They take a decade to mature, and can only be sold once. Now that’s slow-growth.
This week’s issue is about something that a majority of you will buy this week: Christmas trees.
We started this issue with the intention of focusing on small retail operations, but learned most of the interesting stuff happens on the farming side.
Let’s dive in!
How many Christmas trees are sold each year?
Selling Christmas trees is the quintessential “seasonal business.” All year long farmers, growers, and retailers eagerly await the buying season, when between 25-30 million real Christmas trees are sold across the United States, and another 50 million are sold in Europe.
Statistically, the week after Thanksgiving is the most popular time to buy a Christmas tree, and the single most popular day is the first Saturday after Thanksgiving weekend.
If you buy on Cyber Monday, you’re probably getting screwed. That’s the most expensive day to buy. (Forget what you know about “Cyber Monday deals” — this game is all about maximizing revenue per visitor, baby.)
Square has some great data from 2016 showing how crowds thin out and prices drop the closer you get to Christmas.
How much is spent on trees each year?
The exact value of the Christmas tree market is shockingly hard to pin down.
There is a widely-circulated figure putting the annual retail sales of Christmas trees in the US at $250 million. From what I can tell, it all stems from a completely un-cited figure by someone Penn State’s extension school, and is way off. (It’s amazing — super popular, respected news sites are linking to this without thinking twice.) But the math just doesn’t work.
The amount Americans spend on Christmas trees is likely closer to $2 billion dollars per year, a figure backed up by Statistia.
According to the National Christmas Tree Association in conjunction with the Agriculture Census (yes, I actually pored through a PDF in 6pt font), in 2017 US farmers sold 15 million trees for a total of about $376 million, meaning an average wholesale price of $25 per tree.
According to Statistia, US buyers paid an average of about $77 per tree, meaning retailers are applying a 208% markup and grossing about $52 per tree. This is backed up by data from Square, who also noted prices increased 23% from 2015 to 2018. They also shared a state-by-state breakdown showing prices vary considerably around the country.
Where do most Christmas trees come from?
The 15 million trees sold in the US are only able to satisfy about half of America’s near-permanent demand each year. The other half is supplied by Canada, whose climate and landscape is often perfect for growing all sorts of species.
Climate has a lot to do with how and what you can grow. There are 3 major growing regions in the US: The Pacific northwest, the Canada border zone, and the Appalachian mountains of North Carolina and nearby states. America’s top-producing states by volume are Oregon, North Carolina, Michigan, Pennsylvania, Wisconsin and Washington.
The big outlier here is North Carolina, which sits at a lower latitude than the other states. But as it turns out, the beautiful Blue Ridge mountains in western NC are perfect for growing the Frasers Fir — which due to its smell and hearty, non-shedding needles, is considered the “Cadillac of Christmas Trees.”
Are Christmas trees easy to grow?
Say you have an acre of land. Perhaps you wanna start a Christmas tree farm and sell trees at $25 a pop (or perhaps sell DTC and make even more). I mean why not, right? It’s just planting some fir cones in the ground, waiting a few years, lopping off the tops, and selling ‘em to retailers. And you can repeat it all next year when everything grows back! Right?
As we say in Australia, “yeah…nah.” Not quite how it works. The fact is it takes a long time for Christmas trees to grow, and there’s a surprising amount of movement and labor involved.
Christmas trees are prepared like a crop. The big difference with other cash crops is that trees don’t produce their goods once per year, they keep on growing forever. This adds an extra layer of complexity to the supply & demand logistics
Birth and adolescence
For commercial operations, seeds are first harvested from 40+ foot trees. After collection they’re frozen for preservation and sent to a greenhouse contractor, where they’re raised in a climate-controlled environment for about three years. During this time, the tree grows just 4-5 inches per year.
Once the tree is 12 inches tall, it’s transferred to a transplant bed, where it stays for another two years. By the time the tree is 5 years old, it’s still just 20-24 inches tall!
Finally, the tree is brought to a field where it’s planted into the ground and will start growing much quicker. Christmas trees need well-drained soil, so instead of being planted on flat fields, Christmas tree farms are usually sloped to prevent standing water.
Here it’s carefully watered, fertilized, and given proper pH balance. Farmers also control weeds and grasses which steal nutrients and stunt growth, and the tree is routinely sheared to stimulate healthy, nicely shaped branches. The tree will live out the rest of its short life here on the farm, until death comes knocking on chopping day.
Depending on the species, a Christmas tree can take up to 15 years to reach 6-7 feet tall. ???? Yes, that’s right. There’s a chance the Christmas tree in your living room was born while you were back in college.
Forecasting future demand is tricky
But don’t forget: Not everyone wants a 6-foot Christmas tree. Some people want 8-footers, others want 5 footers. So farmers must selectively harvest, meaning they only sell some of their trees each year, while allowing others to continue to grow. After 20 to 30 years of repeating this process, you finally have a continuous field of trees of all different sizes.
This long product lifecycle can make financing and inventory planning quite difficult. After all, you can’t use new revenue to pay back loans for 8-15 years! A lot can go wrong in that time. This is a problem whiskey distillers know all too well. Nobody knows what the market, economy, or world will look like 8 years from now.
Turkey farmers are going through same thing this year. Demand for small turkeys was way up this year, thanks to Covid-induced smaller home gatherings. Yet for years turkey farmers have actually been cutting their supply of smaller hens, causing a mass supply shortage at exactly the wrong time.
Bottom line: Sure, the Christmas tree tradition is 500 years old and demand is extremely stable. But that doesn’t mean forecasting is easy.
Christmas tree growing is a somewhat risky business.
How much money do Christmas tree farms make?
The mega growers have full time, year round crews. Then there’s a lot to buy: mowers, pickups, tractor trailers, sprayers, chemicals, balers, irrigation, twine, fencing, shearers, pruners, and of course, labor.
For smaller operations, maintenance is low, but there are certainly some startup costs involved.
On average, you can plant 1,000 trees per acre of land. Seedlings cost up to $1,250 per acre, and you’ll need a tractor, mower, plow, sprayer, and spreader. Expect initial fixed costs of $22,000.
Let’s assume it takes a decade from seedling to harvest. And let’s say you split your sales distribution 50/50 between retailers and DTC.
Assuming 2% inflation and using the figures above, you would earn $30/tree selling to retailers, and $77/tree selling DTC.
- $30 x 500 trees = $15,000
- $77 x 500 trees = $38,500
- Gross Revenue: $53,500 (or $5,350 per acre)
Revenue Per Acre Comparisons
So, is $5,350 per acre considered good?
Meh. It’s tough to say, but it doesn’t seem like it. I’m nowhere close to being an expert on this, but after doing some research it seems there are cash crops with far higher RPA (revenue per acre).
- Lavender can get you up to $120,000 per acre
- Microgreens can yield $10,000 per month and requires just a spare bedroom’s worth of space
- Ginseng growers can earn as much as $200,000 per acre when roots, rootlets, and seeds are all taken into consideration
- Goji berries sell for $20 or more per pound, and you can grow up to 7,000 pounds berries per acre, for an RPA of $140,000
- Even when we’re not in a tulip bubble, flowers typically gross about $50,000 per acre
- Finally, there’s cannabis. Using an average price of $1,948 per pound, cannabis can yield more than $1.1 million per acre. No wonder everyone wants a piece of the action.
Not to mention, none of the crops above need to be replanted each year. But once you harvest a Christmas tree, it’s gone forever!
Retailing Christmas trees
If you are a small grower, selling trees directly to the public is clearly much more profitable than selling wholesale. So what’s it like running a retail operation?
One of the things I love about Alternative Assets is it gives me an opportunity to converse with people whom I wouldn’t otherwise have a good reason to chat with.
As it happens, while on my run yesterday I spotted an Xmas tree popup shop in a nearby field. I popped in, had a brief conversation with the owner Robbo, and learned some interesting stuff.
- Harvesting: The best time for harvesting trees is early winter. Since Christmas takes place in the summer here in the southern hemisphere, it leads to trees that are shorter, drier, and a bigger fire risk.
- Price inflation: He’s been selling trees for a few decades, and says the wholesale price has gone up 150% since he first started (he’s now paying $45-$55 per tree and sells for $100). The reason is because so many tree farmers have been selling their land to developers and converting to housing.
- Permitting: Renting public space for a month isn’t too costly, but there’s definitely some paperwork involved in getting a permit to sell on public land. Expect to draft a formal proposal, attend a council meeting or two, and understand you’ll be competing against charities. Churches, non-profits, and Boy Scouts will usually be given preference over a private enterprise proposal.
- Retail costs: Aside from renting land, there are fair amount of costs: Road signs, an electricity generator, lights, storage container, delivery, transportation, fuel, insurance, credit cards processing, and of course labor. There’s no way you can handle it all yourself. You need at least one or two others helping.
- Deliveries: He gets deliveries every single day! I had assumed he would buy a bunch of trees upfront, but that’s just unnecessary extra costs. Instead of worrying about storage and keeping trees watered, he simply orders as needed and gets daily deliveries, which keeps wastage down.
- Wastage: According to Robbo, newbies in the space don’t know what they’re doing and end up overbuying. But since he’s been in the game for a while, he sells over 90% of his stock each year.
Competition from artificial trees
What about all those fake plastic trees, are they becoming more popular?
Oh yes. Acccording to the National Christmas tree association, consumers still prefer pines, but artificial trees are gaining ground. (Despite the fact that they are not actually better for the environment.)
However, there’s evidence to support that millennials are a “real tree” generation. So expect the slow rise to continue, rather than a major pendulum swing.
Selling DTC Christmas trees
If this industry has one area of opportunity, it’s selling Christmas trees directly to consumers. While delivering Christmas trees introduces some issues, entrepreneurs are hopping on the trend, hoping that DTC Christmas trees will become as popular as mattresses, razors, and makeup.
Mark Rofe is one of those folks. And let me tell you, Mark is a fascinating creature.
He has a killer URL (ChristmasTrees.co.uk) sources trees from sustainable, family-owned specialist farms in Scotland, and offers free delivery. What more could you want?
Good luck Mark!
???? My Christmas gift to you
By now you’ve probably heard of Traffic Advantage, where I use Moneyball tactics to discover mispriced, undervalued, and hidden gem websites.
But the truth is, it’s more than just another deals email. It’s a whole other newsletter designed to give you an unfair advantage when buying a content website.
As a gift, I’ve opened up last week’s issue so you can read it for free. Check it out!
- Andreeesen Horowitz had a fascinating article about how NBA teams are starting to use efficiency and utilization metrics in order to find superstar players. The article talks about new ratios that are being employed, and how they relate to SaaS businesses. It’s a must-read for data nerds. Also, does this stuff sound familiar to anyone? (Ahem, Traffic Advantage, ahem) ????
- Just some quick commentary from Morning Brew’s founder. Alt asset space drumbeat is getting louder, folks.
The alternative investment space will skyrocket over the next 5 years.— Austin Rief ☕️ (@austin_rief) November 20, 2020
– Sports memorabilia
– Real estate
These assets are more democratized than ever, and with interest rates at 0, more attractive than ever.
- Finally, in last week’s issue, when talking about dead digital billboard screens, I made a random reference to the black monolith from Stanley Kubrick’s 2001: A Space Odyssey. Well, as it often seems to happen with my newsletter, literally a few days after publishing, a mysterious shiny monolith was found in the remote Utah desert (and has since disappeared!) I don’t even know what to make of this one, guys. 2020 has been a hell of a year.
How’d you like this issue?