2008 STATE OF THE INDUSTRY REPORT: Weathering Economic Storms

Even with his 25 years in the landscape business, Todd Williams says 2008 has been “the most challenging year of my career.”

Every year, the vice president and regional director of Denver-based American Civil Constructors creates a three-year plan, identifying risks, “and this is the first year that every risk we identified actually happened.”

Yet, “part of the reason I love this industry is that I love challenges,” Williams continues, echoing the sentiments of the majority of the more than 700 landscape contractors we surveyed for Lawn & Landscape’s annual State of the Industry Report, conducted by ABR Research, as well as the 20 industry professionals across the U.S. with which we conducted in-depth interviews.

While the skeptics are out there, a whopping 77.8 percent of contractors are confident the landscape industry will rebound next year, 24.7 percent of them feeling very confident. An optimistic 6.6 percent wonder what the industry even has to rebound from, leaving 15.6 percent who lack confidence going into 2009. While some industries, like home building, seem to suffer during economic times like these, landscape work is a small enough ticket item that draws a steady crowd of garden-loving clients who instead of a vacation or another unnecessary extra will reserve money for outdoor projects and maintenance.

“The desire for beautiful gardens and landscapes is timeless,” says David Frank, president and CEO, David J. Frank Landscape Contracting, Germantown, Wis., “so despite hard times, there will always be opportunities for those who know how to create and care for beautiful spaces.”

That could be the reason the average contractor held strong at an average 10 percent growth this year – 6 percent down from last year but still respectable – with net profit holding at 10.3 percent, just a hair down from last year’s 10.9 percent. Operating costs inched up from an average 16.1 to 16.2 percent, while revenue per employee also increased from $45,756 to $46,378. While it cost more for the average contractor to do business, his net profit remained steady, meaning contractors succeeded in either raising prices to cover costs or becoming more efficient in performing service work.

Industrywide, Lawn & Landscape research shows there are approximately 80,000 U.S. landscape businesses generating $59 billion in revenue this year.

THE STRONG SURVIVE. St. Louis-based Dowco Enterprises is up 7 percent this year “simply because we’ve chosen to be up – we targeted the work and ensured we brought it in the door,” says Owner Maurice Dowell.

Todd Reinhart agrees. “We are growing 15 percent and we can attribute that growth to being aggressive and proactive instead of reactive,” says the owner, Reinhart Grounds Maintenance, Bloomington, Ill.
 
Some regions have been hit harder than others. In Richard Sperber’s opinion, south Florida has been the worst hit by the economy, followed by some parts of California, says the CEO of ValleyCrest Landscape Cos. in Calabasas, Calif.

For Williams, the Dallas region has been performing better than the Denver region “because the housing market didn’t crash like it did in Denver or California,” he says, adding his company is growing 5 to 10 percent this year because “we’re being aggressive in markets that allow us to be aggressive.”

Concerning total revenue, West/Southwest companies brought in 13 percent on average, while South/Southeast businesses garnered 12 percent, and East/Midwest firms grew 9 percent. The South/Southeast suffered more than any other region in lawn care services (7 percent growth vs. 10 and 12 percent in the West/Southwest and East/Midwest regions, respectively), but they more than made up for it in irrigation work where the average company grew 17 percent compared to 11 and 3 percent in the West/Southwest and East/Midwest, respectively. Many South/Southeast firms, though challenged by severe droughts this year, thank them for the increased irrigation business.

Some contractors are noticing a number of less established companies in their markets are folding or pursuing other paths until the economy shows signs of recovery, but “fewer contractors means more opportunities for those of us who can weather the storm,” Frank says.

“In the past 12 to 24 months, we have gained significant market share,” Reinhart adds. “It’s going to be a survival of the fittest economy for the foreseeable future, and as some of the mediocre companies fail and go out of business, we are positioned to take advantage of that.”

SNOW SAVES THE DAY. Record-breaking snow accumulation caused snow and ice control services to grow more than any other service (12 percent), including staples mowing/maintenance and design/build construction. Though this net percent increase is only up 1 percent from last year, all other services dipped, which is why contractors who offer the service credit this year’s growth to Mother Nature’s wintery bounty, calling snow removal “extremely profitable” and where they receive their “best margins.”

However, rising salt prices, as well as salt availability, may cut into those profits this snow season. At the start of winter, contractors reported paying, on average, $86 per ton for rock salt. But by winter’s end, the average price for rock salt had climbed to $124 per ton. “If we’re not able to raise snow service prices, we’re going to suffer a little bit on the profit side,” Dowell points out.

The biggest drops in service revenue when comparing 2007 to 2008 figures were in design/build work, which cut in half from 12 to 6 percent,and irrigation services which dropped from 12 to 9 percent. After splitting the research in two at the median revenue of $200,000, where half of survey respondents generated less than this figure and half generated more, larger companies were able to maintain service revenues closer to last year’s figures, with 8 percent in design/build, 12 percent in irrigation and a higher-than-average 16 percent in snow and ice control services. Simply, this shows larger companies have been more successful at pricing work for maximum profit.

LOOKING AHEAD. Despite contractors’ optimism, the constant barrage of negative economic headlines are making business owners more cautious.

“I’m going to be somewhat conservative in 2009 – I’m going to set a budget I feel we can hit,” says Tom Curdes, owner of Barron’s Lawn Service/Weed Man, Toledo, Ohio.

“I’m anticipating 2009 to be more difficult than 2008 as far as work availability and pricing are concerned,” Williams adds. “If we can hold our own and maintain our size and profitability, I’d be ecstatic.”

Many contractors predict the economy will improve in the next 12 to 18 months. But if there’s anything to be learned from 2008, it’s confidence and persistence, in addition to focusing on profit, keep contractors in control of their growth. As Mike Biskup, president, Greenkeepers Lawn Service & Landscaping in Medina, Ohio, says: “If the economy is bad and we are still growing then it should be even better when the economy turns.” SOI