Effective alternatives

After material prices spiked, companies started looking for new fertilizer suppliers and new materials. © Egis | Dreamstime.com.When fertilizer prices hit an all-time high in recent years – spiking as much as 300 percent in some areas – many businesses took a big hit to their bottom lines.

“Two years ago, it was awful – almost catastrophic,” says Jennifer Lemcke, COO for Weed Man USA, the national lawn care franchise headquartered in Oshawa, Ontario.

While it’s hard to fathom anything good coming out of those difficult times, one positive is that it got many companies thinking harder about things like handling purchases, managing inventory and heading off future price spikes. It was a rude awakening, but companies likely will be better prepared now.

“The price spike caused us to do two key things,” Lemcke says. “First, we decided we shouldn’t have all our eggs in one basket, so we branched out and formed a relationship with a second supplier. We always want to negotiate the best price ... so it made sense to have another (fertilizer) source. It keeps everyone honest at the table. We now have two major suppliers.”

The company also looked at and tested different types of fertilizers.

“Raw materials cause the prices to go up so much, so we’re looking at ways to step away from that,” says Lemcke. “We want to have another option available to our franchisees if we face an extreme price spike again. We’ve been looking at chicken manure as one potential resource for the future if we pull away from the traditional sources.”

To deal with higher costs, some companies also raised their prices and are still trying to figure out exactly where they should be today. The rough economy has made that trickier. Maurice Dowell, owner and president of Chesterfield, Mo.-based Dowco Enterprises, Inc., says he did not raise prices initially because he was locked into long-term contracts, but once he did, clients protested.

“We had a late, knee-jerk reaction to the initial expense incurred and raised prices after the fact,” he says. “However, since the fertilizer prices have leveled out, we’ve started to return to our standard pricing. Mostly, because with the way the economy has been, raising our prices caused a lot of pushback from clients.”

Dick Bare, CEO and president of Arbor-Nomics Turf in Norcross, Ga., also got pushback – for fuel surcharges added to jobs within their 13,000 accounts.

“We got hit with fuel and fertilizer spiking at the same time so we added a fuel surcharge to help with the price increase,” he says. “I’ve never done anything so disastrous. Our clients really complained. I asked if they’d rather we raised our prices and they actually said, ‘yes.’ So, the next year we raised our prices five percent instead of tacking on the surcharge.”

Dowell also has made changes to prevent significant losses in the event of a future spike. One of the most important was to shorten three-year contracts to one-year contracts that are auto-renewed.

“This way we will not be locked into pricing if things change again,” he says. “Changes with fertilizer, fuel and salt, in particular, can really throw a monkey wrench into the budget. And while we can’t predict exactly what costs will be, we can at least prevent being tied up with long-term contracts that lock us into a price.”

Leveling Out – For Now
Today, prices have stabilized, but in most areas, they still aren’t as low as they were before the spike. Some have heard through the grapevine that prices may rise again. “What I’m hearing from vendors is that we should be on the lookout for the cost of potassium and phosphorous to go up in the near future – though not anything like the urea explosion,” Dowell says. “China is buying up a lot of these raw materials and it’s become a simple matter of supply and demand.”

There’s no doubt that China is having a big impact on the global market and keeping fertilizer prices higher than they used to be. “They are the world’s largest consumer of the three main nutrients in fertilizer,” says Kathy Mathers, spokeswoman for The Fertilizer Institute, a trade group in Washington. “China has a view of fertilizer where they see it as a commodity of strategic national importance. They understand the value of continuing to feed their growing population, and because of that they really value the use of fertilizer.”

While the rollercoaster pricing of raw materials can’t be controlled, companies are becoming wiser about working with their vendors, managing inventory and handling purchasing in order to control the things over which they do have some power.

“We have a good long-term relationship with our supplier, and that has been extremely important,” Bare says. “When things get tough, they can stockpile a couple semis of fertilizer for us before the prices really spike.”

Lemcke agrees and says that Weed Man’s strong relationship with its suppliers leaves company officials confident that they’ll get word of what’s coming down the line. “If there is another price spike coming, we need to be able to react and tell our franchisees to order now,” she says. “We expect our vendors to give us some advanced notice so that we can put our orders in early.”

A tighter rein on inventory is also helping keep costs controlled in these uncertain times, says Patrick Floyd, pest control manager of Florida-based Corey Enterprises Lawn and Landscape.

“Since the price spike, we now track our fertilizer usage much more closely,” he says. “We pay closer attention to make sure the square footage on our properties is accurate and we now do bag counts to make sure the proper amount is going out. I used to leave it up to my technicians and was kind of eyeballing it, but in a time when we’re number crunching everything, we’ve become much stricter.”

Most companies say they don’t get into stockpiling because storage fees can counteract the benefit. But they will if the price is right.

“I pretty much do the same thing I’d do at Walmart with anything else – if it’s a good sale, and I am sure I will use it I will buy extra,” Floyd says. “I know that a price increase can come at any time and if I can get a deal on something, I will stockpile a bit.”

In terms of purchasing, many say there’s more opportunity to shop around a bit. “In the past we may have only gone with the big-name vendors, but my ops people say some of the smaller companies have become extremely competitive with their pricing and terms,” Dowell says. “They’re offering extended repayment terms, and that’s something that’s very attractive to us. Anytime we can go 90 or 120 days is huge for us.”

Unfortunately there’s no magic answer to predicting future price increases or even completely heading off another major spike. But with the right planning and strategizing today, businesses can be better prepared.

“Most of these things are cyclical – the prices go up and down,” Dowell says. “It’s a rollercoaster situation. As business owners, we just need to be aware that we will see some spiking and some burrowing of prices and we need to hold the rein steady.

“The best we can do is connect with our clients, offer the best service and really hold their hands when times are tough so that they continue to remain our clients. With that extra effort you can weather the inevitable fluctuations that will come with pricing.” 

The author is a frequent contributor to Lawn & Landscape.