For the agriculture industry, it’s been a turbulent last few years. Farmer incomes have eroded since the commodity boom peaked in the early 2010s and, more recently, adverse weather has created additional financial strain for growers in many parts of the country.
All this, of course, has had an impact at the retail level. Deanna Chabot, ADAMA Area Business Manager for Northern Alberta, notes that with less money coming in, farmers are having to keep a tighter rein on their balance sheets in order to stay profitable; for many, this means cutting back on crop input costs. This in turn puts pressure on ag retailers to match product pricing to what growers are prepared to spend, which may mean sacrificing some of their margin.
To compound the issue, Chabot says many ag retailers also face rising operating expenses that include payroll and benefits, as well as high depreciation costs after investing in new facilities and infrastructure . Mounting expenses and widening debt to equity ratios may mean narrower margins for some.
These aren’t the only developments contributing to the financial squeeze that many retail outlets may find themselves in. If you’re an ag retailer looking to boost — or at least maintain — your profit margins, here are three other recent trends to keep an eye on that may have an impact on your bottom line:
One of the most prominent recent developments has been the series of mergers and acquisitions within the ag industry involving major players, like Dow, DuPont, Bayer, Monsanto and Syngenta. With fewer suppliers, ag retailers may have less bargaining power, which could limit their ability to negotiate prices or rebates on volume sales . Chabot says retailers may also experience added pressure from suppliers to sell their products and participate in grower programs as the bigger, newly-merged crop input companies jostle for market share.
Even retailers have been swept up in the consolidation wave. As Chabot points out, large retail chains have been buying up independent retailers with increasing frequency in recent years. She believes one reason for this trend may be that retailers simply don’t have the same dollar margin values that they had in the past.
Availability of post-patent products
One trend that’s having a positive impact on profit margins for many ag retailers is the rise in the number of alternative technologies entering the crop protection marketplace as established brands come off-patent. These products are generally less expensive, but that doesn’t mean you’re sacrificing quality; while not all post-patent products are created equal, companies like ADAMA offer high-quality products that are fully serviced and supported. In this age of price sensitivity and tight producer dollars, ag retailers who offer customers a cheaper alternative to the big brand names by stocking post-patent products stand to benefit through increased sales that bolster the bottom line. In addition, Chabot notes that these alternative products typically offer a higher margin for the retailer, giving them the opportunity to simplify their warehouse inventory while still providing the value that their customers require, rather than what manufacturer programming dictates.
The ‘Amazoning’ trend
The combination of lower-priced alternative products and low crop prices has helped fuel another new development — the emergence of online distributors promising lower ag chemical pricing. This, of course, has the potential to disrupt not only the business dealings of ag retails, but of the ag companies that supply them. To date, retailers, distributors and ag chemical companies have enjoyed a symbiotic relationship – and for good reason. Without ag retails to market and sell products and dole out agronomic advice to growers, ag chemical companies would be forced to spend more time and manpower in these channels, leaving them with less resources for what should be the main focus of their business: product development and innovation.
Fortunately, Chabot maintains that up to now, this emerging ‘Amazoning’ trend hasn’t really had the same impact on ag retail as it has on the consumer market. But considering the buying habits of millennials, who include young farmers, this could change quickly in coming years. So for ag retails and the companies —like ADAMA— who rely on them to market and sell their products, it’s important to keep an eye on this development, as it has the potential to be a major disruptor for the industry as a whole.
Industry consolidation, the rise of post-patent products and the potential market disruption posed by online shopping are all noteworthy considerations for ag retailers as they chart their course for the future. As the industry and marketplace continue to evolve, it’s important for ag retailers to recognize change and take steps to preserve their customer base — and their profit margins.