influence shortly as they begin to take majority positions in landscape contracting companies.

In the next few years, the green industry will experience a flurry of activity.

Landscape companies are providing services today that were unheard of only a few years ago. Where there used to be separate maintenance firms, tree care companies, irrigation installation companies, etc., today, many landscape contracting companies perform all of these tasks and more. Their client base prefers to work with one company that provides full service and total care.

Although there are many companies that continue to specialize, such as in tree care, some of these specialty companies are now offering landscape-type services as well. Other companies that only worked on irrigation systems—installing and servicing them—are adding new services to their menu.

Lawn care companies that only applied fertilizer and chemicals to lawns are also realizing the need to diversify. Some have gone into maintenance; others are offering tree care services, a few have even added irrigation.

The defined line between lawn care companies and landscape contracting companies is becoming fuzzier each year. It won’t be long before all of these market niches fall under the heading of landscaping. Change is on the way, as more companies begin to diversify and develop into full-service operations.

Making the transition into the full-service arena is not always an easy one. However, the contractor soon realizes that by offering a broader menu of services, he can better serve his client’s needs. Add-on services will continue to expand opportunities for growth, resulting in increased revenue and additional profit to the bottom line.

There are a number of landscape contractors that only do maintenance. Some of these offer snow removal services in the winter. Larger firms that work on commercial properties will begin to acquire smaller companies, and this niche will eventually shrink down to a smaller number of firms that will dominate the market.

Contractor Overview

Many of the successful landscape companies operating today were started by their present owners. These first generation contractors built a solid business from the ground up. Some are now reaching retirement age and we're seeing the second generation, and in some cases the third generation, taking their places within their company.

Some of the larger landscape companies will be sold, mainly to private equity groups. You will see roll-ups, tuck-ins and acquisitions taking place. Private equity groups are looking to make investments in our markets.

In the past, most of the people who entered the landscape business started out working for an existing company. They learned the technical skills by performing in the field; they learned how to plant trees, shrubs, turf and they learned how to install lighting, irrigation, etc. There are still opportunities for the entrepreneur.

Because initial costs are low, it is relatively easy for a newcomer to start up in this business. New contractors feel that because their overhead costs are lower than established companies they can bid lower. Until they learn how to assess their overhead and know what their true costs are, estimating and bidding on projects will be on a hit-or-miss basis; so will their profit or loss.

When these start-ups begin to hire labor, they soon realize that there are additional costs of doing business. They must factor in the labor burden, insurance, taxes and general overhead. They need to develop business skills. If they can survive those first few years and learn the "business end of the business,” they will likely succeed. Generally, about 50% of these new start-ups fail within the first three years.

The landscape contractor is unique in the building trades. Plumbers, electricians, framers, carpenters, and plasterers have their one specialty, but to be a landscape contractor requires diversified skills in many areas. He crosses many disciplines. He has to have knowledge of trees and shrubs and know how they will fare in various exposures and climatic conditions. He needs to know about turf, which varieties will do best in what climates. He should know about weeds and disease and insect problems that can affect the turf, shrubs and trees, and how to treat them. He must have knowledge of flowers in the landscape, whether to plant annuals or perennials. He has to know about grading, hardscapes, waterscapes, softscapes. He should know about landscape lighting, drainage and irrigation.

As the landscape contractor's business grows, he begins to realize that landscape maintenance can play an important role in his business, for a number of reasons. As he bids on more expensive projects, clients will usually want the contractor to guarantee the plant material for a year. In order for the contractor to guarantee his work, he needs to maintain the property. If he doesn’t maintain it, how can he guarantee it?

Many contractors, as their business grows, structure their company into separate divisions. Starting with a construction division and a maintenance division, they expand to an irrigation division. Others will set up a tree care division; still others, a service division. Some contractors go so far as to keep separate profit and loss statements for each division. These profit centers add additional revenue and profits to the company's balance sheet.

Some landscape contractors have gone into the snow removal business in order to keep their key personnel through the winter season. Winterizing irrigation systems in many parts of the country is another area that generates additional revenue for the contractor. Recently, more landscape contractors have added hanging and removing holiday lights to their list of services.

Tree care is another growing area for the contractor.

Landscape lighting and water features have become increasingly popular, and provide an excellent source of additional revenue for the landscape contractor. In a relatively short span of time, landscape lighting has become a standard in extras the client wants. It extends the enjoyment of the landscape, as do water features. Water has a calming, soothing effect on people, and many homeowners are adding small water features to their landscape. Relatively easy to build and install, we believe that this will be the next growth area, as contractors expand their business.

Construction
Commercial projects are designed by landscape architects; they draw the plans and in many cases, they put the job out to bid. Landscape contractors who work in the commercial arena bid on these projects.

In the residential market, a number of landscape contractors not only build the landscape, they design it as well. While other landscape contractors working in this area may not be equipped to design, there is a new trend developing: there are a few new companies that only design landscapes. Landscape contractors can outsource this service. These firms create the designs and, when approved, they also draw the plans and submit them to the client. The landscape contractor then takes over, constructs the project, and in some cases, he also maintains it.

Maintenance
Basically, the maintenance contractor has a route and sets up crews to mow the lawns, trim the shrubs, clean the flower beds, and make sure the irrigation system is operating properly. This is usually done on a weekly basis.

Contracts are generally written for a period of one year and are billable monthly. That way, even if there is inclement weather one week and the crews did not work, the company will still get paid.

While construction design/build can be profitable, it is unpredictable. Maintenance helps to level out the contractor's peaks and valleys because it generates a steady monthly cash flow. Over the years, this has caused many contractors to do more maintenance than construction; some do maintenance exclusively.

Irrigation
Generally, the builder, developer, or homeowner prefers to work with a single contractor. They don't like the idea of having one contractor install the irrigation, and then another install the landscape. The fewer people clients have to deal with, the better they like it. Understanding this mindset, the contractor recognizes the importance of installing irrigation systems—he realizes how much money he will leave on the table if he doesn’t. Replacing sprinkler heads or risers is a simple task. In the past, when a landscape contractor's worker broke a sprinkler at a client's facility, he would call in an irrigation contractor to replace or repair it. Not only was this an additional expense, he could not control that this would be done in a timely manner. With someone on his staff able to handle irrigation, the repair could be made on the spot.

In the colder areas of the country, it is necessary to winterize irrigation systems. The contractor who offers this service to his customer fulfills the client’s need and also adds an additional profit center to his company's bottom line. Clients like the idea of having someone checking their irrigation system periodically to ensure that it is in good working condition.

Snow Removal
In those parts of the country where there is snow and cold weather, landscape contractors used to close their business for the winter and not open again until the spring. They would lay off most of their personnel. However, some companies would agonize over losing their key people, so they would keep them on and find odd jobs to keep them busy. Otherwise, when crews are laid off, they will seek other employment and may not return in the spring. Each year, landscape contractors have to refill their labor ranks.

Several years ago, a few contractors ventured into offering snow removal. This had a two-fold purpose: it allowed the contractor to keep his crews onboard all year long, and, equally as important, it generated additional revenue. Some contractors use their existing equipment, including riding lawn mowers with snow apparatus attachments, or pickup trucks with attachments, and offer this service to their clients. Still others have made investments in heavy-duty commercial snow clearing equipment.

Snow removal complements the landscape business; they dovetail into one another from a time point of view, and the labor pool is already in place. When the crews are clearing snow, there are no lawns to mow, and when they're mowing lawns, there is no snow to remove. "Pushing snow" really makes the difference for many companies. This add-on service center has experienced tremendous growth over recent years. It generates revenue and keeps the crews working all year long.

Landscape Lighting
For the past twenty-five years, the demand for landscape lighting has grown at a very quick pace. Many landscape contractors who design and build landscapes almost always offer the client landscape lighting for an additional charge. Even if the client has not allocated funds for landscape lighting in their initial plan, smart contractors will install conduit while building out the project, to allow for landscape lighting at a future date. Contractors realize that somewhere down the line, this client will probably want to have lighting. By installing the conduit at the time of construction, lighting can easily be added when the client has more spendable dollars.

Waterscapes
One of the reasons ponds, waterfalls, and water treatments have been growing in popularity is because they have a calming, soothing effect on people. Many office buildings include water features as part of their landscaping, to make these projects more attractive and, therefore, easier to lease.

Technology developed only a few years ago has made ponds and waterscapes very affordable. As more homeowners discover how inexpensive it is to add small water features to their landscapes, this relatively easy-to-build and install segment is growing at a rapid pace. Ponds and water features add another dimension to the landscape contractors' repertoire. The fastest growing niche in this market, especially in the residential area, is pond-less or pond-free water features. We believe waterscapes will be the next growth area.

Holiday Lights
Many homeowners love to have their homes decorated with lights for the holidays, but they don't like the arduous job of putting them up and then taking them down after the holidays. Although there have been a few companies that have been hanging holiday lights for a number of years, they have stayed quite small because it is such a seasonal business. In recent years, this service is beginning to catch on with the public.

This is a 100-day business, October, November, and December. It is an excellent source of additional revenue, and does not compete with your crew's time. It's an easy start-up because the contractor can begin by using his current customer base.

Hydroseeding
Hydroseeding has always been a little niche in the landscape arsenal, though there are some contractors who specialize in this area. A machine mixes mulch with fertilizer and seed, and then blows it out under pressure. Hydroseeding is an excellent process for seeding hillsides, and it is used by some builders to plant lawns, since it is less expensive than sodding. Some contractors call themselves “hydroplanters,” and specialize in quality turfgrass installations.

Tree Care
As tree care companies continue to merge and consolidate, landscape companies are finding it more difficult to get their clients' tree work done in a timely manner. More and more landscape contracting companies are setting up their own tree care division, usually starting off with a small, two- or three-man crew, and growing it as the need arises. Some companies now offer tree care services to other landscape contractors as well. With the recent major infestations of insects on trees, this is a perfect opportunity to take care of your client's trees. Many of these infestations can be treated with micro- or macro-injection, requiring few tools, and the work is usually done from the ground.

Additional Services
There is a growing demand for fertigation, water management and landscape lighting services. The company or division that offers this service would have clients under an annual contract, visiting the client's site four or five times a year, checking out the irrigation system, adjusting the sprinkler heads, etc. If the client has a fertigation unit, the fertilizer bottle would be replaced, and the landscape lighting would also be checked. If a bulb needs to be replaced, it would be done at that time. Although some contractors in the cold weather states do winterizing, this takes it a step further. By adding more visits, fertigation and light bulb replacement, a great opportunity arises for a service that does not now exist.

Distribution Overview

The distribution of landscape products, irrigation components, and nursery products is also changing. In the past, landscape contractors would go to nurseries to buy their plant material, and to chemical supply stores to purchase their fertilizer and chemicals. Some of these stores would also sell small sprayers or hand trucks, and some would carry hand tools. Contractors would then go to irrigation supply stores to purchase their irrigation components. Now irrigation supply stores also sell landscape lighting and components for water features. Some irrigation supply stores also carry landscape supplies, chemicals and fertilizer.

John Deere Landscapes, with a chain of approximately 315 stores, services landscape contractors and municipalities, as well as golf courses. They sell irrigation components, landscape lighting, and some waterscape products. In addition, some stores also sell nursery stock and plant material.

The Ewing Irrigation chain, with approximately 180 locations, sells fertilizer, chemicals and other landscape products. They also stock irrigation components, landscape lighting, waterscape components and soil erosion control products.

Over the past few years, some local distribution stores have been expanding. Today, companies such as Central Irrigation, Atlantic Irrigation, Florida Irrigation Supply and Horizon, which are regional in scope, operate from 10 to 58 units and continue to grow.

Horizon began as a local Southwestern distributor of irrigation products with two stores. It eventually grew to six, and then merged with Automatic Rain, with stores in Northern California. They grew to 34 locations. SPC Pool Corporation (POOL NASDAQ) purchased Horizon in 2005, and recently purchased the 14 Wickham Supply stores based in Dallas, Texas and WaterZone in South Texas, with five stores. SPC Pool Corporation, under the Horizon banner, now boasts 53 stores and will continue to look for acquisitions.

Meanwhile, in the East, Central Irrigation Supply, headquartered in Elmsford, New York, has grown to 19 stores, and Atlantic Irrigation based in North White Plains, New York, has 16 units.

These chains are beginning to dominate the market. They also have an interesting mix—all of them sell irrigation components and landscape lighting fixtures. Some sell waterscape products; others also sell landscape supplies, chemicals, fertilizer, etc. Still others have added power equipment to their inventory and sell lawn mowers as well.

Cleveland, Ohio-based LESCO has been opening what they call ‘service centers’ at a very aggressive pace. These are stand-alone buildings where contractors can go to buy fertilizer, chemicals, seed, etc. Many of these service centers are drive-thru stores, also featuring floor models of the smaller type lawn mowers. There are currently 327 of these stores throughout the country.

In addition, LESCO has a fleet of trucks, which they call “Store on Wheels.” They carry an inventory of sprinkler parts, chemicals, surfactants, fertilizer, etc. Each vehicle has a designated route, calling on golf courses and filling in what is needed from their truck. They also take orders for delivery of fertilizer and chemicals.

Equipment, i.e., lawn mowers, skid steer loaders, small trenchers etc., are sold through a distributor and dealer network. Most of these dealers carry a few different brands; they call on municipalities, school districts, and golf courses, as well as the landscape contractor. However, look for more power equipment to be sold through the above mentioned outlets.

Plant material is grown at a nursery. In some areas of the country, these nurseries cater to and sell to the landscape contractor. In other parts of the country, plant material is sold through brokers. A broker buys plant material from various growing nurseries, gathers them in one place and offers the contractor a wide selection of plants.

The one-stop shop concept continues to evolve. Landscape contractors realize the cost of sending a truck all over town to pick up various supplies takes time and is very costly, especially at today's fuel prices. Where offered, even on a limited basis, one-stop shopping is being well received and growing.

E-commerce sites for this industry are still slow to grow.

Irrigation Overview

The irrigation market, it is broken into three major segments.

• Landscape (Commercial, residential, turf, golf courses, parks and recreation, school campuses, etc.)
• Agriculture
• Retail (mass merchandisers, Do-It-Yourself (DIY) market

POWER EQUIPMENT There was a greater variety of competitive brand names of lawn mowers in the commercial market than it could absorb, so it was only a matter of time before consolidation began. This year, we've seen three such roll-ups and expect to see even more in the future. The cost of materials has increased, but some of these increases have not yet filtered down to the contractor. However, sales are still down from last year by as much as 9%. Lawn mower sales have not kept pace with other segments of the landscape industry. Mini skid steer loaders are still relatively new, and that market will continue to grow, while the mini excavator is just beginning to show up in our markets. These labor-saving units will pay for themselves in a relatively short time; however, getting the contractor to accept these units will take time. These two pieces of equipment offer exciting opportunities. We estimate total sales of power equipment (lawn mowers, aerators, edgers, mini skid loaders, etc.) will be in the $20 to $22 billion range annually. This figure is broken down in the following manner: $7.5 billion for small commercial and residential equipment, $6 to $7.4 billion commercial sales, including golf. Parts are estimated at $3.5 to $4 billion. The balance of the sales is to government agencies, municipalities, cities, etc. We estimate sales of mini skid steer loaders and mini excavators to be in the $55 to $70 million range annually.

Size of the Market

There are approximately 42,000 landscape contracting firms in the United States, from a two-person operation to a company that employs 9,000. Some of these do construction/build and landscape maintenance, others provide only landscape maintenance; a few specialize in hydroseeding, irrigation, tree care, etc. However, many landscape contracting companies offer some, if not all, of these services. Other contractors also offer snow removal and holiday lighting installation.

As closely as we can determine, approximately 30% of these firms are affiliated with one or more of the professional trade associations, either on a national, regional, or state level. They attend trade shows and conventions held around the country. These organizations offer educational as well as business seminars.

There are also approximately 4,500 lawn care companies. These companies generally concentrate in the residential market, visiting the client’s home four times a year to do a chemical application. In addition, they offer weed, insect and disease controls, and some of them also make seeding applications. Like the landscape contractor, more and more of these companies are beginning to realize the limitations of their markets, and are starting to diversify. Some offer their clients mowing services, others offer tree care, and some do irrigation repair. As more of these lawn care companies begin to provide additional services, the line between lawn care and landscape maintenance is not as clearly defined as it once was.

Although there are many people in the gardening business, it is impossible to determine exactly how many. Gardeners go to residential homes and offer mowing services, clean-ups, cleaning of flower beds, etc. They operate from their homes; some use pickup trucks, some use automobiles towing a small trailer with equipment from jobsite to jobsite. Most have a limited amount of equipment, i.e., a lawn mower or two, a backpack blower, rakes and shovels. Some will occasionally change out color, and repair irrigation sprinklers for their customers.

They are not factored into our figures because they are difficult to track. They are not affiliated with any trade group; they don't attend trade shows, and what supplies they buy (fertilizer, plant material, sprinkler heads), they get from their favorite retail garden center or mass merchandiser. Even the lawn mowers they buy are generally purchased from a retail lawn mower store.

Growth of the Market

The outlook for our industry looks good, certainly for the next few years. Housing starts have slowed, but builders will continue to build, and commercial properties are still being developed and built, so the demand for landscaping and irrigation will continue to be on the rise. The largest population growth will be in the Sunbelt and Western states.

As more acreage is devoted to new housing, the demand for our services and products will continue to increase. Of concern is how our industry will grow to handle this added business.

One answer is that there are a substantial number of landscape companies that continue to expand each year. Only a few years ago, there were relatively few companies doing an annual volume in excess of $5 million. These numbers have increased more than five-fold. There are more than a dozen companies now doing close to $100 million annually. One company does in excess of $750 million and another is at the $500 million annual mark. More companies are coming up in the $50 million to $80 million range. We look to these companies to fill the demand.

Another area of growth is new start-ups. A few years ago, a survey was taken which revealed that there are approximately 13,000 start-ups each year. At least 50% of these don't survive the third year. The net result is that we gain approximately 6,000 new companies annually.

With the new start-ups and the expansion of the many companies around the country, the landscape industry is more robust than ever. We estimate the total market to be between $70 billion and $75 billion annually. This includes landscape construction/ build, landscape maintenance, irrigation installation and repairs, landscape lighting, water features, power equipment, nursery supplies, fertilizer, chemicals, etc.

It does not include the mass merchandisers. Most manufacturers who sell to the big box stores claim to make a different product line. Although we don't track the do-it-yourself market, from garden centers to big box stores—sales of nursery products, lawn mowers, power equipment, irrgation equipment—our best educated guess is that this segment of the market does approximately $105 billion annually.

Background

The purpose of this report is to fulfill our goal of disseminating accurate information. To this end, as we approach the fourth quarter of each year, we do an extensive telephone survey of manufacturers and suppliers of power equipment, irrigation components, and peripheral equipment to get their input. We speak with owners and management of manufacturing companies and distribution companies, as well as landscape contractors.

Throughout the year, we are constantly in touch with these owners, executives, and many other individuals key to the industry. We promise confidentiality and ask them for figures, percentages, etc. These top executives are quite frank in talking with us, since they know we won't betray their confidence. Knowing they won't be quoted by name or company, it's easier to get accurate information. By maintaining the integrity of the information and keeping our finger on the pulse of the industry, we are able to present you with this informative report.

Forecast

Trying to forecast sales for next year is difficult. There are always caveats, like weather, natural catastrophies and such. Speaking with executives in manufacturing and distribution, as well as to the landscape contractor, helps us make a somewhat intelligent prediction.

Irrigation & Green Industry projects sales for the industry will be up for the year 2006. We're forecasting an overall increase of 5% to 10%.