Tough enough for 2010
Another Top Company trip to Napa Valley wine country, another morning-after economic wakeup call. When you take a bunch of executives on a trip to celebrate their good work and good fortune, reality is always waiting just beyond those rows of grape vines - especially for a bunch of people not quite disconnected from their Blackberrys.
The annual ColoradoBiz trip to Napa sponsored by UMB Bank, Holland & Hart and Deloitte includes an economic forecast presented by Bill Greiner, chief investment officer for UMB, followed by a roundtable discussion in which the participating businesses discuss their concerns and challenges for the year ahead.
This year's class represented a diverse group, including retail, energy, hospitality, law, accounting, technology, nonprofit, manufacturing and construction. Although most said they were feeling the pinch of the economy, some said their companies were enjoying extraordinary resilience even in a down climate due to their business niches.
Here are the COLORADOBIZ ECONOMIC FORECAST ROUNDTABLE PARTICIPANTS:
Dan King, chief executive officer, ReadyTalk, a Denver-based Web conferencing company.
Wayne Leiser, chief executive officer, Colorado Asphalt Services Inc.
John Husband, chairman, Holland & Hart LLP, regional law firm
George Roberge, vice president of operations, Project C.U.R.E., nonprofit that distributes surplus medical equipment
Lee Boughey, senior manager, communications and public affairs,Tri-State Power Generation and Transmission Association, an electric power wholesaler
Nancy Flynn, director of marketing, Natural Grocers by Vitamin Cottage, a natural foods retailer
Lew Visscher, chief financial officer, Catalyst Repository Systems, a data service for lawyers; board president, Emergency Family Assistance Association, a Boulder nonprofit
Richard Lewis, chief executive officer, RTL Networks, Denver-based IT services company
Blake Jones, chief executive officer, Namaste Solar Electric, Boulder-based solar installer
Bob Dineen, president, Rocky Mountain Natural Meats, wholesaler of bison to restaurants and retailers
Courteney Fisher, senior vice president of financial services, Sage Hospitality, hotel owner and management firm
Sandy Rothe, managing partner, Deloitte, international accounting and consulting firm
Jon Robinson, chief executive officer, UMB Bank-Colorado
Ken Lund, managing partner, Holme Roberts & Owen, international law firm
Bill Greiner, chief investment officer, UMB Asset Management
The group's comments reflect a forecast from Greiner that called for growth of 2 percent to 3.5 percent in the coming year and tepid support for the recovery from consumers, who continue to battle depressed wages, reduced real estate equity and unemployment. The following is a transcript of the conversation, edited for clarity and space.
ColoradoBiz Editor Mike Cote - In his forecast, Bill talked about how we can't rely on the consumer to drive the economy coming out of this recession. Consumers play a big role for a few of the companies represented here: Natural Grocers by Vitamin Cottage, Rocky Mountain Natural Meats and to some degree Sage Hospitality.
Bob Dineen, Rocky Mountain Natural Meats: Our sales have increased through 2009 - we've had a great year. The consumer at Whole Foods, for instance, isn't the average consumer by any stretch. We're happy where we're at. The borrowing environment and the lending environment obviously concern us. We've had some issues with customers who filed bankruptcy, but nothing that is going to hurt us long term. That's been our biggest concern: companies that we sell to that are struggling.
Cote - How about you, Nancy? You're pretty much in the same market.
Nancy Flynn, Natural Grocers by Vitamin Cottage: I've noticed more changes because of the density of the population moving into the baby boomer stage. I think that has had an impact on our production. But we have continued to grow. We only tightened the belt for maybe six months, and now we're back on board again. And we're definitely ready to move into a more upward motion again. So I don't know if we're struggling as much as we would have had we not been cautious in our growth to begin with.
Cote - Courteney, you have not only consumers as customers but business travelers. What do you see affecting your business?
Courteney Fisher: We're going to have a tough 2010. We're one of the last industries to come out of a downturn like this. The business travelers are just not there right now. The conventions aren't being booked. The people who are traveling now are getting great deals. We're expecting we might start to see an uptick mid-next year, but we're a little cautious about that. We would love to have a year next year where we're flat compared to this year, which would be a 15 percent to 20 percent down cycle over the prior year. On the lending side, you're not seeing new hotels or real state being built because you can't get the financing right now. So that's going to take some time as well on that creation of new properties and new jobs. I think we're in for a little bit longer haul.
Cote - So Dan, if they're not traveling, they might be using your Web conferencing services.
Dan King, ReadyTalk: That's right. We've had great growth in 2009. The usage of our services is up about 50 percent year over year. That's not high for us historically, but it certainly doesn't reflect any trend to the negative. We've had some customers that have grown their usage, but the offset is we've seen a lot of customers either contract or close down. A lot of high-tech companies that we supported have shut their doors. We deal with those issues on one hand, but then we have the healthier companies that we support. They have had a fairly significant increase in the remote meeting services because they're doing it at the expense of travel.
Cote - Bill was talking about the three big pushes, one of them being from government. With the stimulus package continuing to be out there and the government spending money on new energy projects, for example, we have a few people in the room who will be affected by both the money and the changes in policy. Blake, tell us about how that affects Namaste.
Blake Jones, Namaste Solar: The Recovery Act (American Recovery and Reinvestment Act) has a lot of provisions that support renewable energy. Solar panel prices are plummeting. Popular support for renewable energy is soaring. Most people believe fossil fuel prices will continue to increase. Environmental concern is increasing. I think 2010 is going to be a huge year for renewable energy. And the big question mark is what degree is policy going to support it or fuel that? The American Clean Energy and Security Act (Waxman-Markey Bill) could create carbon cap-and-trade and a renewable energy portfolio standard nationwide. If that passes, and depending upon how strong it is, that could have a tremendous long-term impact on renewable energy
Cote - Lee, these changes have certainly greatly affected your business at Tri-State. You had a coal plant project that was rejected, and that has changed the way you plan your plants. (Tri-State was a partner for a coal plant that was denied air-quality permits in 2007 by the state of Kansas, which set a national precedent by citing carbon-dioxide emissions in its rejection.)
Lee Boughey, Tri-State Generation: Our business is all about managing risk. In the last nine months or so, we've seen a much slower than expected growth in energy consumption. It's a real sign of slowing economic activity, particularly in the energy extraction industries. But we see it in households as well. That's driven by the recession, and it's also driven by mild weather patterns across the West, which has a significant impact. But these things can change dramatically. With the prospect of a cold winter and the resurgence in the economy, you'll see a significant increase in the sales of our product. And that takes us back to managing the risks of the fuel supply, on having an adequate supply to meet demand and then looking at some of the regulatory risks that are up and coming, in particular, Waxman-Markey, cap-and-trade bills. The way that legislation is specifically drafted, particularly the allocation schemes and the cap-and-trade system, could pose some significant challenges for Colorado competitiveness in relation to the rest of the country. We are working hard to make sure policymakers are aware of our concerns and of industry's concerns.
Cote - This question is directed at the law firms and the accounting firms. What have you done to adjust to the economy?
Ken Lund, Holme Roberts & Owen LLP: We've seen a significant reduction in transactions in the corporate and real estate markets. All the projects that you're all talking about here that have stopped or are no longer on the planning boards. What we have seen is a huge uptick in litigation. When times are good people do deals, and they tend to want do to more deals because obviously you make a lot more money doing that than fighting about the money you thought you were supposed to make. But in this economy there is a lot more focus on litigation, and there is a lot more of that going on. We do see some pockets on the corporate side that are still strong. People are looking for ways to manage their debt and their assets. There is capital infusion in the renewables area, but that's still on the front edge and not going in any real significant way right now.
John Husband, Holland & Hart LLP: I think Ken summarized it pretty well. Holland & Hart, though, we're a regional firm, and I think we operate in the best region in the country with the greatest growth potential. If you look at the long term, the Intermountain West is poised for growth. We haven't been hit as hard as other sectors of the country.
But the increasing government regulation and complexity that's coming - I've talked to all the business people around the table - it's just mind-boggling what's being proposed and what's out there. Those are all growth areas for the service sector, at least, and include a lot of the things Ken talked about as well.
Cote - Sandy, what's your most important concern right now? A couple of years ago we were talking about the Gen Y hires (and their different work habits and expectations compared to previous generations).
Sandy Rothe, Deloitte: Generally the demand for people isn't what it was a couple of years ago. But it's always an issue to retain your best people through these kinds of situations. Colorado is very diversified. To John's point, our offices perform better than any office in the country or as well as any office in the country. We're moving our focus on the green-tech, clean-tech renewable energy area. I think that's a real growth opportunity for Colorado. For our clients the big issue is gaining not just confidence but some certainty to the proposed cap-and-trade. All those have big cost potential to businesses. Until that is resolved, I think there will still be some reluctance to make investments and move forward until there's more clarity that the recovery has in fact come back.
Cote - The nonprofits in the room - Project C.U.R.E. and the Emergency Family Assistance Association. How has this climate affected what you're doing?
George Roberge, Project C.U.R.E.: We survive on people turning over assets that we can distribute to the developing world. The hospital that was turning in the X-ray unit and turning in the ultrasound hasn't been turning those in. Capital purchases have been pushed back, so we have seen a decrease in assets that we can distribute to the developing world. That's affected us in our inventory levels and causes a concern going forward on some of the projects we have to do.
Lew Vischer, Catalyst Repository Systems and the Emergency Family Assistance Association: Amazingly enough, a basic-needs association like Emergency Family Assistance is recession-proof. Contributions are actually up. It's amazing how the community has really rallied in tough times. They're seeing their neighbors have issues. And they're still giving. Our contributions are up from last year.
Cote - Richard, you're considering some expansion. Where are you at in that process?
Richard Lewis, RTL Networks: We opened our D.C. office the tail end of last year. Because our business is so much in the government space, we're somewhat insulated in that regard. We are having challenges growing the office in this economy. Sometimes I wish we had looked at acquisition for that expansion versus organic (growth). Our sales have been in the neighborhood of 75 percent to 80 percent above last year; so we've grown tremendously. And most of that is in the government sector. The pushback we have seen is in our products division, what Project C.U.R.E. has seen. Customers whose networks are working even though it's time for that equipment to be refreshed or maybe that equipment has reached end of life are pushing back on fork-lifting and putting in the new system a year or two years. The expansion we're looking at right now is to get more commercial business versus federal since we're so primed to do business with the government, which typically enjoys a price break over the commercial rate. A lot of commercial companies are looking to save money right now so we see ourselves as an option because we're geared to make money at a lower price point than some of the larger firms.
Cote - Wayne, how is the commercial real estate crunch affecting what you do? You pave parking lots and spruce them up.
Wayne Leiser, Colorado Asphalt Services Inc.: We're the only producer of asphalt in Colorado that does about an equal amount of new construction and overlay work as well as repair and maintenance. We don't do highway work. So first of all, the stimulus money did not affect my company at all because it was all for highways and bridges. We started this recession in my industry three years ago. In Denver, we have (as an industry) 22 asphalt plants. Combined three years ago they made 12.5 million tons of asphalt. Last year in 2008, we made 8.5 million tons of asphalt. In 2009 the projected concluding number will be 7 million tons of asphalt. And the projection for next year is no better. And that includes the stimulus money. On the public side it's going to be a long time before our public roads get anywhere close to the quality of 20 years ago and probably won't in our lifetimes. People don't spend money to even maintain their parking lots. So parking lots are getting worse and worse. Someday it will all come back. They're going to have to rip them out instead of just keep them up.
Cote - Any closing comments from you, Bill?
Bill Greiner, UMB: There's a three- to five-year opportunity that no one has really touched on yet that has to do with a demographic shift. Mohamed El-Erian with PIMCO (a global investment management firm) is one of the strongest proponents of this concept. We have the baby boom generation that has entered a stage in life - myself included, I'm 55 - where my activities and what I spend money on today is wholly different in general than what it's been for the last 20 or 25 years, particularly after the economic shock we've just gone through. People who cater to that segment of the consuming society - the 50- to 70-year-olds - are probably going to do very, very well for the next five to 10 years. So if you can think of your business lines and how to alter those business lines to focus on that segment of the consuming society - which by the way probably has more money than any of the other segments - that is a positive thing to think about.
Cote - So that means when I go to Natural Grocers, I'm going to have more people asking me, "May I help you out with that?"
Nancy Flynn: And the next time you come in you'll feel so much better you won't need any help.