Independent nurseries struggle to compete against big-box stores' strong retail presence and extensive supply chain networks.
Melbourne, VIC (PRWEB) March 20, 2015
According to IBISWorld industry analyst Brooke Tonkin, “the Nursery Production industry is showing signs of recovery after several years of difficult conditions.” Industry revenue is forecast to increase by 4.3% in 2014-15, to reach $826.2 million. This contrasts with the overall projected decline of 0.5% annualised over the five years through 2014-15. Industry revenue declined considerably over the two years through 2011-12, partly due to falling consumer sentiment and a low number of dwelling commencements, which dampened demand. Additionally, ongoing water (persisting beyond the drought that occurred prior to 2009-10) reduced demand for industry products. Despite grants for the installation of water tanks, these provided next to no boost to the industry's performance. Nurseries were forced to install water-saving infrastructure, including water tanks, water recycling systems and more efficient irrigation systems to maintain plant health while water restrictions were in place.
The rise of major big-box hardware retailers such as Bunnings has attracted consumers away from traditional nurseries. “Independent nurseries struggle to compete against big-box stores' strong retail presence and extensive supply chain networks,” says Tonkin. These retailers compete directly with independent nurseries. Consumers are increasingly purchasing new plants from these stores due to the convenience of one-stop shopping. Although these retailers also often represent a downstream market for the industry, they have the ability to purchase products in bulk from nurseries at a discount price. This has potentially negative implications for industry profitability. Despite this, average profit margins have increased slightly over the past five years due to falling input costs. An expected increase in dwelling commencements over the next five years will benefit the industry, as new homes often incorporate landscaped gardens. Household discretionary income is anticipated to grow strongly over the next five years. However, forecast fragile consumer sentiment over the next five years will constrain increases in consumer spending. With ongoing price competition from big-box retailers, nurseries will need to curb costs and increase operational efficiencies to keep prices low.
The Nursery Production industry exhibits low levels of market share concentration. Fragmentation within the industry can be attributed to low barriers to entry and the nature of predominantly family-run businesses. The low capital requirements for establishing a nursery mean that new operators can continue to enter the industry freely. The number of businesses operating in the industry has fallen over the past five years. Competition has increased as garden centres have expanded in downstream hardware retailers such as Bunnings. Additionally, accessibility to irrigation water has created operating difficulties for some nurseries. This has contributed to industry exits over the period.
For more information, visit IBISWorld’s Nursery Production industry in Australia report page.
The industry includes businesses that are primarily involved in growing trees and shrubs, ornamental plants and bulbs. Businesses sell to retail or wholesale establishments, as well as landscapers, local government and councils, and orchardists. This industry excludes turf growing and flower growing.
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