Ceres Gardening Company: Funding Growth in Organic Products

Jonathan Wydown, CEO of the Ceres Gardening Company, scrutinized the figures presented by Annette O’Connell, vice-president of Marketing. It was December 2006, and the two were finalizing the firm’s marketing strategy and objectives for 2007. Having just received the latest industry report on growth and trends, they discussed the implications for Ceres (see Exhibit 1). O’Connell observed:

This report confirms what we believed—growth in organic gardening products is strong, and the trends should support long-term growth. And our own growth is outpacing the industry, especially since we launched the GetCeres program. We are clearly doing something right, and we’ve got to remain aggressive.

Wydown nodded. It was true that Ceres had shown impressive growth, increasing revenues by over 70% in just five years while growing profits by over 25% (see Exhibits 2 and 3; also see Exhibit 4 for additional information on finances). He had set ambitious goals for the company, and now they had to focus on executing the 2007 plan. O’Connell’s proposed marketing initiatives for 2007 included expanding the GetCeres marketing program, adding new products to the organic seedlings line, and pursuing a pilot program with Menards, a major do-it-yourself home center. Wydown set the report aside and said to O’Connell:

Annette, I agree we should pursue growth, but let’s be sure to think through all the implications. Expanding GetCeres and the Menards pilot will require additional marketing spend, plus attracting and training good sales talent. Adding new SKUsl to the seedlings line opens up opportunities, but we have to be certain the supply chain can deal with the added complexity. We also need to think about the financing needed to drive this growth.

History of Ceres Gardening Company

Jonathan Wydown founded Ceres Gardening Company in 1989 with a mission to promote sustainable organic gardens and landscapes. He had long been a proponent of soil preservation, biodiversity, and natural fertilizers and pest control. Reflecting on the early days of the business, Wydown recalled:

I was confident that the same principles behind organic farming would eventually apply to home gardens and lawns. I believed that consumers would start to recognize the value of avoiding genetically modified seeds and synthetic fertilizers, and I wanted to build a business that was consistent with my own convictions.

Under Wydown’s leadership, Ceres developed a selection of certified organic seeds and seedlings for vegetables, culinary herbs, and flowers.

Ceres’s principal farm was located in central California. As the business grew, Ceres expanded its product offerings to include more open-pollinated, organically grown, and heirloom varieties. The company also added live plants, such as one-year-old fruit trees. Customer demands quickly exceeded Ceres’s capacity, so Wydown developed a network of small, independent organic farms, offering them a commitment to purchase goods in exchange for an exclusive supplier relationship.

Sales and profits grew steadily through the late 1990s and early 2000s. Wydown took Ceres public as a micro cap in 1999, giving the early investors an exit opportunity. He was particularly gratified when a number of Ceres’s independent suppliers and key dealers became shareholders. Wydown commented:

The notion of “doing well by doing good” is not an easy one to execute. Getting a unique concept like ours to the next stage requires everyone involved—not just Ceres employees—to believe in the cause. It meant a lot that many of our stakeholders demonstrated their confidence by investing in us. It was a testament to the strong relationships we knew would ultimately drive our success. We are all part of something special, and it’s satisfying to see the stock market recognizing the potential of this model (see Exhibit 5).

Channel Strategy

In the early years, Ceres operated primarily as a mail-order catalog company. The company shipped vegetable and flower seeds to gardeners across the United States. Although certified organic products were significantly more expensive, Ceres developed a loyal following that valued its quality, reliability, and hands-on customer service. A free, bimonthly company newsletter provided gardening tips, introduced new products, and created a sense of community among the expanding customer base.

In addition to the direct business, Ceres had developed a modest retail presence in the early 1990s. The company focused its initial efforts on independent nurseries and garden centers in the northern California region. As interest in organic gardening grew in the late 1990s, Ceres expanded distribution to retailers through much of the western United States. As more garden centers and nurseries demonstrated a willingness to carry organic products, Wydown shifted company resources accordingly, recognizing that sales through the retail channel could overtake the slow, steady growth of the direct business.

Whereas the direct catalog and online business primarily served serious gardeners who tended to purchase seeds, casual consumers who purchased their gardening materials at nurseries tended to prefer seedlings (seeds recently sprouted) and more-developed plants. Wydown explained:

The serious gardeners are happy to buy seeds online and get exactly what they want. These consumers already know about Ceres and we value them deeply, but this segment will grow relatively slowly. We believed we would see faster growth among the casual hobbyists who like gardening and like the idea of organics. This segment prefers to buy seedlings or one-year old plants, which are much easier to grow. They are also more l’kely to buy at a local nursery or garden center where there’s someone to explain what to buy a how to care for it.

Ceres’s early investment in building a seedling and live plant business gave the company an advantage in capturing the growing retail opportunity.