Selling to customers
Earlier, we saw that the United States is a major market for The Scotts Miracle-Gro Company (SMG), accounting for about 82% of the company’s net sales in 2016. To reach customers in the United States, the company sells directly and through distributors and brokers. The company’s products are available at warehouse clubs, mass merchandisers, home centers, large hardware chains, garden centers, nurseries, independent hardware stores, food and drug stores, and indoor gardening stores, including hydroponic stores.
Three major customers
In the United States (XMLV), The Home Depot (HD), Lowe’s (LOW), and Walmart (WMT) are three of the biggest customers for Scotts Miracle-Gro. In 2016 alone, these three customers accounted for about 64%, or $1.7 billion, of the company’s net sales. The Home Depot accounted for 34% of the company’s net sales in 2016, Lowe’s accounted for 16%, and Walmart accounted for 11%. Products from Spectrum Brands (SPB) are also available at these outlets.
These three customers have been key to Scotts Miracle-Gro. Since 2004, these three distributors have contributed about 64% of Scotts’s net sales.
Customer concentration risk
With as much as 61% sales coming from just three customers, Scotts Miracle-Gro carries a significant customer concentration risk. Loss of any one of the above customers could affect the earnings of the company. In 2016, Central Garden & Pet’s (CENT) three largest customers accounted for 31% of its net sales in 2016.