2004 STATE OF THE INDUSTRY REPORT: Regional Report: West/Southwest

The South and West are ranked highest for job growth potential in the next several years, driven by optimistic outlooks for Southern California and the Southwest. Slower recovery is expected in Northern California, according to Economy.com.

"This is the first year we’ve seen a real shift," says David Snodgrass, president, Dennis’ Seven Dees Landscaping, Portland, Ore. "The economy seems to have bottomed out and is now rebounding. We are in what I would call a fairly solid market for the green industry. It’s not a boon at all. It’s just what I would call consistent and I would expect growth to continue at a steady pace."

REGION PROFILE. The West/Southwest region includes the oldest companies in the industry with the average business age being 14.9 years old.

West/Southwest businesses also tend to be larger. On average, companies in the West/Southwest generated an average of $951,989 in 2004. West/Southwest companies also had the most average residential and commercial mowing customers – 65.3 and 23.7, respectively – and the most commercial chemical customers – 34.1 – when compared to the other two regions. These contractors also have the most average total employees – 22.9.

However, West/Southwest companies had the fewest residential lawn care customers compared to the other two regions, and they offer fewer chemical lawn care-related services.

Lawn maintenance is the service that generates the greatest revenue for West/Southwest contractors, according to 37.9 percent of survey respondents, followed very closely by construction at 35.8 percent. Sales for both of these services were up by 33 and 28 percent, respectively, for those who reported increases, with total net percent rises for these services being 14.5 and 9.3 percent, respectively, when also taking into account the percentage of businesses who reported decreases.

West/Southwest businesses also offer more turf insect control (48.7 percent), landscape lighting (38.3 percent), macroinjection/microinjection (13.5 percent), perimeter and structural pest control (7.8 and 14.5 percent respectively), consulting (30.1 percent) and interiorscaping (5.7 percent) services than the other regions.

Not surprisingly, one of the biggest gaps in service offerings between the West/Southwest region and the other two areas was in irrigation-related services. More than half of West/Southwest contractors offer irrigation services. Half (50.3 percent) offer irrigation design, 53.4 percent offer irrigation installation and 57.5 percent offer irrigation maintenance.

Consequently, West/Southwest companies also spend more money on irrigation products with 62.2 percent of them purchasing spray heads and rotors, 58.3 percent of them purchasing controllers and 58.9 percent of them purchasing valves in the past 12 months. The average West/Southwest company’s irrigation expenditure was nearly double compared to the other two regions at $41,005 in 2004.

In terms of other expenditures, more West/Southwest contractors bought computers/software and used consultants’ services than any other region with 71.7 and 20 percent reporting these purchases in the past 12 months, respectively. West/Southwest contractors also purchased more trucks, landscape equipment, and plants, trees and shrubs than their counterparts in the other regions.

However, when it came to service pricing, West/Southwest contractors charged less than the other two regions except for chemical lawn care where their pricing closely fit in with the overall industry average.

The greatest number of contractors in the West/Southwest reported a higher projected 2004 net profit than the other regions with 28.4 percent predicting net profits to be between 10 to 15 percent, 14.8 percent saying net profits would be between 16 and 20 percent and 14.2 percent predicting more than 20 percent. Additionally, another 14.2 percent of contractors predicted a 6- to 9-percent net profit increase, 13.6 predicted 4 to 5 percent and only 14.8 percent predicted less than 4 percent.

On payday, West/Southwest contractors paid hourly wages that were in line with the overall industry average. West/Southwest salaried employees also earn annual wages on par with industry averages, except for account managers and owners/presidents, who make more than their counterparts in the other two regions with $38,635 and $56,480, respectively.

Also, in addition to having more employees on average than East/Midwest and Southeast companies, more West/Southwest contractors hired H-2B workers than the other regions with 5.4 percent hiring these employees in 2004.

CHALLENGES & SOLUTIONS. West/Southwest contractors reported that they have the lowest customer renewal rates compared to the other two regions, except in one category – residential lawn maintenance (80 percent customer renewal rate) – where East/Midwest contractors had a 1 percent lower rate. West/Southwest companies’ customer renewal rates were 72 percent for commercial lawn maintenance, 70 percent for residential lawn care, 62 percent for commercial lawn care, 58 percent for residential construction and 51 percent for commercial construction.

However, West/Southwest contractors experienced the lowest net percent operating cost increase – 15.2 percent – when compared with East/Midwest and Southeast businesses.

Though West/Southwest contractors reported drought/water restrictions as a challenge, it didn’t show up on the list of issues most affecting business until No. 9. However, drought/water restrictions did get a higher overall rating – 4.9 – on a scale of one to 10 in the West/Southwest than in the other two regions.

But many contractors are using the long-standing drought as a chance to offer new services, such as artificial turf and xeriscaping. In fact, 48.2 percent of West/Southwest contractors said their businesses were becoming more diverse in the past two years vs. the 13.6 percent that said they were become more specialized instead. "We’re so diverse now that if one market turns down, we have so many others to go to to even things out," says David Chenoweth, president and chief executive officer, Western States Reclamation, Frederick, Colo.

And where East/Midwest and Southeast contractors suffered some weather woes, Mother Nature was kind to West/Southwest contractors so much so that weather problems didn’t even show up in the Top 10 list of business concerns, whereas in the East/Midwest it was ranked No. 5 and in the Southeast it was ranked No. 8. In fact, in Oregon, an unusually mild winter and dry spring extended the season, bringing in more business. "Our April was as big or bigger than our normal May, which is usually our biggest month of the year," Snodgrass explains. "Plants were blooming earlier and it just opened up our season much earlier and extended it."