Green Express Summer 2016
As spring meets summer in the great Pacific Northwest change is in the air. The days are getting longer, the temperatures are slowly rising, the annual ritual of planting has come to an end, and the phone is starting to ring more often. It is an inflection point which marks the beginning of The Beginning in the world of a Christmas tree company.
There is a far different feel in the industry as we learn to adapt to an environment in which abundant supplies of trees to meet every type of customer is simply not the current state of affairs (as we have discussed in this space in recent communications). In review, we can safely say that we know the following-
1. Demand will exceed supply for all Christmas tree species coming out of Oregon for the foreseeable future. Cumulatively, this deficit will ultimately reach more than one million trees annually at the peak.
2. The universe of large scale Christmas tree growers (100 acre plus) has dropped by approximately 50%.
3. Barriers to entry into the Christmas tree industry are formidable thus virtually insuring a long, slow recovery in inventory despite rising prices.
4. Prices will rise on both wholesale and retail pricing on a consistent basis before this cycle ends.
5. Christmas tree growers who had been guilty of poor business practices are taking advantage of the shortage to get their financial house in order. A recent surplus of trees in the marketplace ironically led directly to the shortages we now see. Wholesale pricing often below the cost to grow, harvest, and ship a tree is not a viable long term strategy, yet that is exactly what many growers did to retain market share when tree supplies were abundant. Many of them are no longer with us as mentioned.
There are other factors of course, yet this is a good snapshot that allows us to segue into the next theme / topic.
Interestingly, we seem to know WHERE WE ARE and HOW WE GOT HERE. For the surviving Christmas tree growers there are both positives and negatives associated with the current state of our industry. On the positive side of the ledger, we are experiencing price increases and can start to conduct our respective businesses in a manner than leads to reasonable profitability. On the negative side of the equation, for next couple of years, we will sell fewer trees than we have in the past. We will not have all of the trees in terms of quantity and/or specific species breakdown for all of our customers. We will need to be creative, nimble, and flexible together. “The Tree” desired may need to default to “A Tree” in order to not fall into the category of “NO Tree.” Like it or not, this is reality for the foreseeable future.
As I have grown older I have tried to anticipate unintended consequences. I’m not sure that I do it particularly well yet I do know it is important to keep trying. I have one on my radar right now relative to this conversation. We all know that most retailers faced with increases in price (and decreases in choice), almost always pass on increases on a retail level thus mitigating and in fact negating any potential margin loss. We feel that retail Christmas tree pricing has been too low in recent years. It takes 6-10 capital intensive years to grow a real Christmas tree and it costs real money as well to harvest and then ship that tree to its final destination.
It is however important to consider the threat posed by the artificial Christmas tree in a time of rising prices for real Christmas trees. Most of the data I could find was somewhat simplistic and a little dated, yet there were some really interesting kernels that I wanted to share.
According to 2014 data compiled by The National Christmas Tree Association, roughly 26 million “farm-grown” trees were purchased, while approximately 14 million fake trees were purchased. For me that information is useful only in the following context. Roughly 40% of Americans displaying fake trees do so for 6-10 years! Amazingly, 11% of those displaying fake trees do so for 20 years plus!!! These new purchases (2014) are only adding to the army of people who display fake trees. The only reason that only 14 million were purchased was that many people have already done so; in fact, according to Nielsen data, roughly two-thirds of US households display an artificial tree while fewer 1 in 5 go with the real deal. “No Tree” households eke out a small percentage win over the real tree as well. Clearly, we are losing the war and an environment of rising prices is an additional concern.
We are faced with reasons for the popularity of fake trees and then most importantly, strategies to right the ship eventually. The reasons are many and varied including an aging population, a less traditional, increasingly secular mindset, convenience, and misconceptions about our industry to name a few. At this point, price DOES NOT appear to be one of the determinants. However, artificial trees have gotten cheaper, more realistic looking, and easier to assemble; at some point price can and will become a determining factor. We need to be mindful of where we are (last place), and move forward on price intelligently and thoughtfully.
Some additional bad news as I close- Because of supply constraints, not EVERY consumer seeking a real tree will be able to find one (at the very least not choice #1). The fake tree will be a big beneficiary in immediate future.
Some happy news as I close… Christmas tree demand has been pretty consistent. There are a loyal group of core believers who will never buy an artificial tree (the data bears that out clearly). Also, the concept of Being Green (i.e. environmentally conscientious) has never been stronger and it is being championed by a younger generation. Potential future core believers (we hope)…
Last year was the first year of our Marketing Order by which Christmas tree growers are contributing to a fund designed to stimulate demand AND most importantly at this stage of the supply / demand cycle, provide consumer education as to why the fake tree is not only the WRONG choice comparatively, it is a BAD choice from the perspective of environmental concern for the future. If the message is shared in an effective way, we win this one in a route. Through the vision and foresight of Ken Cook, we, at McKenzie Farms saw this big shortage coming. After a couple lean years, waiting and allowing Mother Nature to work her magic on some younger inventory, WE are in great shape. So, the glass truly is half full despite daunting, yet surmountable challenges that may get worse before they get better. Artificial trees may be winning the battle right now; through patience, education, and intelligent pricing strategies victory in the war is not only probable, it is likely.
Some really sad news that I must mention before I finally close. As many of you know, the Cook family recently lost a dear member of our family.
Makayla Cook Castro is a niece to Carey Anderson, Amy Davis, and myself by way of our sister Allison Cook Castro and brother-in-law Larry Castro. She is also one of twelve grandchildren of my parents Ken and Mary Lou Cook. And, as I came to learn, she is a friend and inspiration to MANY beyond the immediate family sphere. Touching the lives of others through and by her faith in God seemed to shape and define her. She tragically died in a climbing accident in Arizona where she was attending college as a freshman honor student at Grand Canyon University (a Christian university located in Phoenix).
Makayla lives on in all of our memories, and though we miss her terribly, we know that she is with God and is flashing that joyous smile that I will always remember.
In remembrance and in honor of the person that she is, we are in the process of establishing a Foundation for Makayla, “Live Like Kayla Foundation” for the purpose of providing educational help to young people who exemplify her spirit of prayer, faith, love, and laughter.
Finally, from everyone in the Cook Family (near and far), we would like to thank the many of you who reached out to us during this difficult time; your thoughts and prayers mean more than you know and our faith in God remains steadfast and strong.