Bigger, but Better?

The landscaping industry grew like crazy during the 1990s, paving the way for the emergence of thousands of new contractors every season. In addition, companies like TruGreen and Brickman flourished into the behemoths they are today. Thousands of other established contractors also saw their companies double, if not triple in size.

It’s a different story today. The industry has been in a holding pattern of sorts, largely due to the economy. But it could also be fair to say that the industry has reached a state of maturity. Now, sales growth will largely come down to stealing market share, acquiring other companies or launching new products/services.

The interesting thing is that many of the issues contractors say are troubling them today are the same issues that troubled them when times were great. In other words, there are certain facts of life which landscape contractors must learn to cope with, because they are not likely to go away. Some contractors have learned to cope, but too many have not.

Growing, growing, gone

The period of 1988-1995 was one of significant growth for the landscape industry. According to a research study conducted for PRO magazine, half of landscape contractors saw their annual sales more than double during this period. Larger companies with annual sales of at least $1 million achieved the most growth (median sales level increased 160%). But small companies with annual sales below $250,000 also thrived (median sales level increased 127%). To be sure, it was a prosperous time for just about everyone in the business.

Population growth and an increase in the number of two-income households were big drivers of opportunity. So was growth in the commercial market. In 1988, the average small company saw just 20% of its business coming from commercial clients. In 1995, the percentage had climbed to 33%. Large companies saw a similar jump in commercial work—from 47% to 56%.

Fast forward to 2002, the onset of the housing bubble. The U.S. Census Bureau estimated landscape industry sales to be roughly $35 billion. By 2007, when the bubble started to burst, sales were estimated to be roughly $54 billion, representing a 54% increase.

We also continued to see new companies enter the market at a rapid pace from 2002-2007. According to the Bureau, the number of year-round companies went from 50,685 to 64,506 (27% increase). Companies with annual sales below $250,000 climbed from 25,931 to 31,429 (21% increase). The number of million-dollar companies grew 46% from 6,612 to 9,658.

Compare this to present day. Since 2007, industry sales have grown 10-12%, at best, to a level of roughly $61 billion. Some analysts would argue that sales have remained flat, while others would argue that sales have even contracted a percentage point or two. Regardless, it’s a far cry from the 50% or better growth of previous five-year periods.

We also haven’t seen the same kind of gravitation among contractors into the higher sales-volume brackets. The number of smaller contractors has increased, as is often the case during periods of high unemployment. Many of the biggest companies have gotten even bigger, often by way of acquisition.

The landscaping industry is expected to begin seeing more robust growth again. How robust remains to be seen.

Everybody’s doing more

Over the past 15 years, there has been a trend of more landscape contractors offering more niche services. This approach to landscape contracting has been accentuated as of late. The housing collapse and record-setting drought have taught both maintenance and installation contractors alike that it is not wise to put too many eggs in one basket.

In 1995, the majority of landscape contractors performed mowing/maintenance and landscape design/installation. Slightly more than half performed chemical applications. But just 40% performed hardscaping while 30% did irrigation. Today, according to Green Industry PRO subscriber data, the overwhelming majority continue to perform maintenance and installation. Hardscaping has climbed to 52% while irrigation has climbed to 49%. (See chart #2.)

A substantial number of diverse, highly skilled landscape companies are good for the industry’s image. One downside is that, since so many contractors are now multi-service, it’s harder for a given contractor to use “we do everything landscaping-related” as his point of difference.

Old habits, tough issues die hard

As the economy softened and competition began tightening in late 2008, the average contractor’s most concerning issues changed a bit. During the bubble, the biggest challenges were finding employees and profitably managing growth. Seemingly overnight, the two biggest issues became retaining customers and profitably completing work.

It’s interesting to note, however, that many of the critical issues contractors are facing today were prevalent during previous boom periods. According to that 1988-1995 PRO study, contractors said the following were their most pressing issues:

  • Finding and managing employees (89% said this was an issue)
  • Insurance (72%)
  • Lowballers (68%)
  • Making a profit (61%)
  • Regulations (46%)
  • Productivity/downtime (36%)
  • Adding services (33%)

Each of those seven critical issues is also on the average contractor’s list today. Each has evolved, though, posing new challenges. For instance, rising insurance premiums are one challenge, but the uncertainty over the Affordable Health Care Act is quite another. Regulations have become even more burdensome. Lowballers have taken it to an all new level, making profitability a mere fantasy for some.

How a contractor responds to these challenges in today’s slower-growing market is key. During past boom periods, “hoping them away” didn’t necessarily work, but some companies still grew in spite of this approach. Not today. Contractors must acknowledge these challenges, embrace them as the facts of life as they are, and take action. Nobody said this would be easy, but it’s becoming more and more necessary.

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