by Stan Pohmer
Facing continuing economic pressures, the floral industry
must work to position flowers so they are perceived more favorably in
It seems like the challenges
just keep on coming, only at a faster rate, and the
grower/importer/wholesaler/retailer channel needs to be more innovative
and adaptive just to maintain status quo.
In 2007, external factors
caused growers and wholesalers to have to deal with multiple business
issues simultaneously, and retailers had to deal with consumer spending
challenges over which they had no direct control. “Channel churn,” where
suppliers and retailers both seek new outlets to buy merchandise from or
sell merchandise to, just to maintain equilibrium, prevailed. And,
unfortunately, it looks like the insanity will continue into 2008.
We’re still in an oversupply
situation with cut flowers, and demand is not increasing to absorb the
available production. As a result, prices are too low for growers to be
profitable. This is a good news/bad news scenario. If growers’ prices
had been higher, retail prices would have risen, making it more
difficult for florists to maintain a competitive value proposition with
The oversupply situation
could have been even more dramatic if the U.S. dollar hadn’t weakened on
the world currency markets. If the dollar had been stronger, the
increasing cut flower production from growing areas like Kenya and China
would have made its way to the U.S. market rather than to other world
markets, where growers could get higher prices. Had this not been the
case, our oversupply problem could have been exacerbated.
In my opinion, the two major
challenges to sales growth for the florist channel in 2007 were
economics and marketplace positioning.
Fuel/energy costs. 2007 saw the continuation of high energy
costs and an expansion of the impact of those rising costs, not only in
higher costs to consumers for fuel to run their vehicles and for gas or
electricity to heat their homes but also in the higher costs they paid
for all consumer goods because of the higher transportation costs in
getting food and manufactured goods to the stores. And there wasn’t a
great enough increase in income to offset these higher costs, so
disposable income was down.
Mortgages and the housing market. To the rising costs of fuel
and energy add the crash of the housing market and the subprime loan
debacle. Foreclosures are at an all-time high, and housing values have
plummeted—and these are long-term, not just minor, corrections. Many
consumers tapped into the equity in their homes through equity loans or
second mortgages when housing valuations were skyrocketing, using this
cash to fuel consumer spending. But with the falling housing prices,
many homeowners now owe more on these loans and mortgages than their
homes are worth, resulting in lower or even negative net worth. As a
result, these consumers are finding it harder to obtain new credit, and
if they can qualify for it, it’s often at usurious rates.
Many of the homes purchased
throughout the past few years were financed with zero-down, low-rate
teaser adjustable rate mortgages (ARMs). We’re now seeing these rates
reset, and already-cash-strapped homeowners are seeing their interest
payments double and even triple.
And finally, many of the baby
boomers, the core customer base that has driven our sales for years, had
much of their net worth and retirement nest eggs in their homes. As the
housing prices drop, so does their discretionary spending.
U.S. dollar. The U.S. economic situation goes beyond our
borders and affects our offshore trading partners, too. The U.S. dollar
continues to weaken versus the Colombian peso (COP), providing growers
with less return on the sales they make to the United States while they
face increasing costs of production. And with flower prices already low
due to oversupply, it’s like being hit with a double whammy.
Ecuador’s economy is
“dollarized” (tied to the U.S. dollar), so the country isn’t feeling the
same impact as Colombia. Further, Ecuador ships most of its cut flower
production to countries other than the United States, where currencies
are much stronger than the dollar, while Colombia ships about 85 percent
of its cut flower production to the United States.
Trade agreement uncertainty. Imported flowers from Colombia
and Ecuador dodged the duty bullet in 2007 when the U.S. Congress gave a
last-minute extension on duties on flowers (and other products) by
extending the ATPDEA (Andean Trade Promotion and Drug Eradication Act)
that included Colombia, Ecuador, Peru and Bolivia; this extension runs
through the end of February. The Colombian and U.S. governments have
signed a Free Trade Agreement (FTA) that will provide permanent
duty-free status to flowers, but this has not been taken up yet for
consideration by the U.S. Congress. Ecuador has stated that it has no
interest in entering into an FTA with the United States.
If no extension is approved
prior to March 1, flowers coming from Colombia and Ecuador will incur
duties of about 6 percent. Further, if an FTA with Colombia is approved
by Congress, there is discussion that the ATPDEA would be eliminated,
meaning that Ecuador and Bolivia would have to start paying duties. The
U.S. Congress approved an FTA with Peru in early December.
Business failures. The financial pressures faced by the
florist channel had a major impact on the profitability and
survivability of businesses. In 2007, some well-respected and
long-standing wholesalers closed. Granted, some of the locations were
picked up by other wholesalers looking to expand, but others simply
closed their doors. It’s been reported that some growers in South
America walked away from their farms, leaving them to the banks, because
they couldn’t service their debt. And unlike past business cycles where
larger, more successful farms picked up the hectares that became
available and expanded their production, now these farms are taken out
There’s a ripple effect that
permeates the industry during these economic downturns. As sales slowed
for retailers, inventories backed up, with higher shrink incurred by
their suppliers; receivables grew; and days to pay increased
substantially, forcing suppliers to borrow to carry the retailers. The
risk of increasingly larger write-offs on companies that closed or went
under new ownership increased, all hitting the bottom lines of the
wholesalers, importers and growers. And the ripple effect continued down
to the input suppliers.
Distribution channel changes. To compensate for the slowed
sales at the retail level, wholesalers, importers and growers reached
out for new sales outlets, bypassing their traditional customer bases
and creating the “channel churn” I mentioned at the beginning of this
article. Some wholesalers fulfilled for wire services and dot-com
merchants, bypassing their retailer customers. Some retailers bypassed
their wholesalers, going direct to farms or importers. Some importers
and growers developed wedding kits that were offered direct to
consumers, bypassing retailers. And some wholesalers now are working to
expand distribution into new outlets such as drug-store chains, creating
new competition for their retailer customers.
I’m not suggesting that these
changes are wrong for the individual companies or the industry.
“Necessity is the mother of invention,” and for some companies, these
are desperate times. But this has had and is having an effect on the
relationships and loyalties that existed in the past, and many feel
challenged and uncomfortable with these changes.
One potential major downside
to these new distribution channels and retail outlets is that many of
these flowers are sold outside of the cold-chain protocols. If we are
focusing on short-term sales at the expense of such protocols and if
consumers have poor experiences with the products purchased, they may
stop buying flowers altogether, and we lose any long-term benefit from
these expanded retail outlets.
marketing and promotion
The health benefits of flowers.
The SAF/FPO (Society of
American Florists/Flower Promotion Organization) Alliance, continued
to leverage the positive research findings from the Harvard Medical
School/Massachusetts General Hospital, which conclusively identified the
power of flowers on human behavior traits such as anxiety, stress,
compassion and general psychological well-being. Individually and as an
alliance, SAF and FPO (of which I am the executive director) exposed
this positive message to millions of consumers through print media in
newspapers and magazines, through video news releases, and on the radio.
These efforts, however, can
only help raise consumer awareness. By themselves, these
public-relations messages don’t generate sales; they just make consumers
more predisposed to flowers. It’s up to individual retailers to leverage
this increased awareness by reinforcing it in their advertising, on
their Web sites, in their newsletters, and through their in-store
merchandising; unfortunately, however, few retailers effectively
leveraged these positive PR messages to their benefit.
National advertising program. In 2006, a coalition of floral
associations and companies established and funded the Floral
Marketing Funding Initiative Coalition to try to identify a
mechanism to raise funds to support generic industry promotion of cut
flowers. In 2007, it was determined that a U.S. Department of
Agriculture-administered promotion order (similar to PromoFlor in the
1990s) was the best means to raise funds on a mandatory basis from all
domestic growers and importers of record.
Because of many
factors—including uncertainty about duties on imports and the extension
of the ATPDEA or the passage of an FTA, the financial positions and
rising costs of the assessable companies, the fact that only limited
funds would be raised (based on the proposed promotion order, it would
generate between $3.5 million and $4 million), and questions about the
impact these funds would have—there wasn’t sufficient support from the
major blocs of assessable companies (the members of the California
Cut Flower Commission [CCFC] and the Association of Floral
Importers of Florida [AFIF]).
It made no sense, therefore,
to take this to a referendum vote, which would have required an
additional investment of at least $200,000 of industry monies. That
said, these efforts did, in fact, identify the funding mechanism that
can be used if and when conditions are better and the industry decides
it wants to pursue generic promotion.
Logistics Coalition, a broad-based group of industry associations
and companies that includes all facets of the traditional and
mass-market retail channels, gained both support and traction in 2007.
Efforts focused on improving care-and-handling and cold-chain protocols,
establishing grades and standards, and piloting the use of Global Trade
Item Numbers (GTINs) and Universal Product Codes (UPCs) on cut-flower
boxes and selling units, enabling suppliers to increase the efficiency
of their electronic ordering/receiving/invoicing processes and to better
track their inventories. The gratifying thing about this coalition is
that, for the first time, the entire industry came together to work on
issues and opportunities that benefit the whole industry. This is a
great model to use for other industry efforts as well.
where do we go now?
There’s little that
retail florists can do about overall consumer spending and the economic
pressures that consumers and suppliers will face. That said, there are
some things that I suggest can help reposition flowers so they are
perceived more favorably in this tight spending marketplace.
Position flowers differently. First, I agree that consumers
view flowers from a florist as an indulgence, and if we continue to
promote flowers based on price, we are at a disadvantage from a value
perception standpoint. We have analytical behavioral studies from
Rutgers University and Harvard Medical School that clearly tell the
stories of the positive benefits flowers provide on human emotions. And
today’s consumers, with all the financial pressures they face, are as
stressed, worried, anxious and scared about their futures as any time I
We have a solution that can
help them better cope with their concerns, making them feel better about
themselves, providing a sense of tranquility and serenity, and helping
them achieve a better outlook and mood. Now, more than at any time in
the past, is the time to position flowers as a wellness solution, going
beyond selling on just the merits of price.
Become relevant locally. Second, I believe that retail
florists need to build relevancy for their businesses in their own
communities. Yes, it’s great that the wire services spend lots of
dollars exposing consumers to flowers. And it’s great that the FPO and
the SAF spend dollars on increasing consumer awareness about the vast
benefits of flowers. But if retailers don’t take ownership and leverage these dollars to their benefit, these
groups have wasted their investments!
should strive to become the hearts and souls of their communities,
constantly exposing themselves as the ones who take part in their
communities, get involved in the activities, participate in school
programs and in the Girl Scouts and Boy Scouts, get involved with garden
clubs and business and civic organizations—using each of these as an
opportunity to promote the benefits of flowers. Building relevancy is
key to creating top-of-mind awareness and loyalty. A wire-service ad or
an FPO press release can’t do this for you; only you can do it for
Yes, times will
continue to be tough for retail florists, especially in tomorrow’s
economy, but remember the beauty of the product you provide, the
artistry you apply and the beneficial value flowers communicate. These
are what you should be promoting, not flowers.
Stan Pohmer is CEO
of Pohmer Consulting Group, Minnetonka, Minn., and executive director of
the Flower Promotion Organization, www.flowerpossibilities.com. Reach
him at email@example.com or (612) 605-8799.
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