Turfgrass Seed Market Study – A Summary

1. Turfgrass Seed Market Study – A Summary April 2011 Globalwise Inc. & Decision Impact

2. Overview Introduction Who We Are Our Method Overall Purpose Research Methodology A 4 Step Process Who Participated Key Findings Market Change Buying Habit Changes What’s Truly Important Perceived Market Problems Tested Market Solutions

3. Introduction • Who We Are • Combination of 2 Companies • Project Managers: • Bruce Prenguber, MS Agri-Economist • Dr. Don Roupe, Researcher / Analyst / Strategist • Positioned as Problem Solvers for Decision Makers • Good Team Based on the OSC’s needs

4. Introduction • Our Method • Top-tier issue for the seed industry, Oregon agriculture and State economy • Use a combination of primary research methods (e.g., Exploratory Research) to identify and understand current problems / issues / causes thoroughly before identifying and testing potential solution(s) (Quantitative Research). • Collaborate closely with the Client on each step of the research & strategy process top ensure final strategy is relevant and practical. • Glean Council’s expertise • Generate consensus and ownership • Enrich Consultant’s knowledge and understanding

5. Overall Purpose • Oregon cool-season turfgrass seed producers (Farmers and Dealers) need to understand the market dynamics and attitudes / perceptions of the turfgrass seed marketplace so that they can better plan and evaluate prospects for market development. • Must answer 2 Key Questions: • What is the true current state of the marketplace? • Define how bad/good it is (e.g., market dynamics) • Identify and prioritize problems • Gain consensus • Quantify understanding and identify/test possible solutions • How does the industry address this market situation? • Through collaboration with the Client • Practical recommendations that fit the industry’s position and capabilities

6. Research Methodology • Combination of Research Efforts – 4 step process • First step, clearly define and articulate the problem at hand • Understand issues, gain consensus on perspective using exploratory research methods. • Combine secondary information gathering / analysis and qualitative research methods. • Secondary information audit – publications and on-line • Focus groups with Oregon seed dealers • One-on-one opinion leader interviews • Second step, quantify the seriousness of the problem, prioritize problems, test possible solutions • Based on the results of the first step and realities of budget and timeline, generate and execute the best possible quantitative research methodology

7. Research Methodology • Oregon Dealer Study – using on-line surveys • National Buyer/Reseller Study – using telephone interviews • Third step – analyze and interpret all the data • Draw meaningful conclusions • Determine current market dynamics • Identify and prioritize possible solutions • Fourth step – strategize • Create effective strategic initiatives

8. Research Methodology – Who Participated (Oregon Dealer Study)

9. Research Methodology – Who Participated(National Buyer Study) ___________________________________________________________________________________ • Buyer Segments were defined as entities responsible for the purchase of cool season turfgrass seed for: • - Golf Courses (e.g., superintendents, course maintenance, etc.) • - Public Sector (e.g., parks, recreation, schools and other municipality-related projects) • - Commercial Landscaping (e.g., large landscapers and landscape maintenance companies only) ** Regions are based on state delineation: - Northern: North Dakota, South Dakota, Colorado, Nebraska, Minnesota, Iowa, Wisconsin, Illinois, Indiana, & Michigan - Northeastern: Ohio, Pennsylvania, New York, New Jersey, Vermont, New Hampshire, Maine, & Connecticut - East/Transition: Missouri, Kansas, Arkansas, Tennessee, Kentucky, Virginia, Maryland, & North Carolina - Southwest: California, Nevada, Utah, Arizona, New Mexico, and West Texas - Southeast: East Texas, Louisiana, Mississippi, Alabama, Georgia, South Carolina & Florida

10. Research Methodology – Who Participated(National Reseller Study) ___________________________________________________________________________________ * Reseller Segments included Industry “Distributors” and Large Independent Retailers. ** Regions are based on state delineation: - Northern: North Dakota, South Dakota, Colorado, Nebraska, Minnesota, Iowa, Wisconsin, Illinois, Indiana, & Michigan - Northeastern: Ohio, Pennsylvania, New York, New Jersey, Vermont, New Hampshire, Maine, & Connecticut - East/Transition: Missouri, Kansas, Arkansas, Tennessee, Kentucky, Virginia, Maryland, & North Carolina - Southwest: California, Nevada, Utah, Arizona, New Mexico, and West Texas - Southeast: East Texas, Louisiana, Mississippi, Alabama, Georgia, South Carolina & Florida

11. Key Findings Market Change Buying Habit Changes What’s Truly Important Perceived Market Problems Tested Market Solutions

12. Key Findings A critical time for market change – effects felt to differing degree across the entire channel. Buying habit changes have occurred, but not as expected. What’s truly important to channel members. This affects what is done regarding Oregon branding and position strategy. Perceived market problems – probably not as significant down the channel. Tested market solutions – what should be the focus of the Strategic Initiatives.

13. Key Findings – Market Change The industry is at a critical point of change Over supply at the supplier’s end (e.g., farmers and dealers*) of the channel Supply / Demand cyclical in nature Inventory clearing in progress Currently at bottom of the cycle with predicted increase in the future Serious doubt 2008 sales & revenue levels will ever return Intense price competition forcing lower margins Infrastructure is changing Intense and changing competition – vertical integration, shifts in channel power, exploring new markets __________________________ * “Distributor” and “Dealer” channel labels in the industry are atypical, backwards and confusing. New labels referring “Dealers” as Wholesalers and “Distributors” as Resellers is more appropriate and recommended.

14. Key Findings – Market Change Reduced barriers of entry to the channel Elimination of channel members at the Reseller level Growing perceived importance of new channel members (e.g., mass merchandisers and exports) Natural evolution as market growth reaches mature stage of this product’s life-cycle Continued emphasis on new product development and improved product quality Inability to protect innovation has restricted true product differentiation for any sustainable period of time

15. Key Findings – Market Change (Dealer Sales) 2009-2010 cool-season turfgrass seed projected sales of 550 to 565 mill. lbs spread fairly evenly across US regions with a rising percentage exported. Consumer Segment is the largest (32%) with the Landscape Segment coming in 2nd (26%) and Golf Segment 3rd (13%).

16. Key Findings – Market Change (Dealer Sales) Excluding Export and Northwest estimates, the largest regions / segments were: Northern/Consumer (12%), Eastern-Transition / Landscape (10%), Eastern-Transition/Consumer (9%), Southwest/Landscape (8%) and Northeast/Consumer (7%).

17. Key Findings – Market Change (Dealer Sales) • Between 2005/2006 and 2008/2009 crop seasons, 60% of Dealers claimed sales decreased by an average amount (pounds) of 22%, while 25% asserted sales increased by an average amount of 19%. The net change in sales (pounds) during this time period is minus 18%.

18. Key Findings – Market Change (Dealer Sales) In pounds sold, the Sod Segment (-56%) and the Southwest (-29%) and Northern Regions (-28%) had the highest sales decline while the Golf Segment (-30%) had the highest Dealer stated average increase.

19. Key Findings – Market Change (Channel Comparison) • Between 2008 and 2010, 50% of the Resellers claimed a turfgrass seed sales decrease while 24% asserted an increase. The half who saw a decline claimed a rate of decline of 30%, while the quarter who claimed an increase had a 15% average increase resulting in a net change of - 13%. • In turn, during the same period, 35% of Buyers claimed purchase declines and 20% asserted they purchased more, resulting a net change of -8%.

20. Key Findings –Market Change (Resellers) By region, Southwest Resellers claimed the biggest net loss in sales (19.4%) while the Northeast (8.5%) and Southeast (9.7%) saw the smallest net loss. “The economy”, “the weather” and “building starts” were the major reasons cited for the decline. “The weather” and “pricing decreases” were the major reasons cited for the increase.

21. Key Findings – Market Change (Buyers) For Buyers, the Golf Segment had the highest percentage of Respondents who bought less turfgrass as well as the highest decline in net change between 2008 and 2010. Southwest and Southeast Respondents were less likely to buy more turfgrass seed than the other regions and had the highest decline in net change.

22. Key Findings – Market Change (The Future) Almost ¼ (23%) of Resellers felt purchases would increase over this next year while 1/10 (10%) claimed sales would decline and 2/3rds (68%) felt they would remain the same. This represented a net change of 1.7%. An improving economy, more customer demand and a reduction in competition were cited most often as reasons for optimism regarding future growth.

23. Key Findings – Market Change (The Future) 30% of Buyers felt purchases would increase while 36% asserted purchases would decrease. When Respondents who felt there would be a change were asked how much that change would be the net change result is .09%.

24. Key Findings – Changing Buying Habits • Because of changing markets and buyer expectations surviving channel members will have to re-focus their efforts to remain competitive. • New places to buy / low barriers of entry lead to new players, changing channel dynamics, new markets, a shift in the consumer attitude (growing emphasis on DIY, etc.) due to changes in the economy / marketplace create new opportunities. • New Resellers - elimination of steps in distribution to remain price competitive (Dealers over Distributors), intense competition across Distributors, and a continued growing influence of the mass merchandiser. • The Challenge of Price and the need to redefine oneself to maintain a competitive advantage.

25. Key Findings – Changing Buying Habits (Reseller’s Customers) • Resellers sell to a variety of customers. Almost 2/3rd (60%) sell to Golf Courses and/or Commercial Landscape Companies, while ½ sell to Government / Schools. Commercial Landscape Companies (24.3%) and Stores (23.3%) were identified most often as the Reseller’s biggest customer.

26. Key Findings – Changing Buying Habits (Buyer’s Vendors) When asked where they have purchased turfgrass seed, almost 3/4th (73%) of Buyers have purchased from a local vendor and 20% have bought from a Large National Vendor.

27. Key Findings – Changing Buying Habits (Buyer’s Vendors) The Buyer’s “Biggest Supplier” is a local vendor (72%) and then a larger national vendor (20%).

28. Key Findings – Changing Buying Habits (Buyer’s Vendors) • Almost 1/10th (9%) of all Buyers have changed the type of vendor they purchase turf grass seed from over the past few years.

29. Key Findings – Changing Buying Habits (Reseller’s Customers) • In turn, Resellers are most likely to sell to Golf Courses (60%) and/or Commercial Landscape Companies (60%). However, Commercial Landscape Companies (24%) and Stores (23%) were identified most often as their biggest customer.

30. Key Findings – Changing Buying Habits (Reseller’s Species Sales) Almost ½ (47%) of Resellers claimed the amount of Fine Fescue they purchased declined between 2008 and 2010. This rate of decline will continue for Fine Fescue in 2010 and 2011 with over ½ (58%) of Resellers asserting their purchases will decrease. For all the species considered, Blue Grass had the highest percentage of Resellers claiming their purchases will increase (18%) this next year. However, over ½ (57%) of these Resellers also asserted their purchases of this species would decline.

31. Key Findings – Changing Buying Habits (Buyer’s Species Purchases) Almost, 3/4th (73.9%) of all Buyers buy Ryegrass while more than 1/3rd (38%) purchase Blue Grass and another 1/3rd (37.5%) buy Tall Fescue. Tall Fescue’s importance in the Golf Segment is seen with 56% purchasing this species. The importance of the Northeast for Tall Fescue sales is confirmed with 55% claiming purchases. Blue Grass purchases were most frequent in the North (71.1%) and in the Northeast (67.1%).

32. Key Findings – Changing Buying Habits (Buyer’s Species Purchases) • When Buyers were asked if the species makeup typically purchased had changed over the past few years, 17% of claimed it had. • “Constantly changing varieties”, “trying new blends”, “not being able to consistently get the same mix” and, “trying different mixtures” to deal with weather / environmental threats were the major reasons cited on “how things had changed”.

33. Key Findings – What’s Important • What’s important to the channel members? How does that plus with an increasingly aggressive marketplace change things? Due to market pressure channel members are rethinking how they will compete. • Differentiating factors - Relationships, distribution efficiency, locality, convenience, improved product quality / variety, packaging • Branding – Re-emphasize the importance. Brand Equity is essential in a competitive market emphasizing price. If nothing else, it allows for price / perceived quality differentiation. • Strategy-wise, understand what it truly means to compete and position one self successfully in the mature stage of the product life cycle - particularly as it relates to pricing, distribution, product and communication strategies.

34. Key Findings – What’s Important? (Buyer and Reseller Key Drivers) • To better understand what truly drives the decision process and motivates turfgrass seed purchases, a series of unaided and aided questions related to decision making criteria (e.g., key drivers) were asked to both Buyers and Resellers. First, both were asked: “Besides price and product quality, what is the one primary motivating factor in their company’s selection of turfgrass seed products”.

35. Key Findings – What’s Important? (Buyer and Reseller Key Drivers) • For Resellers, the relationship they had with vendors and product demand / the economy were mentioned most often. No other reason is cited half as much as these top two responses.

36. Key Findings – What’s Important? (Buyer and Reseller Key Drivers) • For Buyers, besides their insistence that only product quality and price were important, vendor relationship and support, product availability, access (delivery time, location) and convenience were cited most often. “Made in Oregon” is only mentioned once.

37. Key Findings – What’s Important - Resellers • Next, Buyers and Resellers were asked if where the turfgrass seed is grown is important regarding their purchase decision. One-fourth (25%) of Resellers asserted that location is “very important” (i.e., 9 or 10 importance rating) and almost ½ (46%) did not feel it is important at all or were neutral in their rating (5 rating). This rating has not changed between 2008 and 2010.

38. Key Findings – What’s Important - Buyers • About 1/5th of the Buyers in the Southwest and East and within the Government segment felt that location is very important (e.g., 9 or 10 rating), while more than ½ did not feel it is important at all (1 to 4 rating) or provided a neutral importance rating (5 rating).

39. Key Findings – Market Problems • What are the major problems today facing channel members in selling / buying cool season turfgrass seed? • Problems are tied to key drivers in selecting product options to some degree. • Logistical issues including delivery cost / speed, product quality issues and pricing / market conditions were highlighted as most important problems through unaided mentions and supported with importance scale ratings. • What Dealers considered to be important problems were not felt to be as important to Resellers and Buyers.

40. Key Findings – Market Problems (Dealers) • Through the exploratory and quantitative research efforts, Dealers clearly articulated the problems they felt were facing the market, industry and dealer group today. They cited many and varied problems. In fact, their lists were used as the primary source for the aided questions provided to the other channel members to rate in their surveys. • Generally, Dealers feel: • There is a lot of misinformation in the marketplace today. • Market demand and over supply is radically affecting the market particularly when it comes to competitive pricing and existing customer relationships. • The channel power is shifting down the channel closer to the customer and changing how Dealers operate.

41. Key Findings – Market Problems (Dealers) • There is little barrier to entry into selling product. Others have an opportunity to take advantage of the current market situation. • Distributors are disappearing with customers seeking new vendor options (e.g., mass merchandisers, buying directly from growers, etc.). • New product development activities are common with new solutions quickly copied and unprotected. • New competitive threats (e.g., artificial turfgrass, the green movement, etc.) are influencing the marketplace. • Brand equity provided by the Oregon brand may be eroding.

42. Key Findings – Market Problems (Resellers) • When Resellers were asked their company’s major problem / concern is, three major themes emerged: market issues (e.g., demand/economy/uncertainty combined); logistics / delivery issues / costs; and product quality / application issues.

43. Key Findings – Market Problems (Resellers) When provided a list of possible problems, Resellers selected these as having the most influence: “product availability / distribution / speed of delivery”, “increasing emphasis on service / product delivery / packaging”, “escalating aggressive competitive pricing”, and “newer / better turfgrass seed products (varieties, coating, etc.).” With 41% of Resellers providing a top-box 9 or 10 rating, “product availability / distribution / speed of delivery” is clearly the number one issue with “the increasing emphasis on service, product delivery and packaging, etc.” coming in second. “Artificial turf”, “new regions growing / producing turfgrass seed”, and “government restrictions” were identified by Resellers as their least concerns / issues.

44. Key Findings – Market Problems (Resellers)

45. Key Findings – Market Problems (Buyers) Buyers were provided a similar lists as Resellers and asked to rate how influential certain problems / issues were to their company regarding the buying / selling of turfgrass seed. “Competitive pricing” and “product availability / distribution / speed of delivery were most influential while “watering restrictions”, “pressure to use turfgrass seed and / or substitutable products”, and “new options on where and who to buy products” were least influential. By region, “watering costs and restrictions” had a stronger influence in the Southwest and “new options on where / who to buy” as well as “changing internal budgets” had a smaller impact in the Northeast. By segment, “increasing turfgrass seed watering costs” is more important to the Government. “Changing internal budgets” and “growing green/eco movements’’ became more important going from Golf to Government and then Commercial Segments.

46. Key Findings – Market Problems (Buyers)

47. Key Findings – Market Problems (Buyers) Examining top-box scores (9 and 10 ratings) across segments and regions provides more insight. By segment: “product availability….” is more important to the Golf Segment; “increasing watering costs” and “newer / better products” is more important to the Government Segment”; while, “changing internal budgets” is more important to the Commercial Segment. By region: “increasing watering costs” is more important to the Southwest Segment and less important to the North Segment; “product availability……” is more important to the Southeast Segment”; while, “watering restrictions” is more important to the North and Northeastern Segments and “pressure to use less turfgrass seed” is less important to the North Segment.

48. Key Findings – Market Problems (Buyers)

49. Key Findings – Changing Buying Habits • Because of changing market / buyer expectations surviving channel members will have to refocus their efforts to remain competitive. • New places to buy / low barriers of entry lead to new players, changing channel dynamics, new markets, a shift in the consumer attitude (growing emphasis on DIY, etc.) due to changes in the economy / marketplace create new opportunities. • New Resellers - elimination of steps in distribution to remain price competitive (Dealers over Distributors), intense competition across Distributors, and a continued growing influence of the mass merchandiser. • The Challenge of Price and the need to redefine oneself to maintain a competitive advantage.

50. Key Findings – Market Solutions • How can the Oregon turfgrass seed industry help? What programs and strategies do channel members feel the industry should focus their energy and time? • Certain channel members are torn regarding government / council / commission/ association involvement in regard to certification programs for new product development, pricing, product quality and market entry. • There appears to be need for better reporting of market data, industry news, turfgrass benefits, etc. • Promotion and education of the general public, the channel of distribution, opinion leaders and the press seem to be consistent requests from all.