I hereby declare 2018 to be the “year of the duck”!
Why, you might ask?
On the surface, a duck appears to be calm, composed, serene and unruffled. Below the surface, however, a duck is paddling like hell to stay afloat, maintain direction and make headway. Much like a duck, traditional retail florists appear to have had a pretty tranquil year, with solid floral holiday performance and relatively strong profits. But if one looks below the surface at the supply chain and competition for flowers and gifts, there are strong undercurrents and uncertainties that are posing some serious challenges that ultimately impact the retail florists themselves.
Highlights from the Year of the Duck
The Economy In 2018, we were blessed with a great economy, resulting in the strongest consumer spending we’ve experienced in many years. However, a larger (and growing) share of these dollars are being spent online and with omni-channel retailers – venues where retail florists are not well represented, There is growth in the online farm-direct business, which siphons off some of the demand that retail florists had previously supplied.
Natural Disasters The wildfires in the West, hurricanes on the Atlantic and Gulf coasts, flooding and even a volcano all served to disrupt retail sales of luxury items in affected markets while consumers spent on recovery. After the weather events passed, discretionary categories such as flowers took a while to regain traction.
Transportation/Distribution/Logistics This area has serious challenges and implications for the general economy as well as the floral industry. First, consider ground transportation, where there is currently a shortage of more than 100,000 drivers, with little relief in sight, especially as the economy approaches full employment (3.5 percent unemploy-ment) and with the rapid growth of online same-day/ overnight order fulfillment/deliveries. Due to the increased costs and changes in the U.S. Department of Transportation’s “Hours of Service” rules, freight costs are going up about 9 percent per year.
Air cargo is the primary transportation mode for more than 80 percent of the cut flowers sold in the U.S., primarily from Colombia and Ecuador. Cargo airlines operate most efficiently and cost effectively when they can fly a full planeload of flowers to the U.S. and return with a full planeload of goods from the U.S. Currently, planes are coming to the U.S. full, but they aren’t filled on the return trips. In this case, one of two things happens, neither of which are favorable to the U.S. flower business: Either airfreight costs increase to compensate for the lack of southbound cargo or the airlines move the aircraft to routes or countries where they can maximize their profits. In 2018, both of these scenarios were in play. And contrary to some rumors and speculation, there are no capacity issues at the major airport of entry (Miami International Airport), only in the availability of cargo aircraft.
Flower exporters in South America and importers in Miami are piloting flower shipments in sea containers as a possible supplement to air shipments, assuming the costs are comparable. Only certain flower types can be shipped in sea containers, and the lead times from order to delivery are measured in weeks rather than days. If sea containers prove to be a viable transportation mode for cut flowers, it will require a major change in inventory management processes in the flower supply chain.
Things to Ponder
Changes in Market Segments The cut flower market in the U.S. is experiencing slow but steady growth, but there is a dynamic shift of market share within the various sales channels. The overall market isn’t growing significantly, and the pie is being sliced differently. There’s growth in the pure-play online offerings, especially in the direct-from-farm segment. The mass-market share is growing, with the ability to capitalize on both impulse sales as well as offering the convenience of home delivery and BOPIS (Buy Online, Pick Up in Store) services. In addition, some supermarkets are offering gift delivery in their local markets. And there is expansion of boutique designers, who focus solely on weddings and events. Coupled with the reality that the number of florists is declining due to succession issues, the new goods and services being offered by these other channels that previously were the exclusive domain of retail florists is resulting in a declining market share for traditional retail florists.
New Supply Sources There are efforts from new global cut flower producers to enter the U.S., areas such as Kenya, with their smaller-headed roses that are popular in the European market. Even if Kenya can develop consistent shipments of flowers to the U.S. at a competitive price, unless we can expand consumption, the result of this new supply will be to put price pressure on existing supplies in order to move product through the supply chain.
National Marketing Efforts There’s renewed interest in establishing a cut flower marketing and promotion order under the auspices of the U.S. Department of Agriculture to help foster consumption.
After much discussion, we’ve reached the realization that any such program must be jointly funded and managed by the Miami importers and the California growers. If they agree on supporting this effort, it can move forward. But understand that even if a program was approved today, it would be two or three years before we would see any consumer marketing resulting from it, and any message would be channel neutral.
Florists’ Relevancy Retail florists have products and services that communities and consumers need, and a story to tell that can help connect people – a story that, quite frankly, needs to be told in order for florists to survive and thrive. Retail florists are a destination; consumers have to make a conscious effort to seek out and visit flower shops. If florists are not top-of-mind, there are other more convenient options consumers can avail themselves of.
First and foremost, remember that florists are in the business of establishing and reinforcing relationships, whether through the emotional attributes of flowers or that the customers have with them. Key components that help build this relationship are relevancy, respect, convenience/ease of connecting, authenticity, integrity, and reliability – in addition to product and service, which are a given. Relationships are what can set florists apart from the competition, the story they need to tell.
One Last Thought
I believe that if you look at your sales and profits, you’ll find that about 80 percent of your sales come from 20 percent of your customers (the Pareto Principle: 80 percent of effects come from 20 percent of causes – the 80/20 rule). These 20 percent of customers are those who you need to nurture your relationships with and focus the bulk of your marketing resources on. These customers are not only your core but also your future.
You have products, services, skills – and a story that customers in your market need to hear, but you’re the only one who can tell that story. Here are my wishes for your success in 2019!
Stan Pohmer is a business consultant focusing on the horticulture, floral, lawn and garden, and other perishable and seasonal industries. He works with the entire supply chain, from growers to retailers, to increase consumer consumption and sell-through; to increase operating efficiencies; and to strategize, position and market programs for maximum effectiveness and profit. He has 30 years of retail and consumer products experience working for premier retailers. Contact Stan by phone at (612) 865-8509 or by email at email@example.com.