2004 STATE OF THE IRRIGATION INDUSTRY REPORT - Steady Stream

Water may be colorless, odorless and tasteless, but don’t let its simplicity fool you. H2O is the lifeblood of plants and animals; it’s a cleanser and a coolant; it’s an ingredient in everything from paint to copy paper. It’s an essential, and it seems to be everywhere.

However, according to Rain Bird Corp.’s white paper, "Irrigation for a Growing World," only 1 percent of all the Earth’s water is accessible freshwater. Furthermore, growing water shortages could negatively impact health and wellness, as well as business and industry. While the U.S. population has doubled since 1900, water use has increased eightfold, and per-capita water consumption is up to 101 gallons per day, though only 20.5 gallons are necessary to maintain life, hygiene and food production.

Water use and availability are especially important to landscape contractors. Lawn & Landscape research shows that 82 percent offer irrigation services and an additional 10 percent of businesses subcontract irrigation. As a result, water availability for landscape purposes is a must, which is why conservation has become such a prominent topic.

Luckily, in spite of any challenges with restrictions, most irrigation contractors expect to end the year on a high note, with increased sales over 2003.

A CONSERVATIVE APPROACH. For 2004, 90.9 percent of companies offering irrigation are predicting growth for these services, either installation or maintenance. Broken down further, 52.3 percent of companies expect installation to grow the fastest, with an average increase of 32.6 percent, while 38.6 percent expect to see an average increase in maintenance of 23.5 percent. This follows a banner 2003 year when 92.6 percent of irrigation companies reported growth.

One reason for the dynamic growth trend in this sector carries with it a slight irony: water restrictions. Manufacturers and contractors agree that tight restrictions actually influence homeowners and property managers to hire professionals for their water management needs.

"In some cases when there are water restrictions, it actually creates business because people need to become more efficient," explains Jeff Carowitz, vice president of marketing, Hunter Industries, San Marcos, Calif.

Carowitz says wet weather in the South and southeastern United States have dampened irrigation sales a bit, but easing watering bans in the West have simultaneously increased sales in that part of the country. "Most of the watering restrictions were lifted in most of the critical areas to where they can now install and run irrigation when they need to, so that’s been less of factor this season than two or three years ago," Carowitz says.

Moreover, Carowitz sees contractors and municipalities collaborating on positive conservation solutions. "Instead of banning watering altogether, many states are requiring the installation of rain sensors to save water," he says. "In Florida, this type of law has already saved 30 billion gallons of water. Other places allow watering only on certain days of the week or during certain hours. There’s a lot of positive legislation that can make for good conservation."

Other states also have enacted rain sensor legislation, opening up sales opportunities for many contractors. While only 3.4 percent of contractors reported that rain/moisture/weather sensors were among their top three irrigation equipment expenditures annually, manufacturers expect sales for this product category to increase as more states pass legislation and more contractors and customers become aware of the water savings these small $50 parts can afford.

CONTROLLING EXPENSES. Other products promising water conservation and increasing sales are irrigation controllers. As core irrigation components, controllers came in as the third most common irrigation expenditure, with 40.6 percent of contractors placing controllers within the top three products that make up the majority of their annual irrigation expenditures. Additionally, central control systems are gaining popularity, especially on commercial sites. These systems let controllers monitor sites via the Internet.

In fact, 32.3 percent of respondents said they use central control systems on their smaller commercial properties, while 10.1 percent prefer this approach for larger commercial jobs and 7.9 percent use central control systems on every commercial account. While 38.2 percent of contractors said they do not use central control systems, 15.2 percent said they are looking into it.

Dean Akers says his company is beginning to use central control-style systems. "We’re in the process of implementing Web-based controllers that really promote responsible water management," he says. "It’s something that we may implement as standard equipment for accounts that are more than $50,000 or $60,000. These systems can cost $4,000 to $5,000, but when the landscape you’re trying to grow and protect is worth tens or hundreds of thousands of dollars, it’s something that our larger clients would consider buying into."

Besides central control systems, other expenditures on irrigation parts, pieces and systems is increasing along with overall sales. For 2004, 38.2 percent of contractors expect to see increased spending on irrigation, while 54.9 percent expect expenditures to be in line with last year. Only 2.4 percent expect decreases in expenditures. Irrigation equipment expenditures are expected to increase 8.1 percent this year, resulting in the overall market value increasing by roughly $44 million to $590 million.

In addition, Lawn & Landscape research shows a link between the type of business growth irrigation contractors are seeing and how these contractors are spending their money. In 2003, 45.9 percent of contractors saw installation growth, while 46.7 percent saw maintenance business increases. This even split is reflected in expenditures, as 33.9 percent of contractors note spending less than $5,000 in 2003 and 40.4 percent spending $10,000 or more. Survey data shows that the lower dollar expenditures were reported by a higher number of maintenance companies. These firms are spending money on less expensive parts and pieces, while contractors busy with installation work are investing in higher-priced products like controllers, as well as a larger volume of materials necessary for new system installation.

Further, growth in maintenance has pulled up valves to the top spot on contractors’ lists of irrigation expenditures by product category. When contractors were last surveyed in 2001 on specific product expenditures, rotors ranked as the No. 1 expenditure, while valves came in fourth. This year, valves top the list, with 63 percent of contractors reporting them as one of their top three irrigation expenditures. Rotors follow at 57 percent. Additionally, increased installation work moved controller expenditures up the list from fifth place to third place, with 40.6 percent of contractors naming it one of their top three irrigation expenditures.

On average, contractors keep $1,342 worth of irrigation inventory on hand, with the majority of respondents (24 percent) reporting average inventory between $1,000 and $2,499. Another 19.5 percent of contractors keep less than $500 in inventory on hand, and 14.8 percent manage inventory of $5,000 to $9,999.

HOPPING HOUSING MARKET. Historically low interest rates and a steady increase in housing starts also is helping irrigation contractors earn more business.

According to CNNMoney.com, housing starts numbered 2 million in August, up 0.6 percent from July and 3.6 percent higher than expected. Likewise, the U.S. Census Bureau reports that the current housing rate is 9 percent higher than the same month a year ago. Though the Fed continued to raise interest rates through September to 1.75 percent, Federal Reserve Chairman Alan Greenspan noted that despite a soft patch related to rising oil prices over the summer, the economy is again in a position to grow.

This is good news for the 27.3 percent of contractors who named the economy as their second biggest business challenge for 2004. "The economy can have a positive or negative impact on the industry and currently it’s fairly positive," says Ken Mills, vice president of the contractor division at Rain Bird, Tuscon, Ariz. "This industry tends to follow what goes on in the construction business and interest rates have been low, so home building and commercial construction is stronger than if interest rates were higher."

Jeff Sutter says economic indicators help his company gauge sales for the upcoming year. "Each year, we look at the economy and the housing market and we’ll make a projection for our sales for the next year," explains the managing director of the irrigation division at Mickman Brothers, Ham Lake, Minn. "Three of the last four years, we have met or beat our goals for the year. This year, we’re expecting around $1.5 million in sales, which exceeds our goals."

Sutter says low interest rates have helped his residential business because the company has strong relationships with area builders.

Brent Bottlinger sees a similar trend in the South. "In Texas, an irrigation system is a must-have, even for a starter home," says the vice president of operations for Choate Irrigation, Plano, Texas. "Also, with water restrictions, people don’t want to worry about going out to water in the middle of the night. They want a system that will automatically water the right amount at the right time. Installing irrigation systems has become expected, so the business for the builders we work with has exploded."

Though Bottlinger sees a trend toward more commercial work as cities require property managers to comply with water restrictions, residential work stays strong. "The market is telling us that 70 percent of the people who spend $150,000 on a new home will install an irrigation system within the first year," he says. "This year has been pretty wet, which generally means lower sales, but as the weather gets better, the housing market and conservation efforts are going to keep bringing us business."

Lawn & Landscape research shows revenue increases for contractors in both residential and commercial markets. For 2004, 39 percent expect to see commercial revenue grow, while 49.1 predict no change, and 1.2 percent expect a drop in revenue. At the same time, 48.9 percent of contractors say residential revenue will grow in 2004, while 42.2 percent see residential revenue holding steady and 1.2 percent expect a decrease. Overall, this translates to a net increase in commercial revenue of 9.2 percent, while residential revenue will see a net increase of 15.2 percent. Overall revenue growth for irrigation is expected to be 12.6 percent for 2004, and contractors are confident that sales will remain solid.