Monday, October 20, 2014

Lindsey Getz

Free-lance writer based in Royersford, Pa.

Features

Shake your eight ball

Cover Story: State of the Industry

We look at seven of the top concerns and trends facing landscapers as they face 2015. By Lindsey Getz

October 13, 2014

While it would certainly be handy to have a crystal ball from time to time, many lawn care owners and operators have gotten used to dealing with the uncertainties that come with this industry. After all, the unpredictability of climate and weather patterns is something landscapers face every day – and that can make or break a season. But our research revealed that other concerns top the list, including: fuel prices, stress, consumer confidence, low-ball competitors, lower margins, water and private equity investment.

In talking with contractors, we also found that possible minimum wage hikes and immigration reform are also big concerns, along with the looming but still uncertain mandates from the Affordable Care Act (both of which we’ve addressed in this issue as well).

Though none of us has that crystal ball, giving these issues some forethought, and planning for the challenges they pose just may be all it takes to get them off the front burner.
 

1. Fuel prices

Grappling with rising fuel costs is nothing new to the industry but it remains a top concern for many business owners. For most, it’s a major expense that is not always easy to thoroughly budget for. According to a recent Lawn & Landscape survey about fuel buying habits, 38 percent of contractors said up to10 percent of their budgets went to fuel costs. Another 38 percent said between 11-20 percent of their budgets went to fuel costs.

“It seems that no matter how much more we budget for fuel, we always spend a lot more than we planned,” says Mark Fockele, owner of The Fockele Garden Co., in Gainesville, Ga. “We do not have a great solution to this, but as we buy new trucks and replace old ones, we are slowly converting our fleet from diesel to gasoline, which saves money not only on fuel costs but on repair costs as well.”

Some states are certainly worse than others. In California, where the fuel price is consistently higher than the national average, Stay Green, a Santa Clarita-based company is always looking for ways to save at the pump. According to Triple A, the national average for gas prices in August was $3.48 for regular and $3.83 for diesel. The average for regular in California was $3.91 and $4.10 for diesel.

“We recycle older vehicles for new ones that have better gas mileage,” says Rich Angelo, company founder. “We also look for ways to move people around that don’t necessarily need a truck, such as an account manager or a production manager. Someone who is supervising field people all day doesn’t necessarily need to be driving a big truck around.”

Angelo says the company also uses gas cards that give a kickback if used at certain gas stations. And for equipment, the company switched from gas to propane. That had the added bonus of decreasing lost revenue from theft.

“Stolen gas is definitely an issue for us but propane is a different story,” Angelo says. “People typically don’t use propane so it doesn’t just disappear on us. It also burns clean and can be highlighted as part of a green initiative.”
 

2. Stress

Stress is often an unescapable part of being a business owner and landscape business owners certainly have their share of it to deal with. It’s a labor-intensive field and it’s not always that easy to find laborers willing to do it. Most contractors say that qualified labor is their biggest stressor, but there are a number of other issues constantly putting pressure on owners, including some of the very topics our research has explored. Learning how to deal with stress is the critical piece.

“I’ve been in this business for 23 years and it’s typically the same stressors just coming back around again and again,” says Bill Bumgardner, co-owner of Bumgardeners Landscape in Central Point, Ore. “The difference is that you learn how to handle them better. You strategize better. And you also don’t let the stress get to you as much.”

Bumgardner says that a big part of knowing how to handle stress is being willing to get away from it. He admits that’s hard to do as a business owner. “You have to force yourself to take some time off,” he says. “Do things with your family. Hit the gym a few days a week. If you don’t force yourself to make that time, you will burn out.”
 

3. Consumer confidence

Although it took a while for consumer spending to bounce back following the recession, many contractors saw a big improvement in 2014 and expect consumer confidence to continue to rise in 2015.

“We’re finally seeing people going back to add-ons like patios or hardscaping, which were some of the first things to go away when people stopped spending,” says Tim Meehan, owner of Meehan’s Lawn Service, based in Brook Park, Ohio. “Now they have more disposable income available and aren’t as reluctant to spend some of it.”

Meehan says some of the reluctance to spend came from the sense of uncertainty that loomed over everyone following the recession.

“I can relate to that,” he adds. “Even as a businessman, I wasn’t looking to grow my business in a time that we didn’t know what was going to happen next. I wasn’t looking to pursue new customers when I felt like I couldn’t predict the end result. I definitely understood the uncertainty my customers had.”
 

4. Low-ball competitors

Mow-blow-and-go landscapers are nothing new to the industry. While they aren’t any major threat to take over, they can still drive margins down. “They’re not competing on the same level as us but they still take a bite out of the market,” Meehan says. “Our customers will ask us to bid a property for 10 percent less because of low ball competitors. That can be frustrating.”

Meehan dealt with that issue by getting out of commercial work and that’s where he sees himself continuing. “I moved more into the residential market and that’s where I’m able to keep a good flow,” Meehan says. “Homeowners tend to be less driven by bottom line and a little more driven by quality.”

Angelo also says low ballers can be a nuisance to battle. They don’t bring the same quality to the table, and have a negative impact on margins. “If a company can find someone to do their maintenance for $5,000 a month as opposed to $10,000 a month, they’re likely to be more forgiving of things done below par because they’re saving so much money,” says Angelo, whose company is 100 percent commercial. “What they don’t realize is that they usually end up going back and spending more money on deferred maintenance that the low-priced service provider wasn’t offering. They’re just taking money out of one pocket and putting it in another.”

At times, it can be disheartening, Angelo says, to lose jobs that his company has had for many years simply because it’s undercut. But Angelo says that competition – even low-ball competitors – ultimately helps strengthen his business by forcing it to compete at a higher level.
 

5. Lower margins on work

Lower margins are often the result of low-ball competitors and though the recession made many consumers hold tighter onto their purse strings, contractors have found there are ways to maintain a higher yield.

“Low ballers that are driving down our margins are just the nature of the beast,” Bumgardner says. “It’s nothing new. But to combat it you must know your true costs. If you don’t, it’s very easy to lose money to the low ballers. You must work on making your bids and proposals as competitive as possible so that you can make some money.”

It’s especially difficult to compete with low-ball mowing, says Chris Elmore, president of The Grounds Guys. “There is just such a low barrier to entry for mowing,” he says. “Mow-blow-and-go has become commoditized and one guy cutting grass in a pick-up really isn’t that different from the guy cutting grass from the big company.”

That’s why diversification is the answer. “You don’t see big landscape companies just doing mowing and blowing anymore,” Elmore says. “They’re all diversifying and getting into areas that require knowledge and specialization beyond just experience. Knowing how to do a chemical application or knowing what plant works best based on the conditions of the soil are specialty skills and the way that you keep those margins higher.”
 

6. Water

Water – specifically the conservation of water through more efficient irrigation systems – continues to be a hot industry topic. But the urgency is definitely regional. Areas dealing with severe, persistent drought are already on board with seeking new solutions while those that aren’t paying high water costs or dealing with restrictions could fall behind the curve.

Still, landscapers report that the general public is becoming more aware of the need for conservation.

“Ultimately, what drives work for landscapers is the consumer and right now the consumer is becoming very aware of the need to conserve more water,” says Mike Garcia, owner of Enviroscape in Redondo Beach, Calif. “I’ve never gotten as many calls for drip irrigation as I have this year. It’s to the point where we are shifting our business from a traditional landscape business model to a water conservation model.”

Marty DeNinno, co-owner of Pinnacle Irrigation & Nightlighting in Haddonfield, N.J., has also found success with an increased focus on water conservation efforts. Though not faced with drought conditions, his clients are still interested in evapotranspiration (ET) based controllers for both ease of use and cost savings.

In fact, a customer pushed him into the business of selling smart controllers.

“He came to me and wanted it installed,” DeNinno says. “Technology like that can be intimidating at first and I do think our industry needs more education on it. Three years later that same customer called me and told me he has never touched the controller and it routinely saves him 20 percent on his water bill. He also said he has the greenest grass around. That’s the future. I think the industry is lagging when it comes to technology but there’s great room for growth.”
 



 

7. Private equity investment

Private equity has been present in the landscape industry in one form or another for many years. But a series of high-profile investments by KKR in the past year to purchase a controlling interest in the Brickman Group and ValleyCrest Cos. has increased interest from many other areas.

Tom Fochtman, CEO of Ceibass Venture Partners, a green industry mergers and acquisitions consulting company based in Arvada, Colo., says the green industry has no doubt been “discovered” by the private equity world. He says investors appreciate the predictability of the landscape management related revenue business model and the ability to lever the whole business model with people.

Ronald Edmonds of The Principium Group, an advisory firm serving the green industry on mergers, acquisitions and more, based in Cordova, Tenn., says ever since KKR began fueling the trend, other private equity firms have also been investigating the industry.

“We see a number of smaller private equity firms, including family offices, examining the industry as well as several so-called ‘search firms’ that are looking for a single company to acquire and manage,” Edmonds says. “At the same time, private equity firms holding some existing investments in the industry will likely be seeking exits as Brickman’s prior owner Leonard Green did last year and MSD Capital did in the merger of ValleyCrest with Brickman this year.”

Edmonds sees this as a continuing trend that will create the prospect of improved exit opportunities for certain types of companies in the industry which are solid and large enough to be platform investments, as well as others which may be attractive as add-on investments.

“Creating additional opportunities for business owners in the industry to monetize their investment when the time is right is a good thing,” Edmonds says.

Fochtman says there’s room for positive impact as well. As the Brickman/ValleyCrest transition occurs, there will be overlapping people that are let go or choose to leave.

“There is unique opportunity right now to bolster your team and grab some accounts as this transition occurs.” he says.

Lindsey Getz Archive

Features - Cover Story: State of the Industry

Features - Fertilizer/Soil Health

Features - Hardscaping Guide

Features - Irrigation

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