Glen William Greenhouses Ltd
During the first week of June 1988, Jim Wood, principal owner and manager of Glen
William Greenhouses Ltd of Glen William, PEI, had just received the results of a market
research study he had commissioned in April, 1988. Mr Wood was considering
constructing a one hectare greenhouse to grow and market hydroponic lettuce in the
Maritime provinces. Based on the results of the market study, Mr Wood had to decide
whether to proceed with the plans to construct the greenhouse.
Hydroponics
Hydroponics is a method of growing vegetables indoors without the use of soil. The
vegetables are cultivated in an inert medium, such as porous volcanic rock, rockwool, or
polyester wicks, using a tray or channel system. The trays or channels are linked by
plastic tubing which carries a nutrient solution directly to the roots of the individual
plants. This water-based solution provides the complete nutritional requirements of the
crop. The grower can tailor the nutrient solution to the particular vegetable grown or to
the specific requirements of the vegetable at any stage in the growth cycle.
This case was prepared by Professor Sean Hennessey of the University of Prince Edward Island for the Atlantic
Entrepreneurial Institute as a basis for classroom discussion, and is not meant to illustrate either effective or ineffective
management.
Copyright 0 1993, the Atlantic Entrepreneurial Institute. Reproduction of this case is allowed without permission for
educational purposes, but all such reproduction must acknowledge the copyright. This permission does not include
publication.
The vegetables which can be grown in a greenhouse using hydroponic technology include
tomatoes, lettuce, English cucumbers and peppers. In certain areas (Netherlands,
Germany, the United Kingdom, parts of the US, Ontario, and British Columbia),
hydroponics has proven to be a superior method of production in comparison to soil.
Yields can be 20% to 30% higher, growing times measured in days versus months,
quality superior, nutritional value higher, and shelf life longer. All this is achieved
without the use of pesticides or herbicides. The plants are not sprayed since insects are
not a problem in a greenhouse and disease is very rare. The vegetables also appear in
grocer's produce departments in near perfect form, perfectly shaped and fresh looking
with no blemishes. Hydroponic vegetables as a result, usually command a premium price
in comparison to the field grown competition.
The key to ensuring a superior hydroponic product is handling, from the minute it is
harvested to the final display in the produce department. The product must be cooled as
soon as it is picked, packaged, and distributed as soon as possible. Wholesalers and
retailers must also handle the product properly. If this is done, consumers have displayed
a willingness to purchase the product and pay a premium. For example, shoppers in Large
urban areas have paid up to a 300% premium for hydroponic vegetables.
Hydroponic Lettuce
Hydroponic lettuce has been grown successfully for a long period. Originally, only leaf
lettuce (boston bibb and green and red leaf) was grown hydroponically. Over the past
decade however, the more popular varieties of head lettuce (iceberg and romaine) had
been successfully grown hydroponically. There are large hydroponic producers in the US,
British Columbia and Ontario devoting five to six acres of greenhouse capacity to the
growing of head lettuce year round. Hydroponic iceberg lettuce looks like field grown
iceberg, but the head is not so tight and it will weigh at least 15 to 20% less.
The advantages of hydroponic lettuce over field grown lettuce include the general
advantages discussed above, especially higher quality; it is non-allergenic and fully
digestible, important features for many seniors. Also, it is free of dirt and grit, a very
common occurrence in field grown lettuce. Many hydroponic producers, in fact,
recommend that their lettuce not be washed as tap water may soil the lettuce.
Furthermore, hydroponic head lettuce lasts longer and the whole head can be used. There
is no waste.
If, however, the product is not handled correctly, then it can deteriorate very quickly after
picking. The maximum shelf life for lettuce which is handled and displayed properly is
three weeks. This would be extremely rare and the more usual shelf life expectancy
would be seven to ten days. Lettuce, not handled correctly as soon as it is picked, could
be unfit to sell a day or two after picking.
Many chefs prefer hydroponic head lettuce even though it is more expensive than the
field grown competition. The advantages cited are that it saves labour time, there is no
waste, and it is much fresher. In general, the chefs felt that with its advantages,
hydroponic lettuce is definitely worth the extra cost.
Glen William Greenhouses Ltd
Glen William Greenhouses Ltd began operations in July 1982, when Jim Wood, the
manager and major shareholder, constructed an 8,000 square foot (sq ft) greenhouse in
Glen William, PEI to grow hydroponic tomatoes. After carefully studying the market for
tomatoes in the Maritime provinces, Mr Wood felt there was a definite need for a locally
grown, quality alternative. During the winter and spring, the tomatoes on the market were
generally imported from the southern United States and were not in good condition by the
time they were displayed in grocery stores in the Maritimes.
Glen William Greenhouses gradually expanded to 26,000 sq ft by 1988. After testing a
number of different crops including tomatoes, lettuce, peppers, and cucumbers, Mr Wood
had concluded that he could consistently grow good quality tomatoes and lettuce. The
problem he faced was that an operation of his size had to specialize on one crop.
Expansion Plans
Given the opportunities for expansion, Mr Wood was considering constructing a two
hectare greenhouse: one hectare to grow tomatoes, one to grow lettuce. His problem was
that he only had capital available to construct one hectare. One hectare was equal to 2.47
acres. Since one acre was 43,560 square feet, the total available growing area was
roughly 108,000 sq ft. Therefore, he had to make a choice regarding the possible
alternatives. Since he had been growing and marketing hydroponic tomatoes for seven
years, he felt he had a sound grasp of the market for tomatoes.
Mr Wood was less certain about the market for lettuce. He was certain he could grow
good quality lettuce, but unsure about the varieties which would sell. He knew there was
a large market for lettuce, but was not certain of the exact size nor of the price the market
was willing to pay. He was also interested in the experiences of the existing producers of
both field grown and hydroponic lettuce in the Maritimes as well as the distribution
channels they used. Mr Wood felt that "with care and proper attention to the marketplace
and with judicious advertising, there was a place for greenhouse lettuce on a large wale in
the Maritimes".
With these thoughts in mind, Mr Wood commissioned a market research study into the
production, consumption, and distribution of lettuce in the Maritime provinces. At this
point in the process, Mr Wood was less concerned with the financial aspects of the
project. Once he received the results of the market research study, he would then be in a
position to make a decision regarding the feasibility of marketing the product. If the
results of the market research proved to be positive, then additional research on the
financial considerations would be completed. It was April and in order to proceed with
the plans to construct the greenhouse, Mr Wood required the results of the market
research by the first of June at the latest. In the meantime, he was considering production
volumes.
Expected Production Levels
Mr Wood wished to estimate the production (number of head lettuce) he could expect
from a one hectare greenhouse devoted solely to the growing of lettuce. To estimate his
potential production, Mr Wood knew he would have to account for the differences in
production between summer and winter. Winter lettuce normally took much longer to
grow and the resulting head was usually significantly smaller than the summer lettuce.
For example, the size of a summer head of lettuce normally averaged 7 oz while the
winter lettuce average was 5 oz.
The winter months were considered November to March, the period when days were the
shortest. The remainder of the year was deemed summer months. The time to grow a
head of lettuce to maturity in the winter averaged 11 weeks while in the summer the
average fell to approximately 6 weeks. In a one acre greenhouse, approximately 120,000
heads of lettuce could be growing at any point-in-time.
Pricing Information
As with most produce, the price for lettuce fluctuated with the supply. In winter, when
field grown lettuce had to be imported from the southern US, prices were high. An
average retail price of $1.39 per head for iceberg or romaine was not unusual. In summer,
when the locally grown product was available, prices fell to an average of $.79.
Offsetting the reduced price for a hydroponic product was the fact that costs of producing
the lettuce were 40% less than during the winter. Retail margins on lettuce were roughly
40% while wholesalers normally required 20% to handle the product.
The Market Research Study
The team of market researchers reported their results during the first week of June. The
report provided information regarding the demand for lettuce, the production of lettuce,
the growers of hydroponic lettuce, and the distribution channels used for lettuce. A
summary of the findings in each of these areas is provided below.
Demand For Lettuce
Exhibit 1 outlines the total amount of lettuce consumed in Canada, the amount produced
domestically, the amount imported, and the consumption per capita for the five years
1982 to 1986. The dollar value of the lettuce imported over these five years averaged
approximately $87 million per year. In 1986, the dollar value of the lettuce imported into
Canada was $107.5 million. Over 99 percent of the lettuce imports originated in the
United States.
There were few statistics for lettuce consumption in the Maritimes. Based on the
Maritime provinces' populations of approximately 1,710,000 and the 1986 Canadian per
capita consumption of 222 pounds of lettuce, the expected consumption of lettuce in the
Maritimes would be almost 40 million pounds. However, according to a 1984 report by
Ironwood Consulting Services of Almonte, Ontario entitled "Atlantic Vegetable Situation
Analysis", Atlantic per capita lettuce consumption was only half of the national level.
Actual statistics available for lettuce were for "unloads" imported into the Maritime
provinces. Exhibit 2 provides Agriculture Canada data for 1986 and 1987. Since only two
markets in the Maritimes were followed by Agriculture Canada, it was quite possible that
not all of the lettuce consumed had been accounted for. Statistics Canada also traced
lettuce imports into the Maritimes. Exhibit 3 outlines the figures reported by Statistics
Canada for 1986 and 1987.
Lettuce Production in the Maritimes
In the Maritimes, approximately 22 operations grew lettuce in significant quantities. Of
these, three produced lettuce year round, hydroponically Exhibit 4 provides 1986 and
1987 data by province, of the number of traditional (field grown) growers, the number of
acres planted, the production marketed, and the value of the production, also included is
the same information for Canada as a whole for 1986.
Approximately 75 percent of the field lettuce grown in the Maritimes was iceberg. The
remainder was romaine with a number of operations also growing a small amount of leaf
lettuce. Some of the operators had grown bibb lettuce in the past, but it was considered a
specialty lettuce, and for the small amounts sold, not really economical. Iceberg and
romaine were the types of lettuce which were purchased by consumers in the maritime
provinces. Combined, they accounted for at least 90 percent of the lettuce market.
The field grown lettuce was planted in the first week of May and harvesting began during
the last week of June. Maritime producers sold the majority of their lettuce directly to the
large retail stores. The reason for this was the higher price. Retailers paid growers the
same price for their lettuce as they paid for imported lettuce. Some growers used
wholesalers, but only when they could not sell directly to retailers.
During July and August, the bulk of the locally grown lettuce was harvested. As a result,
most retail stores sold only locally grown field lettuce during this time. This resulted in
imports declining quite substantially during the summer period. Exhibit 5 displays the
quantity of lettuce imported into Halifax and Canada during the months of April, May,
July and August for the years 1986 and 1987. While the quantity of lettuce imported into
the Maritimes from the US was reduced quite significantly during the summer months,
imports from Quebec began to enter the market.
Growers of Hydroponic Lettuce
In the Maritimes, three producers grew hydroponic lettuce, two in Nova Scotia and one in
New Brunswick. Similarities in their operations and views concerning the production and
marketing of hydroponic lettuce was discussed.
First, the greenhouses for the three producers were 11,000 sq ft and 22,000 sq ft in size.
Their respective production figures for lettuce were 70,000 head, 156,000 and 200,000
head per year. Production during the summer was approximately double what it was
during the winter All three companies grew other vegetables, primarily tomatoes. The
three producers each grew the same three varieties of lettuce: boston bibb accounting
roughly 60% of total production, green leaf 25%, and read leaf 15%. These varieties were
considered specialty lettuce.
Second, the producers sold their lettuce directly to large retail stores and restaurants in
their areas of operation. The sellers were responsible for delivery of the lettuce to the
individual stores. Urban centres seemed to be the areas where hydroponic lettuce of these
varieties were sold. The chain stores, like IGA and Sobey's, were the retailers of choice
for the growers.
Third, the producers did not now use, nor would they use, wholesalers to sell their
lettuce. The principal reason for this was handling problems. The growers did not believe
that the wholesalers would take proper care in handling the lettuce and, therefore,
retailers would either not buy it, or would only pay a reduced price.
A second reason for not using wholesalers was the growers' concern about losing contact
with the retailer, more specifically, the produce manger. The growers felt that contact had
to be maintained in order to ensure that retailers carried the product and continued to
handle it correctly A third reason for by- passing wholesalers was the 20 percent margin
required by the wholesaler. From the grower's perspective, the wholesaler was not worth
this cost.
Fourth, each of the growers packaged their lettuce in a similar manner. The lettuce was
packaged in a plastic bag with the roots attached. The bag had a watertight pouch in the
bottom in which the roots were placed. An elastic band held the roots in place. On the
bag was printed the producers name, in some cases a brand name like 'live lettuce" or
'living lettuce", and information about the lettuce. The information on the package
included such items as non-allergenic, no pesticides used in growing, fully digestible, and
chemical free.
Fifth, growers did not receive a premium price for their lettuce, nor did retailers charge a
premium price for hydroponic lettuce. Hydroponic lettuce was perceived by the existing
growers as having some benefits over the field grown lettuce; however, produce
managers did not share this view.
Sixth, the growers believed that in order to increase the demand for hydroponic lettuce,
both retailers and consumers had to be educated concerning the benefits of hydroponic
lettuce. This view might have been held in part because of the types of lettuce they
produced. Consumers in the Maritimes primarily purchased head lettuce: iceberg and
romaine. Since the three producers felt that they could not grow these varieties, they had
to educate consumers not only about hydroponics, but also about the three specialty
varieties produced.
Seventh, each of the producers had used in-store promotions to encourage consumer
purchases. The promotions were used by the growers when the lettuce was first accepted
by the retail chains. In each store carrying the lettuce, point of purchase displays were set
up. After the introductory time period, promotions were used, but very infrequently and
at irregular intervals.
The promotion consisted of a booth in the produce department of the store. Samples of
the lettuce, information sheets describing hydroponic lettuce, and recipe cards for salad
dressing for the lettuce were available. The producers felt that these promotions were
very useful in encouraging consumers to try the lettuce and once they tried the product,
they would repurchase it. In this context, the promotions were considered a success.
The growers also used price promotions during the summer months, when production
was high. Growers offered the retailers a price reduction if a certain number of cases of
lettuce were purchased. No other types of promotions or marketing had been attempted
by the producers.
Eighth, at least one of the producers had completed some very preliminary market
research and determined the following:

The lettuce sold best in urban versus rural areas. All the growers sold to the Halifax
market and all agreed that this was the market having the greatest potential.

The lettuce sold best in locations where there was a large ethnic population.

The lettuce sold best in areas where income level per capita was higher than average
and where education levels of the population were greater.
Experience showed that the lettuce sold well in Fredericton and Moncton, but not in Saint
John. It also sold well in Sackville and Wolfville, but not in Amherst.
Wholesalers of Lettuce
Wholesalers located in the Maritimes did not carry hydroponic lettuce since, as
previously discussed, the growers sold directly to retailers and restaurants. Wholesalers
appeared, however, to have a good knowledge of the concept of hydroponics. Some had
previous experience with both the distribution and retailing of hydroponic lettuce. The
consensus was that in order for wholesalers to distribute the hydroponic lettuce, growers
would have to convince them that the product was high quality and that it could be
delivered in top condition.
Also, wholesalers felt the retail price should be competitive with field grown lettuce, not
premium, at least in the beginning. Finally, growers had to promote and educate the
consumer regarding the hydroponic concept. This promotion was very important to help
pull the product through the system. In short, wholesalers were willing to Carry the
product on a trial basis, especially the more popular varieties of romaine and iceberg.
Retailers of Lettuce
Retailers believed that hydroponic lettuce sold best in the urban areas and that Nova
Scotia consumers were the most exposed to hydroponic leaf lettuce. Hydroponic lettuce
accounted for less than ten percent of the lettuce sold by the retail stores which carried it.
The retailers felt that growers had to consistently promote the product to the end buyers.
The special packaging and labelling used for the lettuce served as a very limited form of
promotion. Generally, the retailers did not consider premium pricing as feasible for
hydroponic lettuce. Based on past experience, the retailers believed that consumers
bought first on price and then on quality.
The retailers perceived that the product would be of better quality and fresher if it came
directly to them from the grower rather than through the wholesaler. The wholesale
system added more handling and time that could adversely affect the product quality. On
the other hand, the growers felt that they had to educate retailers on the handling
requirements of hydroponic lettuce. The reaction of one of the growers to this situation
was that the produce managers in many of the retail stores "don't put in the extra efforts.
They couldn't be bothered".
Generally, most retailers carried hydroponic lettuce. This acceptance was conditional on
the variety, quality, price, timing, delivery and grower support; conditions similar to
those stated by the wholesalers. The retailers felt that consumers were receptive to
hydroponic lettuce given the exposure and positive response to hydroponic tomatoes.
They felt the positive perception would be carried over to lettuce.
Conclusion
With the results of the market research study available, Mr Wood had to decide whether
he should proceed with his plans to construct a one hectare greenhouse to grow
hydroponic lettuce. He had already devoted a great deal of time and money to this project
and before proceeding with a study of the financial aspects of the greenhouse he wanted
to be sure he could sell his production. Was there a market for hydroponic lettuce in the
Maritimes?
Exhibit I
Statistics Concerning Lettuce
Consumption in Canada
LettuceDomestic
Lettuce Lettuce Imports Consumption
year
Consumed Production Imported as a Percentage
(millions of pounds) (pounds)
1982
1983
1984
1985
1986
517.6
546.1
571.3
578.6
605.8
86.3
95.3
104.0
113.5
90.1
431.3
450.8
467.3
465.1
515.7
83.3
82.5
81.8
80.4
85.1
Per Capita
19.5
20.4
21.1
21.2
22.2
Source: Apparent Per Capita Food Consumption in Canada Statistics
Canada (32-230)
Exhibit 2
Inload Statistics for Lettuce Unloads in the Maritime Provinces(a)
(in ooo's pounds)
Lettuce Variety
Total
Head Leaf Total Quantity
Domestic(b) Imported Domestic(b) Imported Domestic(b) Imported Unloaded
Halifax
1986 2,217 7,210 440
1997 2,343 6,564 539
813
2,657 8,023 10680
1,444 2,882 SIM 108"
Saint John
1986 222
1987 345
1,380 10
I,=
51
31
54
232
396
1,411 1643
1,376 1772
Notes: (a) Statistics for 1986 and 1987 for the unloads at the two locations in the
Maritimes
for which data were maintained.
(b) The term "domestic" simply means that the unload originated from a domestic
market the lettuce shipped may not have been grown domestically For example,
lettuce was imported from the US to Montreal. Some of this lettuce may have
then
been shipped to St John. For the purpose of this exhibit, this lettuce would be
considered domestic.
Source:
Annual Unload Report:
Fresh Fruit and Vegetables
Crop Development Division
Agriculture Canada
February 18,1988
Exhibit 3
Lettuce Imports into the
Maritime Provinces (a)
(in 000's of pounds)
Year
Nova New
PEI
Total
Scotia Brunswick
1986 359
1987 226
19,178 213
18,418 0
19,750
18,644
Note: (a) These statistics were reported by the importers, based on the declared quantity
on the bill of sale, directly to Statistics Canada.
Source:
Statistics Canada
computer Print-outs May 1988
Exhibit 4
Production of Lettuce (field grown)
in the Maritime Provinces
Total
Production
Value of
Acres Marketed
Production
Price per
Number of Harvested (ooo's 1bs)
($000s)
Pound
Growers 1987 1986 1987(a) 1986 1997 1986
1997 1986
Province
PEI 4-5
119 101
$.55 $.30
240 600
144 175
40 35 216 336
Nova
Scotia 8-10
100 100
$.60 $.292
New
Brunswick 4 25 75 112 350
56 122 $.50 $.35
Total 16-19 165 210
568 1286
319398
Canada n/a
n/a88,154
n/a 18,711
n/a 5,350
n/a $.212
Note: (a)The reason for the substantial decrease in lettuce production marketed between
1986 and 1987 was not known, however, it may have been caused by the hot, dry weather
that the Maritimes experienced during the summer of 1997.
Source:
Statistics Canada
Fruit and Vegetable Acreage, Production, and Values
(22-003)
Exhibit 5
Lettuce Imports for
Specific Months
(in 000's of pounds)
Source of
HalifaxCanada
import 1986
1987
United States
1986
1987
April 1,042
May 828
July 302
August 172
949
754
275
157
62,113 48,568
53,315 65,762
22,994 18,103
13,178 12,218
Quebec
April 0
May 0
July %0
August 547
0
0
841
479
n/a
n/a
n/a
n/a
Sources:
1987
Annual Unload Report: Fresh Fruits and Vegetables, Agriculture Canada,
Vegetable Market Review, Agriculture Canada, 1986-87