In the previous part of this series, we looked briefly at investor enthusiasm for Scotts Miracle-Gro (SMG). Let’s look at that in more detail.
It’s been almost a year since Scotts Miracle-Gro launched its initiative called Project Focus on April 13, 2016. According to the company’s recent 10-K filings, the initiative was launched to “maximize the value of the Company’s non-core assets and focus on emerging categories of the lawn and garden industry in its core U.S. business.”
Clearly, the company has set its eye on its market—the United States. Emerging categories within this market would take center stage. So what has the company done so far about this strategy?
Following the announcement of Project Focus, Scotts Miracle-Gro has come closer to two main business models—hydroponics and organics— in addition to its core business. It has either acquired, gained majority stake, or joined hands with other companies that are present in these two categories.
Hydroponics is simply growing plants without the use of soil. There are two main benefits of hydroponics over soil. First, growing without soil would increase the reach of regions and seasons for growing plants, which would include greenhouse and indoor (urban) gardening. Second, a comparative study conducted by the University of Nevada, Reno found that yield and survival rate was higher for the subject, strawberries, using hydroponics.
The rise of organics
Organic edibles are gaining popularity in the Western world. It’s common to see popular chain restaurants (XLY) such as Chipotle Mexican Grill (CMG) and Panera Bread (PNRA) increasingly adopting organic foods. For example, Chipotle has allured customers by adopting food with ingredients that are more organic through its Food With Integrity initiative.
During one of Chipotle’s earnings calls, management identified Millennials as its largest customer base in the United States. Whole Foods Market (WFM) also targets Millennials with natural, organic food. Naturally, if Millennials prefer organic food, it would be smart for Scotts Miracle-Gro to focus on its organics business.
In the next part, we’ll look at hydroponics and why it’s emerging in the United States. We’ll also look at legislation.