2024 Green Industry Outlook

Contributed by Dr. Charlie Hall, Texas A&M University

Going into 2023, the green industry was desperate to put 2022 behind them and get back  experiencing 2021 conditions that allowed the industry to experience its best year ever in terms of top-line sales and bottom-line net profit. Through the first six months of last year, top-line sales for growers were up 2.1% while bottom-line next profits were up almost 28% over what they were in 2022. Part of this stellar YOY spring season performance was due to 2022 being down 43% over 2021, so the YOY comps looked favorable by comparison. Another piece of good news was that shrink was down about 10% from the previous year, perhaps also impacted by how poor 2022 performance was across the industry.

Top-line retail sales, customer counts, and average retail ticket in 2023 was flat in most parts of the country. Even box stores experienced positive, but slower growth in sales and EBITDA than they had experienced during the pandemic. The landscape sector remained the bright spot in the industry in 2023 and should remain so with the latent demand for housing that is forecast and the projected decrease in interest rates by the Fed later in the year.

While EOY 2023 benchmarking is still underway at the time of this writing, it is safe to say that green industry sales and profit in the northeast and the rest of the country were mixed in 2023. Some growers were up by double digits while other growers were down YOY by the same amount. However, while the comparison to 2021 levels of profit was not favorable, a survey I conducted mid-year showed that all of the growers that responded were still up in terms of sales and net profits compared to 2019 (pre-pandemic).

Slowing final demand and weather were again headwinds in 2023 and were exacerbated by the continuing labor shortages that hampered the ability of green industry companies to capitalize on the higher, but slowing surge in lawn and garden spending. Labor markets are still not what they were before the pandemic. The retirement of baby boomers, lingering challenges associated with the pandemic for women in the workforce, and career revaluation among many younger workers are driving a structural shift in the labor market that continues to affect all sectors of the economy, including the green industry.

Nonetheless, while overall consumer spending for durable and non-durable goods has remained elevated, the Fed’s constrictive policy of raising interest rates has been effective in reducing  inflationary pressures. The surge in goods spending, which has helped lift the economy out of the depths of the pandemic recession, continues to recede slowly and give way to a faster pace of spending on services. That noted, the up-shift in services spending will likely not be enough to keep overall consumer spending growing at the same levels experienced during the pandemic, as household savings from government stimulus continues to dwindle.

Another bright spot in the industry is that the pervasive supply chain wrinkles that have been hampering many parts of the economy continued to be ironed out over the course of 2023 and costs associated with supply chain logistics in 2024 will likely continue to recede to pre-pandemic levels. However, de-risking of the supply chain continues with re-shoring and more intensive strategic partnering relationships being forged. Accordingly, green industry supply chains are improving and were functioning closer to normal by the time 2023 came to a close. I do not expect the supply chain to impact the green industry in 2024 as negatively as it did in previous years barring any unforeseen geopolitical black swans.

In calculating last year’s Index of Prices Paid by Growers, I updated the weights that are used to adjust each of the grower inputs as a percentage of those tracked. Since some of the input prices increases have been more substantial than others since 2017 (e.g., labor), the weights now more accurately reflect the relative cost differences among the inputs. This changed the YOY percentage changes slightly than previously reported, with costs increasing 8.1% 2021 and 9.5% in 2022, but only 0.5% in 2023. While there was less price sensitivity throughout the retail and landscape portion of the supply chain in 2021-2022, allowing participants across the industry to raise prices, there has (anecdotally) been more push back from B2B and B2C customers on price increases. However, firms continuing to emphasize their value proposition should enable them to hold current price levels or increase them slightly.

Also, while working capital since 2021 has not been as constrained as in the past, it is tightening. With the additional cash flow obtained through PPP and other pandemic-relief programs, firms either paid down debt, invested in CAPEX, or increased inventory (if they could source the inputs). This build-up in inventory will inevitably lead to future surpluses of certain plant materials, however this bull-whip effect will not likely occur until after the 2024 season (or beyond for longer-term crops like trees). In the interim, firms should focus on the unique elements of their value proposition to continue to justify the higher prices throughout the supply chain.

Lastly, as I indicated last year, the next two years will likely bring more shakeout and acquisition activity and this has been validated in various articles in the trade press in recent months. I expect this to continue in 2024. In addition, I am seeing more black powder from venture capital firms that are showing interest in the industry again.

More B2B vertical coordination tools will be used with more standing orders, increased lead times, greater use of webshops and online platforms, more virtual sales contacts/demos. Strengthening vendor and customer relationships will be even more critical. Innovation will lead to alternatives to plastics and a more sustainable mindset throughout the supply chain. Technology usage will continue to disrupt the status quo (e.g., artificial intelligence applications, order management, warehouse automation, and big data analytics). It’s a very interesting time to be in the green industry with the structural changes associated with these technologies and the supply chain risk-mitigating strategies being implemented.

Editor: Chris Laughton
Contributors: Dr. Charlie Hall and Chris Laughton

View previous editions of the Green Industry Outlook

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2024 Green Industry Outlook Webinar 

On March 20, 2024 Texas A&M’s Dr. Charlie Hall reviewed green industry operational and financial performance in 2023 and then discussed the outlook for 2024. Charlie closed with his recession forecast, as well as take home points for strategic responses for all green industry participants to consider.