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Agrimarketing : September 2009
24 Agri Marketing September 2009 OUR WORLD HAS CHANGED: PART FOUR IN A SERIES SELLING SEED TO ENHANCE RESULTS by David Hollinrake, Vice President, Adayana Company Ag retailers traditionally focused significant resources on selling and servicing fertilizer and crop protection products and viewed seed as only a complementary component. However, farmers have begun to take a more integrated approach to their input decisions. They now view seed as a central component of a com- plete production program, which includes high-performing hybrids, fertilizer, crop protection products, and agronomic solutions to maximize their productivity and profitability. The chart to the right demonstrates that seed sales have nearly doubled, both in value and as a percent of ag retail sales, in just four years. Under- standing this trend, many retailers are looking for ways to maximize sales and profitability of seed. Through research with retailers in ten Midwest and Great Plains states, Adayana Agribusiness Group found that top-performing seed retailers earned higher net operating profits on seed than crop protection when costs were fully allocated to each enterprise and other best practices identified were implemented. MEASURE PROFIT PER ACRE INSTEAD OF PERCENT MARGIN Agricultural input retailers com- monly measure percent margin when analyzing business unit performance. Retailers, however, share a common frustration when analyzing their seed business perfor- mance --- seed typically offers lower percent margins as compared to other business components. Our research shows that enterprise accounting systems provide a better measurement approach, as it allows retailers to more accurately allocate expenses by business unit. Interest- ingly, when using an enterprise accounting approach many retailers found that their seed business results actually achieved higher profits per acre than other products sold. ACHIEVE A CRITICAL MASS Not surprisingly, sales volume is a strong factor in achieving suc- cess with seed. The top quartile of retailers surveyed sold 43,000 units of soybean seed, and 11,000 units of corn seed, as compared to 20,000 and 6,000 respectively for bottom quartile retailers. Those retailers whose vol- ume was in the top quartile achieved an 8% seed net operating profit, as compared to an average 5% loss among bottom quartile seed sellers. BUSINESS BEST PRACTICES Successful retailers in seed aggressively focus on the knowledge, skills, and behaviors required to develop and manage a seed business plan. This business strategy drives how retailers recruit new personnel, train staff, and represent their entire portfolio. These elements influence retailers' ability to receive their desired selling price and to charge for services provided. Also, managers can encour- age a deeper understanding of cus- tomers by targeting individual accounts and their specific needs, rather than assuming all customers have similar needs. Top seed retailers also revealed that they decline business that does not meet margin goals. This requires a disciplined sales team focused on profit rather than vol- ume. Effective training can help your sales team successfully com- municate the value of your seed and services. Top seed sellers also provide ancillary services valued to customers, and remain disciplined in charging for those services. One retailer said their profitability strengthened when they started charging for just-in-time delivery, a service they once offered for free. Other common best practices include streamlining and consolidat- ing customer information, logistics, and warehousing and incorporating bulk seed capabilities. Many top-per- forming seed sellers also tracked cost reduction by location, and offered incentives to their employees who lowered operating expenses. Facility managers with incentives to lower operating expenses aggressively increased profitability by expanding their focus beyond gross margin. THE OPPORTUNITY Seed is a strategic, vital component to the long-term success of agriculture retailers. By adopting a set of management practices that focuses on meeting the needs of farmers through improved seed knowledge and skill, increased busi- ness efficiencies, appropriate profit measurement and cost allocation, retailers can capitalize on the opportunities created with seed. I invite you to visit our web site: www.adayana.com/agribusiness or contact me to learn how you can accelerate your success with help from the Adayana Agribusiness Group. AM David Hollinrake is Vice President for Adayana Company. E-mail: dhollinrake @adayana.com
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