Forecast for 2006
When the cost of doing business took an unexpected spike following Hurricane Katrina, many businesses saw their profits sink in the final quarter of 2005. Even as they scrambled to adjust prices to compensate for the increase, it wasn't enough to recover the profits they had projected based on revenues seen during the first nine months of the year. And while fuel prices have come down from what they were during the manic period a few months ago, they are still bouncing up and down in a manner almost impossible to predict. The only certain factor is that you need to be able to account for those prices as you plan for the coming year. Not only that, you probably are looking to increase profitability in 2006 by a margin that will help you recapture some of what you may have lost in 2005.
With that in mind, we put together a guide to help you plan. Included: Research on economic indicators for the coming year, as well as planning advice from industry experts. While the forecast doesn't factor in anomalies such as natural disasters that can drive up prices, it does provide market indicators to help you determine costs and realistic expectations for the growth in the coming year.
Growth in the green industry has been consistent — even the leaner economic times of a few years ago. One reason for this is the strong growth in the building market, fueled by lower interest rates. More developed properties means more landscapes for you to take care of. However, while the housing market will continue to grow in 2006, it won't continue at the same pace as in 2005, according to Jim Lucy, chief editor of Electrical Wholesaling magazine. “Buoyed by low mortgage rates and red-hot customer demand, the housing market again confounded the experts in 2005, beating forecasters' estimates for 10 years in a row, according to Maury Harris, chief economist and managing director, USB Investment Banks, New York.” Lucy says. “David Seiders, the National Association of Home Builder's (NAHB) chief economist, is forecasting a decline in total housing starts from 2.032 million this year to 1.94 million in 2006, and a further drop to 1.883 million in 2007.”
Lucy adds that the housing market's remarkable run over the past decade has raised a few red flags at the Federal Reserve Bank. Fed Chairman Alan Greenspan has said speculation and “exotic financing options” such as some of the new adjustable mortgages are fueling a housing bubble that can't continue. However, the economists at the NAHB Fall Construction Conference believe the market can maintain a more reasonable level of activity over the next few years.”
Lucy says the economists are basing the optimism on three indicators: mortgage rates are still low, inflation is manageable and employment is healthy. However, David Wyss, chief economist, Standard and Poors, New York, is concerned about the increasing potential for rising costs of oil. “His concerns were fueled in part by the damage that the Gulf Coast storms did to oil refineries in Texas and Louisiana,” Lucy says. “…The United States has not built a new refinery since 1976, [so] its capacity to refine oil was already stretched thin before the storms. While most of the refining capability is back, 20 percent of the Gulf Coast refineries were knocked out by Hurricanes Katrina and Rita.”
Meanwhile, the 2006 building market looks strong and is poised for growth. “Despite fears of rising materials costs, housing bubbles and future oil costs, economists … are looking forward to a healthy construction market in 2006,” Lucy says.
Another economic indicator for the green industry is consumer confidence and how much disposable income consumers have to spend on things such as landscaping services and golf. Consumer confidence has remained moderately positive the past few years, but economists warn that as interest rates rise and energy costs escalate, that confidence could diminish. And while the Baby Boomers who are beginning to retire have more disposable income and have demonstrated their willingness to spend on professional landscaping services and golf, their attitudes will be impacted by interest rates and higher costs. Rising oil prices don't just affect you at the pump, either. We can look for higher fuel costs to trigger an increase in the cost of natural gas and electricity, as well.
Golf-specific economic indicators are not predicting large growth, either. Based on the National Golf Foundation's recent annual sounding of golf participation, the total number of adult golfers dropped 3.9 percent, from 28.4 million in 2003 to 27.3 million in 2004 (the most recent year for which they have information). The number of core golfers — those playing at least eight annual rounds — was 12.8 million in 2004. That's 4.7 percent lower than the 13.4 million recorded in 2003.
“The number of core golfers has been essentially flat for the past four years,” says NGF president Joe Beditz. “Given the statistical margin of error around these numbers, we don't put too much emphasis on one-year variations in participation. What we can say is that the number of core golfers is more than is was 10 years ago, but less than five years ago.”
NGF focuses on core golfers because, while they represent 47 percent of total golfers, they account for 91 percent of rounds played and 87 percent of golf-related spending. The number of junior golfers ages 12-17 increased from 2.5 million in 2003 to 2.9 million in 2004. And the number of total golfers ages 12 and above dropped from 30.9 to 30.2 million.
However, same-store rounds played were up 0.6 percent in the month of October 2005 vs. October 2004. Rounds have been in positive territory for four of the last six months, bringing the year-to-date figure through October to -0.5 percent. October data was reported by 1,813 golf facility operators across the United States. (Same-store rounds represent only facilities reporting rounds for both October 2005 and October 2004.)
Tom Marzolf, president of the American Society of Golf Course Architects (ASGCA), says that golf course managers should look to costs as they plan for '06. With more golf courses considering renovation, golf course decision-makers need to think carefully about recurring costs of their infrastructure. “Golf courses evolve — in a sense, live and breathe — so course managers are wise to consider the ‘life cycle’ of their golf course, paying particular attention to recurring costs of items like irrigation, drainage and bunker sand,” explains Marzolf. “These items have specific life expectancies, which enables managers to plan ahead. Doing so improves the golf course and can even save money in the long run, especially if it's done in the context of long-range master planning
“Golf clubs have responded to competitive pressure in the marketplace, changes in clientele and technological advances, and successful golf course managers have elected to remodel their facilities,” he continues. “However, as they examine these issues, they also need to consider the functionality of the layout: how water drains, bunkers perform and cart paths hold up are essential to the long-term success of a golf facility.”
Overall, the outlook for growth in all segments of the green industry exists, but is being joined by higher costs, calling for the smart green industry professional to raise prices in 2006. Look for your peers to continue their trend of offering one-stop shopping to clients through add-on services. More than ever, landscape contractors are providing services that were once unheard of. Instead of specializing in only irrigation installation or tree care, for example, many companies now offer these services in addition to grounds care.
Now that you have a picture of overall economic indicators for 2006, see what industry experts are predicting. In the next section, they weigh-in on topics such as what your challenges will be in the coming year, what the market expectations are and how you should plan for it.
Dan Carrothers, director
Chipco Professional Products
Bayer Environmental Science
Research Triangle Park, N.C.
Planning advice: Current demographics are playing in favor of the lawn care, sports turf and golf industries. As Baby Boomers age and disposable income for subsequent generations increases, people have more time for golf and organized sports. They also spend more money on professional lawn care.
At the same time, operating expenses for these industries are driven by fuel and labor costs, which are steadily rising. If they don't find ways to grow and increase revenue, they will find themselves languishing. One way lawn care companies could do this is by developing more add-on services for combined efficiencies, such as fungicide applications, tree care and fire ant control in the South.
The golf and sports turf industries could consider ways to combine jobs. For example, they may want use more chemical premixes … to save time and labor. Attracting people to golf courses will also be a key consideration, requiring more creative approaches from golf management in the future. All three industries may want to put more emphasis on public relations in 2006.
Trends: As home ownership continues to grow, demographics also play a role in presenting opportunities for the lawn care market. People are selecting the jobs they like to do, such as flower gardening, and hiring firms for mowing, chemical applications and shrub and tree care.
Golf memberships are on the increase, but actual play is down, due to super-busy lifestyles. Golf courses may want to consider ramping up marketing efforts to provide more family outings, include children in golf activities and lure retirees back to the course.
As for sports turf, NASCAR infields have never looked better! This sport has become wildly popular and it's a great opportunity to show off superior turf management. On the other hand, community sports, including soccer, lacrosse, football and baseball, are continually gaining in popularity, as parents seek more ways to keep their children involved.
People are the most important asset to all three industries and proper training in turf maintenance is more important than ever.
Concerns and challenges: Turf managers are wondering what kind of restrictions will be imposed on their industries in the coming years. Environmental concerns leading to government regulations are a foremost issue. Turf professionals could consider being more proactive in protecting their livelihood and mindful about maintaining a positive message for the industry.
Programs such as Project Evergreen are an excellent way to participate on both local and national levels. It's not hard to do little things like renovating community sports fields and donating time and expertise to local and regional associations.
We all may want to be careful not to take the industry for granted. Don't assume that when you wake up Monday morning, you're going to have the same ability to go out and do what you've been doing for the last 10 years. There's a stewardship component to keeping the green industry vital and everyone can play a role.
Gregg Zupancic, product marketing manager
Skid Steers/Compact Track Loaders
Economy: There is some concern that higher interest rates and higher oil prices will drag down consumer spending in 2006; however, economic expansion is expected to continue in the United States through 2006. Several powerful factors are still in place that will continue to fuel skid steer and compact track loader sales, including historically low long-term interest rates, which have been fueling housing starts and small business growth.
Market: The skid steer and compact track loader markets were strong once again in 2005. The 2006 outlook continues to look positive. Skid steer sales are projected to be up slightly and the compact track loader market is expected to see significant growth due to more competitors entering the business. This is good for the consumers because the newer players have designed their machines with the latest innovations in technology increasing Productivity and uptime at a lower daily operating cost. The additional competition to the CTL market will also provide a wider selection for consumers to choose while at the same time ensuring competitive pricing within the market throughout 2006.
Planning advice: While energy costs have receded somewhat from panic-driven prices earlier in September 2005, they remain at historically high levels and will continue to impact manufacturing operating costs moving forward. In many cases these higher operating costs could be passed on to the consumer in the form of higher retail prices early in 2006. The key variable would be volumes. If the economy continues to grow and strengthen, so will light utility equipment purchases. The producers of this equipment will be able to offset higher operating costs by leveraging advantages of volume and consumers would then not necessarily bare the entire burden. The best advice is to consider making any purchasing decisions as early in the year as possible to avoid the potential of higher sticker prices and reap the benefits of historically low rate financing packages.
Bob Walker, president
Walker Manufacturing Co.
Fort Collins, Colo.
Trends: It appears to us the growth rate will slow down a little for 2006. As an equipment supplier, we are seeing our sales a little slower than last year at this time and we think this reflects some moderation in the landscape industry that could well extend into next year.
Concerns and challenges: When setting pricing for 2006, it will be important to watch variable costs, such as energy and insurances, which have been unstable and rising in the last few months. Concerning fuel costs, there are two points: (1) New equipment with fuel-injection engines or diesel engines will definitely save fuel compared to older equipment with old technology engines, and with higher fuel costs, the payback on investing in new equipment is accelerated; and (2) for fuel economy, make sure the equipment is efficient for the job. For example, the trend of mowing fast (ground speed) with a big machine with lots of power may be wasting both fuel and labor for many applications with lots of maneuvering and trimming. A smaller, less powerful, slower-driving but more agile mower may do the job for many landscaped properties with a nice cost savings in both fuel and labor.
Planning advice: Pricing for next year should factor in costs that will be more like the end of 2005 than earlier. For planning purposes, we should not count on energy costs or other costs going down, although some of that may happen. If your costs seem to keep spiraling upward, you may consider downsizing as a strategy to bring profitability back into the company. Other companies have done this and have ended up handling less money but putting more in their pocket. Some of these accounts are pretty dramatic where a company reduced to ½ size or more and ended up making more money, which goes to show that volume of business is not always the “golden nugget” to a better opportunity.
Gregg Breningmeyer, director
Commercial Segment Marketing
John Deere Commercial & Consumer Equipment Division
Trends: Productivity will continue to be the biggest focus for landscape contractors, but in 2006 we'll see a broader definition of what impacts productivity. Increasing fuel prices, for example, have forced many landscaping business owners to look for savings in their equipment purchase and maintenance budgets. Many are leveraging purchases through fleet or multi-unit discounts … or paying a higher initial price for equipment that is more fuel efficient and easier to maintain over the long run.
Another trend among landscape contractors last year was diversification, and I believe we'll see even more in 2006. After building a strong relationship and service record with their customers, it only makes sense that contractors would acquire the necessary equipment and expert labor to provide them with additional services. Construction, chemical lawn care, irrigation and tree services will continue to provide additional revenue opportunities for the landscape contractor.
Market: All indicators point to continued growth on the professional landscaping side, but not to the extent of what we've had over the last few years. Certain demographic trends will remain in the industry's favor, however, such as record-high home ownership rates, rising per-capita income and the swell of retiring Baby Boomers on the way. More people will be in the position of hiring professionals to maintain their property, so assuming contractors can respond to internal cost-based concerns such as health insurance and higher fuel prices, we should see a steady 5 to 10 percent annual growth through 2010.
Planning advice: There is no question that the cost of doing business will continue to increase, so make a concrete plan to deal with rising overhead expenses. Identify three areas where you will offset these costs through improved efficiency in 2006. Are you leveraging your current customer relationships for referrals and add-on services? Are you using the most productive equipment and processes available, and will this also help you lower your annual equipment maintenance costs?
Customers across all markets are looking for higher value, so professional landscape contractors must also examine their own value propositions. Do you provide a commodity (short grass) that can be easily replaced, or do you provide a service (premium lawn care) that your customers really appreciate?
For some contractors, increasing their value proposition may involve providing add-on services, while others may concentrate on a few core strengths. Whatever you bring to the table, make sure it's being effectively communicated to the customer.
Hand-held power equipment
Mike Nichols, vice president of Marketing and Business Development
Planning advice: In regards to your in-house mechanics: Today's leaner burning 2-stroke and hybrid engines are designed and built for dramatically lower emission levels, and are simply not as forgiving as the older, pre-EPA/CARB units. For that reason, the concept of basic maintenance has become vitally important in prolonging the life of today's high-performance equipment including blowers, trimmers, lawn edgers, hedge trimmers, etc. Whether it's periodically cleaning the air and fuel filters, changing the spark plug, or strictly adhering to the manufacturer's gas and oil recommendations, simply performing basic preventive maintenance techniques (as provided in the owner's manuals) will help keep units in tip-top shape. Equipment with a steady diet of quality maintenance will operate stronger, have greater durability and overall engine life, but will also have the added benefits of greater fuel economy and lower emissions.
Concerns and challenges: As blowers have become much more popular (and powerful) with contractors, complaints by some homeowners have prompted regulations related to sound levels produced by the blower or limitations for the hours or days of use. These types of regulations, when they occur, are implemented by local municipalities and can vary greatly as to the requirements of the noise ordinance. However, most blower complaints can be mitigated through operator training. Shindaiwa and other blower manufacturers are actively working with local municipalities when blower noise complaints occur to develop responsible operator training programs. These training programs have been successful in reducing and sometimes eliminating blower noise issues.
The rising cost of gasoline is also a concern and challenge for contractors. To help offset the higher operating costs, contractors should seek handheld equipment offering improved fuel economy.
Economy: A leading indicator of success in the outdoor power equipment industry is new home starts. Although the number of new homes constructed in late 2005 has slowed significantly (mostly because of the slightly higher interest rates) we believe the tremendous building boom from the last two to three years coupled with a better employment outlook will modestly boost the OPE industry and the U.S. economy as a whole. Indeed, the ongoing economic recovery from the previous bear market and a continued fast pace for new home starts should improve the short-term and long-term economic outlook. In other words, we see moderate growth for the industry in 2006 and over the next few years.
Mike Rivers, director
Trends: One of the most significant trends in the landscape irrigation market is the focus on water efficient products, particularly “smart” controllers. This will surely continue in to 2006 and will have a major impact on the industry over the next several years. At Rain Bird, we are focusing our new product development efforts on technologies that are consistent with our philosophy of “The Intelligent Use of Water.” We believe this is critical to ensure that we are offering the products that are most efficient and effective at managing our precious water resources.
Concerns and challenges: A concern for 2006 is the inflation that is growing in both our industry and the greater economy. In 2005, prices of most landscape irrigation products increased for the first time in several years. Natural disasters, like hurricane Katrina, greatly impacted raw material prices that were already sharply increasing. Raw material prices will likely continue to increase in 2006, putting added pressure on product pricing in our industry.
An additional concern is the need to better manage our finite water resources. Increasingly, where water is scarce, regulations and restrictions are implemented to limit the amount of water used in landscape irrigation. Rather than being viewed as part of the problem, we need to position ourselves as the solution to this issue. We need to champion good design, installation and maintenance practices and move the market to products that are much more efficient. This is key to the long term success and viability of our industry.
Planning advice: In 2005, we saw significant price increases in landscape irrigation products for the first time in years. In addition, the apparent slowing in the housing market suggests that growth may not come as easily as it has in the last few years. Successful contractors will be the ones who are able to make adjustments to their businesses to accommodate this inflation and still remain competitive.
Also, there are a lot of new and exciting products that are being introduced into the landscape irrigation market. Take advantage of opportunities to learn about new technologies and find ways to integrate them into your product portfolio. This will help you differentiate yourself by offering high value, water efficient products and will give you an opportunity to add more to your bottom line.
Dave Nelson, executive director
Oregon Seed Council
Planning advice: The best advice for turf managers remains: Start with quality seed and plant the right species for the appropriate use (i.e: wear, shade, drought tolerance). This will reap rewards in customer satisfaction and ease of maintenance as time goes on. Read the seed analysis tag on each seed bag or package for purity, germination, and seed origin. Grass seed grown in Oregon is produced by full-time professional growers who care as much about how their product performs as the lawn care professionals who manage it.
Trends: Over the years, grass seed research and development has given us darker, lower-growing, finer-bladed cultivars with improved disease resistance. With emphasis now on water quality and availability, developing varieties with salt tolerance for use with reclaimed water irrigation has become a focal point for seed breeders. Salt tolerant varieties are now on the market, with more to be released in the near future.
The fine fescue “dunes look” is growing in favor with landscapers as well as golf course designers. The drought resistance and low-maintenance traits of fine fescue make it a popular landscape feature along the southern California coast where it cascades down banks and slopes, lines parkways, and flourishes in golf course roughs, needing minimal fertilization and mowing — once a year or less.
Turf managers and superintendents in the transition zone are replacing bermudagrass with more cold tolerant tall fescue. With its inherent heat and drought tolerance, tall fescue is a practical replacement without the tangling and runner nuisance of bermuda.
Market: Place cool-season grass seed orders early from a reliable supplier. The 2005 Oregon seed crop produced marginally adequate supplies of most species, however spot shortages may occur in the spring. Fine fescue suffered a bit from untimely rains, and is in shorter supply than previous years.
Patrick Maguire, president
Trends: For those in the athletic field design and construction business, 2005 will be looked back on as the “good old times.” I expect the coming year will also be remembered with similar fondness.
As more communities and institutions recognize the need to improve their parks and athletic facilities in order to satisfy their demanding constituencies, they continue to wisely spend funds on new facilities and have shown a renewed interest in upgrading and taking better care of their existing facilities. They are also beginning to recognize that it is in their best interests to utilize landscape architects and civil engineers who specialize in athletic and recreation facility design at the onset of the project to help them establish their program and set realistic project budgets. They are also involving specialized athletic facility contractors for this specialized and highly technical type of work.
Another trend that we expect will continue in 2006 (and I'm sure beyond) is the ongoing popularity of infilled synthetic turf fields. Composed of a carpet of tufted polyethylene fibers infilled with a combination of sand and rubber, these fields are a great alternative to well-maintained natural grass fields. Synthetic turf systems are ideally suited for intensely used multi-sport and high-level athletic venues that cannot support safe and well-maintained natural grass surface. The recent boom in infilled turf has been primarily limited to multi-purpose fields for football, soccer and lacrosse. I suspect that 2006 will see a greater percentage of new baseball and softball field projects utilizing this all-weather surface; particularly in the colder and wetter northern climates where early season play is often limited on natural grass fields.
Concerns and challenges: The major issue created by the banner construction year of 2005 — from engineers and designers to contractors and material suppliers — was the lack of qualified staff to effectively meet the incredible demand placed on the industry as a whole.
We found ourselves turning away very desirable work because we simply did not have the people-power to produce designs with the level of quality and detail that our clients expect. Unfortunately, turning away work is difficult and not everyone has the discipline to say no. More often than not, this results in poor quality projects, missed deadlines, dissatisfied customers and unhappy end users.
I hope that those who experienced growing pains in 2005 have learned their lessons and are planning and staffing appropriately for 2006.
Planning advice: Over the past several years we have been involved in a number of athletic facility projects at various stages of completion. The most successful projects — those with appropriate budgets and programs which satisfy the needs of their end users — are invariably the projects where the design team was involved at inception. The projects that fall short of expectations and involve costly coordination problems during construction are typically those which were conceived without proper foresight and without the involvement of experienced athletic facility design professionals.
The greatest advice I can give to any facility director or owner is to speak with qualified design professionals before moving forward with any project. Athletic facility design and construction is highly specialized. Spending more time in the planning phase will ultimately save time, effort, money and aggravation and result in athletic facilities that are best suited for the needs of their organization — today and well into the future.
Landscaping and groundskeeping workers had median annual earnings of $20,420 in May 2004, according to a report published in July 2005 by the U.S. Department of Labor, Bureau of Labor Statistics (the most recent month for which they had information). Pesticide handlers, sprayers and applicators made more, with median annual earnings of $25, 590. The grounds maintenance workers with the highest pay were tree trimmers and pruners — their median annual earnings were $26,150.
The median annual earnings of first-line supervisors of landscaping, lawn service and groundskeeping workers were $35,340 in May 2004. Landscape architects who worked for a wage or salary had median annual earnings of $53,120.
General and operations managers in the landscaping services industry had median annual earnings of $73,550 in May 2004, and chief executives had median annual earnings of $114,680.
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