Fireworks sales blast off - but costs also soar
Heading into their biggest weekend of the year, fireworks producers are struggling to stay profitable in the face of sharply higher fuel and materials costs.
(Fortune Small Business) -- As Fourth of July fireworks light cities across the United States, the companies that orchestrate the epic productions face an uncertain future.
As in so many other industries, the cost of procuring materials and transporting goods has been rising precipitously. Add in shipment problems with China, where most fireworks come from, and the result is a rocky start to 2008.
"It's probably been the most difficult six months in the fireworks industry," said Greg Smith, national program director at the American Pyrotechnics Association (APA), an industry trade group based in Bethesda, Md.
Americans spend $930 million annually on fireworks, up from $610 million in 2000, according to the APA. The bulk of that business goes to the consumer side of the industry, for roman candles, sparklers and other small explosives.
The display side comprises small companies with annual sales maxing out around $15 million. They once held a larger share of the fireworks market, but post-Sept. 11 clampdowns on the transportation of explosive materials and stricter licensing requirements knocked many companies out of the market. Imported pyrotechnic materials, one of the industry's key benchmarks, fell from a peak of 64.1 million pounds in 2002 to 26.9 million pounds last year.
Sales got off to a slow start this year. In February and March, when most clients start planning their Independence Day celebrations, the phones were silent at Western Enterprises in Carrier, Okla., according to company spokesman Gary Caimano.
"You just didn't hear from clients like normally; contracts were slow coming in," Caimano said. "We were like, 'What is going on?'"
But in mid-April, customer began rushing in orders, and Western Enterprises ended up full booked for this weekend, with 300 shows scheduled.
This Fourth of July will be the busiest weekend ever for Fireworks by Grucci, a Brookhaven, N.Y., family-run business that is one of the best-known producers in the fireworks field, having staged the pyrotechnics for presidential inaugurations and Olympic ceremonies. With an average budget of $42,200, this weekend's events almost doubled the $28,000 average budget of past years, according to M. Philip Butler, a company vice-president.
He attributes the increase to splashier spending by corporate groups, such as amusement parks and casinos, for their holiday festivities. People have heightened expectations now for fireworks extravaganzas, and especially on the biggest day of the year, buyers splurge, he said.
"Fireworks are very popular as opposed to 10 years ago," Butler said. "Any event of any quality, of any size, you see fireworks."
But other fireworks-show producers say that an uptick in sales is more than offset by rising costs. At Pyrotechnico in Newcastle, Penn., sales are up 5% this year over last year but profits are down: President Steve Vitale said his trucks travel more than a million miles each year, with higher fuel costs making every one more costly. He's already had to raise the price of his shows by 10% to 12%. If the price pressures continue, Vitale expects many small companies to go bust.
"The face of our industry is going to change dramatically over the next few years," he said.
The weakening dollar has sharply increased the cost of buying a big bang: The overwhelming majority of display fireworks are imported from China, where manufacturers are raising their prices by as much as 30%. Product stockpiles left over from last year have shielded some companies from the full brunt of the increases, but most report raising their prices, with more price adjustments to come.
"I think next year prices will reflect what's going on," said Art Rozzi of Rozzi's Fireworks in Loveland, Ohio.
George Zambelli Jr. of Zambelli International Fireworks is waiting for the trucking costs for his New Castle, Penn., company's Fourth of July shows to roll in. With those numbers, the company will have a better idea of whether it's on track to preserve its profitability: "We need to be as efficient as possible so that we can maintain the bottom line," said company chairman Zambelli.
If costs keep climbing, producers say they'll start cutting costs where they can: swapping more expensive explosives for cheaper ones, pacing their shows differently, and shaving time off the programs.
"The bigger shows, maybe you make it a couple of minutes shorter, and the town is happy and they really didn't notice much of a change," said Tom Thompson, vice president of Melrose Pyrotechnics in Kingsbury, Ind.
Even the nation's capital could face Independence Day cutbacks. Pyro Shows of LaFollette, Tenn., has staged eight of the last 13 Fourth of July programs in Washington, and just began a five-year contract with the National Park Service. But making it through to 2012 will be tricky with all of the price pressures weighing on the industry: "There is the possibility that if the contract just becomes too unprofitable that we'll have to ask the park service to reconsider," said Pyro Shows president Lansden Hill.
He hopes that won't be necessary. Hill, who started Pyro Shows in 1969, loves being at the epicenter of the nation's Fourth of July festivities, lighting up the National Mall for a crowd of more than 500,000 attendees.
A CEO who relaxes by blowing things up: Pillar Data Systems founder Mike Workman unwinds at his hobby fireworks factory.
Rising yuan crunches outsourcers' bottom line: China's currency is hitting record highs against the U.S. dollar - a problem for apparel companies and others that rely on low-cost Chinese manufacturing.
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