A Study of the USA and Canadian Flower Markets

8occasional paper

C O M P E T I T I V E A U S T R A L I A

H I G H O P P O R T U N I T Y S T U D Y

EM

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March 2001

A Study ofthe USA andCanadianFlower Markets

This paper is issued for discussion and information purposes only.The views expressed do not necessarily reflect the views of theAustralian Government or the Department of Industry, Science andResources.

Copyright in ABS Data resides with the Commonwealth of Australia.

A Study ofthe USA andCanadianFlower Markets

A report commissioned on behalf ofthe Rural Industries Research andDevelopment Corporation and theCommonwealth Department ofIndustry, Science and Resources

Native Australian Flowersand Plantation-grownSouth African Proteaceae

March 2001

EMERGING INDUSTRIESii

THIS REPORT IS PART OF A SERIES OF EMERGING INDUSTRIES OCCASIONAL PAPERS. THE PAPERSCURRENTLY AVAILABLE IN THIS SERIES ARE:

Emerging Industries Occasional Paper 1 Emerging Industries & Technologies Forum - Report of Proceedings,Canberra, 17 August 1999

Emerging Industries Occasional Paper 2 Enabling Technologies for Australian Industry - A Pilot Study,November 1999

Emerging Industries Occasional Paper 3 A Study of Government R&D Expenditure by Sector and Technology,December 1999

Emerging Industries Occasional Paper 4 World Wide Work: Globally Distributed Expert Business Services,October 2000

Emerging Industries Occasional Paper 5 Skills Needs of Emerging Industries, October 2000

Emerging Industries Occasional Paper 6 Being heard above the crowd. Showcasing the environmentalindustries, December 2000

Emerging Industries Occasional Paper 7 Titanium Metal - a market analysis, February 2001

Copies of these papers are available from the Emerging Industries Section of the Department of Industry, Science andResources, GPO Box 9839, Canberra ACT 2601 or email: [email protected]

Copies will also be available through the Emerging Industries website which can be accessed through ISR’s websitehttp://www.isr.gov.au/industry/emerging

The views expressed and the conclusions reached in this publication are those of the author and not necessarily those ofthe Department of Industry, Science and Resources (ISR), the Rural Industries Research and Development Corporation(RIRDC) or the Commonwealth of Australia. RIRDC and ISR shall not be responsible in any way whatsoever to any personwho relies in whole or in part on the contents of this report.

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproducedby any process without prior written permission from the Commonwealth available through AusInfo. Requests andinquiries concerning reproduction and rights should be addressed to the Manager, Legislative Services, AusInfo, GPOBox 1920, Canberra ACT 2601.

ISR 2001/056

ISBN 0 642 72146 7

RIRDC Publication No. 00/181..

RIRDC Project No MCK-2A....

Researcher Contact DetailsDavid McKinna et al Pty LtdRear 131 Victoria AvenueAlbert Park VIC 3206

Tel: 03 9696 1966Fax: 03 9696 1965Email: [email protected]

RIRDC Contact DetailsRural Industries Research andDevelopment CorporationLevel 1, AMA House42 Macquarie StreetBARTON ACT 2600PO Box 4776KINGSTON ACT 2604Tel: 02 6272 4539Fax: 02 6272 5877Email: [email protected]: http://www.rirdc.gov.au

ISR Contact DetailsDepartment of Industry, Science and ResourcesEmerging Industries SectionGPO Box 9839CANBERRA ACT 2601Email: [email protected]: http://www.isr.gov.au/industry/emerging

Foreword

EMERGING INDUSTRIES iii

This commissioned study was undertaken as an initiative of the Emerging Industries Section of the Department ofIndustry, Science and Resources (ISR), the Rural Industries Research & Development Corporation (RIRDC) and two flowerindustry bodies, namely the Flower Export Council of Australia (FECA) and the Australian Flora and Protea GrowersAssociation (AFPGA).

The export of native flowers has been identified by the Emerging Industries Section of ISR as a significant emergingopportunity in a number of Australian States. The study was developed to provide information and direction to bothgrowers and exporters nationally.

The study sought to provide information on the USA and Canadian market for Australian native flowers and plantation-grown Proteaceae of South African origin and, particularly, to identify opportunities for Australian growers and exportersto increase their market share.

The project was funded by ISR and RIRDC and augmented by in-kind and cash contributions from FECA and AFPGArespectively.

This report, a new addition to RIRDC’s diverse range of more than 500 research publications, forms part of its Wildflowersand Native Plants R&D sub-program, which aims to improve the profitability, productivity and sustainability of theAustralian wildflowers and native plant industry. Most RIRDC publications are available for viewing, downloading orpurchasing on line through its website:

Down loads at http://www.rirdc.gov.au/reports/Index.htm

Purchases at http://www.rirdc.gov.au/e-shop

The report is also one in a series of Emerging Industries Occasional Papers aimed at identifying underexploitedareas of opportunity for the development of new and emerging enterprises. The Occasional Papers can befound on the Emerging Industries homepage at http://www.isr.gov.au/industry/emerging

Patricia KellyHead of DivisionServices and Emerging IndustriesDepartment of Industry, Science and Resources

Peter CoreManaging DirectorRural Industries Research & Development Corporation

EMERGING INDUSTRIESiv

Acknowledgements

David McKinna et al Pty Ltd wishes to acknowledge thecontribution of the project steering committee:

Mr Denis Tricks – Longford Flowers

Mr Brian Harris – Collina Export

Mr Shaun Keenan – Floratrade International

Dr David Evans – RIRDC

EMERGING INDUSTRIES v

Contents

Foreword iiiAcknowledgements ivExecutive Summary 11. Chapter One - Introduction, Objectives and 3

Methodology1.1 Introduction 3

1.2 Objectives 3

1.3 Methodology 4

2. Chapter Two - Australian Trade to North America 5

3. Chapter Three - Overview of the North 8American Market3.1 The North American flower market is the 8

largest and most competitive in the world

3.2 The North American market is a buyers market 9

3.3 The USA market is gift driven 9

3.4 Prices variable but with a flat long term trend 9

3.5 The market is static but there are structural 9shifts in retail

3.6 North America comprises a handful of quite 9distinct sub-markets

3.7 The supply chain is blurred and is evolving 10

3.8 The business is relationship driven 10

4.Chapter Four - Market Structure 114.1 Floral outlets 12

4.2 Up-scale florists 12

4.3 Florists 12

4.4 Grocery stores and street vendors 13

4.5 Mass merchants 13

4.6 Supermarkets 13

4.7 Supercentres 14

4.8 Super discount stores 14

4.9 Garden centres 15

4.10 Direct marketers (wire services, catalogues, 15web, etc.)

4.11 Event and corporate specialists 15

4.12 Funeral companies 16

5. Chapter Five - Supply Chain 175.1 Exporters 18

5.2 Freight forwarders, handlers and 18customs brokers

5.3 Freight carriers 18

5.4 Importer/brokers 18

5.5 Wholesalers/distributors 19

5.6 Bouquet makers 19

5.7 Fulfilment companies 20

5.8 Marketing margins 20

5.9 Tightening margins are driving change 21in the supply chain

6.Chapter Six - Specific Markets 226.1 Los Angeles 22

6.2 San Francisco 22

6.3 Miami 23

6.4 New York 23

6.5 Boston 23

6.6 Chicago 24

6.7 Canada 24

6.8 Canadian production 25

6.9 Montréal 25

6.10 Vancouver 25

7. Chapter Seven - Marketing Issues 267.1 The pricing dynamic 26

7.2 The corporatisation of the USA flower market 27

7.3 Branding 27

7.4 Consumer/retail brands 28

EMERGING INDUSTRIESvi

10.15 The outlook for Australia 38

10.16 SWOT for Australia 38

11.Chapter Eleven - Strategic Market Sign Posts 4011.1 Commodity market filler 40

11.2 Higher end filler 41

11.3 The off-season focal flower market 41

12. Chapter Twelve - Industry Programs 4212.1 Trading practices 42

12.2 Freight negotiations 42

12.3 Sea freight trials 43

12.4 Lobbying on duties and quarantine restrictions 43

12.5 Promotion and representation 43

12.6 Plant breeding programs 43

12.7 Grading and uniform production description 43and labelling system

12.8 Industry brands and common packaging 43

12.9 Tips for exporters in approaching the 44North American market

13. Appendices 4513.1 Companies 45

14. Compendium Summary 46

List of GraphsGraph 2.1 Fresh flower exports to the USA by 5

category (tonnes)

Graph 2.2 Exports to USA by volume (tonnes) 6

Graph 2.3 Exports to USA by value ($000) 6

List of TablesTable 2.1 Fresh exports 1997-1998 7

Table 2.2 Fresh exports 1998-1999 7

Table 2.3 Dried exports 1997-1998 7

Table 2.4 Dried exports 1998-1999 7

Table 4.1 Market segmentation 11

Table 4.2 Key segments 12

Table 5.1 Marketing Margins 20

List of DiagramsDiagram 5.1 Supply chain links 17

7.5 Grower/wholesaler brands 28

7.6 Regional brands 28

7.7 Promotional opportunities 28

7.8 Trade shows 29

7.9 Trade magazines 29

7.10 Trade associations 29

7.11 Usage development 29

7.12 Duties and market restrictions 29

8. Chapter Eight - Supplier Countries 308.1 California 30

8.2 Florida 30

8.3 Hawaii 30

8.4 Canada 30

8.5 Washington State & Oregon 30

8.6 New Zealand 31

8.7 South Africa and Zimbabwe 31

8.8 Holland 31

8.9 Columbia, Equador, Chile and Peru 31

8.10 South East Asia 31

9. Chapter Nine - E-commerce 329.1 Business to Consumer (B2C) 32

9.2 Business to Business (B2B) 33

9.3 The American Clock 33

10. Chapter Ten - Strategic Analysis 3410.1 The Australian market is under threat 34

10.2 The lack of critical mass 34

10.3 Cannibalistic selling practices 34

10.4 Lack of industry cohesion 35

10.5 Trader rather than marketer mentality 35

10.6 The lack of a cohesive marketing and 36promotional program

10.7 The lack of a grading system 36

10.8 Freight and logistics 36

10.9 Australia’s quality image in the market 36

10.10 Presentation 37

10.11 Opportunities for branding 37

10.12 The lack of unique product 37

10.13 Niche market opportunities 37

10.14 Dried flowers 38

EMERGING INDUSTRIES 1

ExecutiveSummary

• The East Coast markets, such as New York and Boston,tend to be more sophisticated, less price driven and tohave a more developed top-end. Similarly, the Canadianmarket tends to be more sophisticated and qualityconscious and less price driven, although theopportunities for imports are limited becauseof a strong local industry.

• South and Central America are the main suppliers,accounting for 80 per cent of all imports. There is alsoa significant local production base, mainly situated inCalifornia. The USA and Canada are also significantexporters. South America poses a significant threat toAustralia because they are growing similar varieties, areencroaching on Australia’s seasonal window and havea considerable cost and location advantage, as well asduty free status.

• The North American market is a buyer’s market with themarket oversupplied for most of the time, except for thepeak holiday selling period.

• Demand is gift driven with the highest selling timesbeing Mother’s Day, Thanksgiving, Christmas and St.Valentine’s day. Compared with Europe and Australia,purchase for in-house usage is far lower.

• In terms of retail outlets, there are eight or so differentsegments including supermarkets, supercentres, super-discounters, home improvement stores, up-scale florists,conventional independent florists and Korean grocerystores and delis. There is also a significant event andcorporate sector serviced by designers who usually workout of retail shop fronts or factories in industrial areas.

• Whilst the total market is more or less static, thereare some significant structural shifts with the massmarketers (supermarkets, supercentres, super-discounters and home improvement centres) growingtheir businesses, mainly at the expense of theindependent florists. The e-commerce and cataloguemarket is also growing, although there is muchspeculation regarding the future of this sector.

Executive Summary Recognising the strategic significance of the North Americanmarket for native flowers, ISR, RIRDC, FECA and AFPGA invitedselected consultants to undertake a study to promote anunderstanding of this market and to identify opportunitiesand strategies for Australia to increase its market share.

Study Scope

David McKinna et al Pty Ltd was commissioned to undertakea desk and field study covering the key market areas,including San Diego, Los Angeles, San Francisco, Miami,New York, Boston, Chicago, Montréal,Toronto and Vancouver.The company also conducted first hand observationscovering wholesale markets, retail outlets, wholesalers,importers, freight forwarders/handlers, and bouquet makers.The data collection process included interviews withAustralian exporters and a cross section of representativesof the value supply chain links.

Key Findings

• The USA flower market has an estimated value ofUS$960 million per annum of which 61 per cent isimported. Australia supplies less than 1 per cent ofthe market.

• The market is static, showing virtually no growth ineither terms of volume or price.

• It can be misleading to view the North American marketas one market as there are significant differencesbetween geographical areas, with attractive nichemarket opportunities in some. Miami and Los Angelestend to be price driven commodity markets, mainlybecause they are the entry points for imported flowers,and in the case of Los Angeles, also because of localCalifornian production.

EMERGING INDUSTRIES2

• The bulk of the mass market business is in low pricebouquet and consumer and grower bunches, all ofwhich are price driven, with the volume in the sub $10range. Australian filler flowers do not figure at this endof the market because of their price.

• There is, however, a lot of development in the high pricepoint end of the market and main supermarkets areputting in full service florist booths within their stores.

• The bulk of Australia’s volume is in filler flowers, themajority in Wax-flowers or Thryptomene. Whilst thereis some trade in Proteaceae and Leucadendron, Australiasuffers from strong and escalating competition fromCalifornia and South Africa.

Strategic Issues for Australia

• The Australian market for filler flowers is underconsiderable threat, mainly because of competitionfrom South and Central America, which is growingsimilar varieties with a considerable cost and locationadvantage.

• The seasonal window of opportunity that Australia onceenjoyed is shrinking because of the adoption of newflower varieties in South America which allow them tosupply during much of the Australian season.

• There is a lack of critical mass, in terms of volume ofAustralian product, market visibility and high profileindividual or industry brands.

• There is a lack of industry promotion or distinctiveAustralian brands.

• The market is dominated by cannibalistic and pricedriven selling practices and a short-term tradermentality amongst Australian exporters, rather thantaking a long term view.

• Freight, logistics and import duties put Australia at adisadvantage to its competitors in filler flowers, i.e. toSouth/Central America and California.

Opportunities for Australia

• Developing new and exotic varieties of filler flowers,targeting up-scale florists and designers.

• Pursuing seasonal window markets for focal flowersbecause the Australian growing season correspondswith Thanksgiving, Christmas and St. Valentine’s Day,which are the peak selling seasons in North America.

• Targeting up-scale florists and the corporate and eventtrade through wholesale magazines and trade shows.

• Establishing programs to promote the Australianindustry.

• The introduction of a program of information sharingon pricing and possibly a voluntary code of practice ontrading to eliminate unnecessary price competitionbetween Australian exporters.

• Collaborative freight negotiations and coordination toachieve lower freight rates and a generally better deal interms of service.

• Consideration of a trial of consolidated sea freightshipments during peak selling seasons.

• Collaborative plant breeding programs to develop anon-going stream of new more exciting varieties, perhapsstructured through licensing arrangements linked tobrand marketing.

• Consideration of a grading and QA system to giveAustralia an edge in terms of quality and consistency.

• A common industry pack and brand supported by apromotion program.

Introduction


1. Introduction, Objectives and Methodology

1.1 Introduction

After Japan, the North American market is the secondbiggest importer of Australian floral products.

Recognising the significance of the market, the Departmentof Industry, Science and Resources (ISR), the Rural IndustriesResearch and Development Corporation (RIRDC), the FlowerExport Council of Australia (FECA), and the Australian Floraand Protea Growers Association (AFPGA) have initiated thisstrategic study. The report focuses on native flowers, foliageand Proteaceae, as this is where the bulk of Australia’s tradehas been to date.

1.2 Objectives

(1) To identify opportunities for Australian native flowersand Proteaceae in the USA market.

(2) To gain an understanding of how the market isstructured, what segments exist and, for eachsegment, what products they buy, how they buy,evaluative criteria etc.

(3) To assess the market opportunities and identify thebest prospects for Australian exporters in terms of:

• which geographical areas

• the types of Australian flowers

• the best distribution channels.

(4) To gain a clear understanding of the distribution/valuechain, the linkages, economic relationships, marginspread and the general modus operandi of each of thekey links within the chain.

(5) To gain a clear understanding of how flowers aremarketed and promoted in the USA.

(6) To identify the constraints and barriers to Australia’sdevelopment of the USA market.

(7) To identify strategies to maximise Australia’sperformance, differentiating it from competitors inthis market, and barriers or constraints to marketdevelopment.

(8) To identify and prioritise research and development(R&D) needs with respect to USA market development.

1.3 Methodology

The project has involved the following stages:

• briefing from the project steering committee via phoneconference;

• desk research to review relevant material;

• in-depth discussions with major exporters in WesternAustralia, New South Wales and Victoria; and

• field study to USA and Canada covering key marketareas which comprised:

✷ in-depth meetings with key channel operatorsincluding importers/brokers/wholesalers/distributors,supermarkets, bouquet makers, florists and designers.In all, over 100 face-to-face interviews wereconducted;

✷ attendance at a Californian flower growersconference;

✷ visits to wholesale markets in Los Angeles, New York,Boston, Montreal and Vancouver involving observationand informal discussions with various parties; and

✷ visits to various flower retail outlets including florists,supermarkets, street vendors, grocery stores andgarden centres.


NorthAmerica


2. Australian Trade toNorth America

According to ABS figures in the 1998/99 financial year,Australia exported 946 tonnes of flowers to NorthAmerica with a value of around $A5.5million and thebulk of the volume being in Waxflower andThryptomene.

600

500

400

300

0

200

100

93-94 94-95 95-96 96-97 97-98 98-99 99-00 proj

Waxflower

Kangaroo Paw

Other Australianspecies

Foliage

Wild-PickedNaatives

Other ExoticSpecies

ExoticProteaceae

Orchids

Aust Native -dried

Foliage - dried

Exotic - dried

Wild Native -dried

Tonn

es

Source data: ABS and industry projections

Graph 2.1 Fresh flower exports to the USA by category (tonnes)


1400

1200

tonn

es$0

00

1000

800

600

400

200

93-94 94-95 95-96 96-97 97-98 98-99

Total fresh

99-00 proj

93-94 94-95 95-96 96-97 97-98 98-99 99-00 proj

0

6000

5000

4000

3000

2000

1000

0

Total overall

Total Dried

Total fresh

Total overall

Total Dried

Graph 2.2 Exports to USA by volume (tonnes)

Graph 2.3 Exports to USA by value ($000)

Source data: ABS and industry projections


Type of Flower Gross Weight (tonnes) Value (FOB)

Exotic Protea - -

Foliage 0.41 8,110

Kangaroo Paw 1.50 5,500

Mosses 5.00 20,000

Orchids 0.35 13,760

Other Australian 161.63 1,184,900

Other Exotic 3.30 51,410

Waxflower 98.68 516,110

Wild Picked 155.90 614,410

Total 426.77 $2,414,200

Table 2.1 Fresh Exports 1997 - 1998


Exotic Protea 10.91 85,020

Foliage 3.12 26.911

Kangaroo Paw 1.74 16,710

Mosses 0.56 1,320

Orchids 2.65 33,710

Other Australian 456.33 2,393,430

Other Exotic 54.04 525,850

Waxflower 305.43 1,609,204

Wild Picked 44.93 352,550

Total 879.71 $5,044,705

Table 2.2 Fresh Exports 1998 - 1999



Australian Native 178.36 1,038,426

Exotic 203.57 645,235

Foliage 19.64 189,895

Total 441.96 $2,117,496

Table 2.3 Dried Exports 1997 - 1998



Australian Native 15.01 79,038

Exotic 2.98 13,020

Foliage 25.48 263,441

Total 67.44 $446,532

Table 2.4 Dried Exports 1998 - 1999

FOB: Free on Board

Overview


3. Overview of the North American market

It is a misnomer to talk about the North Americanmarket as a unit. In fact it consists of several quitedistinct sub-markets. The sub-markets range from highlycompetitive commodity markets, such as Los Angeles, tomore sophisticated markets with quality conscious operatorswho are prepared to pay a premium for higher quality ornovel items, such as those in Boston.

3.1 The North American flower market is the largest and most competitive inthe world

According to United States Department of Agriculture(USDA), the USA floral market has an annual wholesale valueof US$960 million, of which $590 million or 61 per cent isimported.The USA is also a significant exporter with annualexports around the $46 million mark.The market is stagnantwith virtually no growth, either in volume or price. Somesegments, such as mass merchants, are growing rapidly butthis is mainly through taking market share away from thetraditional florists.

According to USDA statistics, 81 per cent of imports comefrom South and Central America, of which 60 per cent comefrom Columbia. These countries have taken over fromHolland as a supplier by virtue of their excellent growingconditions, extended growing periods, cheap labour andproduction costs, cheaper freight and duty free status inthose countries. There is also some suggestion that theflower industry in these countries is heavily subsidised.

The USA market is strongly oriented toward roses, which areestimated to account for 60 to 70 per cent of the volume.

Australia is a minor player in the market with less than 1 percent of the value, almost totally in filler flowers, mainlyWaxflower and Thryptomene. It has low market visibilityand profile in the market.


3.2 The North American market is abuyers market

The USA market is very overcrowded, with many sellersoffering the same product range. The market is over-supplied, both in totality and in most specific categories formost of the year, with the exception of the holiday spikes.As a result it is a price driven market with a limited abilityto achieve a premium for superior quality.

3.3 The USA market is gift driven

Demand for flowers in North America is highly seasonal withthe bulk of sales during the holiday periods such asMother’s Day, St. Valentine’s Day, Thanksgiving, Christmasand Easter. June is the wedding month.

Demand is slow in the summer months when people are onholidays or doing more outdoor entertainment. Thiscoincides with the start of the Australian Waxflower season.The USA market particularly is a gift market; self purchasefor in-home usage is a minority usage.

However, in-home consumption of flowers appears to begrowing, particularly on the East Coast.This is largely due totelevision lifestyle programs and the strong marketing ofgrower and consumer bunches by supermarkets.

The in-home usage market is much greater in Canada mainlybecause of the European influence. USA floral associationsare trying to promote home use to increase consumptionwith little success. A new campaign is currently beinglaunched.

3.4 Prices variable but with a flat longterm trend

The North American market is greatly oversupplied withproduct coming in from all around the world. As a resultprice competition is fierce, like any market. Prices fluctuateaccording to seasonal supply and demand circumstances.Prices escalate during the holiday periods and fall in the offseason, particularly the summer. First of season and last ofseason stock can command a premium.

The price variability is, to a large extent, driven by theauctions in Holland, growers’ clocks* in the USA and thestrong practice of consignment selling by the SouthAmerican countries.

According to industry surveys the average price of flowershas stayed static or even fallen slightly in the past decadewith margins being squeezed at every level of the supplychain and, especially for growers. Growers have only survivedbecause of greater efficiency, mainly due to the adoption oftechnology.

3.5 The market is static but there are structural shifts in retail

The total market for flowers in the USA is believed to bestatic, however, there are shifts in the market away fromtraditional florists shops and toward mass merchants andelectronic and catalogue marketers.The supermarket sectoris growing at around 15 per cent per annum and it is believedthat independent florist shops are declining at a similar rate.

3.6 North America comprises a handful of quite distinct sub-markets

It is somewhat of a misnomer to think of North America asone market as there are distinct regional differences. Thereare five main distribution hubs: Miami is the biggest becauseit is the entry point for South and Central America; LosAngeles and San Francisco are the entry points for Australiaand New Zealand and a supply point for the West Coast;New York is the entry point for European product; andChicago is a distribution point for European and SouthAmerican product throughout the mid west. Miami, by farthe biggest hub because of its proximity to South Americaand also because Florida was once an important growingarea, is gradually being squeezed out by competition andurban sprawl. As a result Miami has good trucking andhandling companies. Dallas and Atlanta are now emergingas important distribution hubs with direct internationalflights.

* Growers clock is a tern used for growers’ markets which operate in key marketsthroughout the USA.


3.7 The supply chain is blurred and is evolving

The supply chain is very blurred with major players operatingat various levels in the supply chain. Van’s in Chicago, as anexample, is an importer, wholesaler, grower and bouquetmaker. Some farms have wholesale operations that wereestablished to sell their own flowers but which also importand trade.

3.8 The business is relationship driven

The market is very traditional and conservative withbusinesses based on close working relationships betweenparties, which are guarded fiercely. Typically most players inthe market deal with a handful of trading partners withwhom they have a long-standing relationship based onmutual trust and friendships.This is largely because most ofthe deals are made sight-unseen and, without trust, it wouldnever work.The industry is conservative and slow to innovatebut economic pressures are forcing some changes in thesupply chain. There is a strong Dutch influence, as in otherparts of the world. Most wholesale markets have at leastone Dutch specialist.


MarketStructure

4. Market StructureThe USA and Canadian market is structured by outlet typeon the one hand and product type on the other as depictedbelow.

Market Segment / Mass Market - Florists Upscale Event andProduct Segment Supermarkets etc Florists Designer Trade

Basic bouquet ✓ - - -

High end bouquet Limited ✓ - -

Arrangements Some in florists Main business Main business

Features - ✓ Most have ✓corporatecustomers

Consumer bunches Growing rapidly ✓ - -

Grower bunches Growing rapidly ✓ - -

Basic stems Limited ✓ - -

Exotic stems Very limited ✓ - -

Most of the Australian product is going to florists and eventcompanies and decorators. It is too expensive and not insufficient volume for the mass marketers and bouquetmakers.

Table 4.1 Market segmentation

Supermarkets have greater influence than their marketshare indicates because of their rapid growth at the expenseof florists and the fact that they are rapidly developing thehome-use market through range, merchandising andpromotion.

The following provides a description of the various retailsegments.

4.2 Up-scale Florists

The up-scale florists cater for the affluent customer, bothretail and corporate, and are located in affluent areas of bigcities. They are run by designers and offer a fully customisedservice. Typically they also have a large corporate and eventbusiness, supplying hotel and restaurant conventions. Up-scale florists look out for the more exotic and unusualvarieties for which they are prepared to pay a premium andsell in the $US50 - $US500 range. The up-scale florists tendto have minimal floral displays and keep most of theirinventory in the chiller. Most also have a big business in


4.1 Floral Outlets

The North American market consists of seven key segments asoutlined in table 4.2 together with their estimated market share.

Retail Outlet Market Share per cent Trend

Florist Shop 64.20 Declining steadily

Supermarket 18.30 Growing

Toll Free Number 6.13 Growing rapidly

Mail Order /E-commerce 2.25 Growing rapidly

Street Vendor 1.47 Declining

Garden Centre 1.47 Growing

Discount Chain 1.23 Growing rapidly

Department Store 0.74 Growing steadily

Home Improvement 0.25 Growing

Other 5.15 Steady

Source: Flora Culture International Annual Survey 12,000 household sample.

gifts, ornaments, vases, water features, dried arrangementsetc. They typically work on a 500 per cent mark-up.

4.3 Florists

There are an estimated 30,000 florists in the USA, typicallysmall independent “mum-n-pop” businesses. They offer afull service and get much of their business from the wireservices with which they are associated, such as 1-800Flowers. As well as selling customised bouquets, they alsotend to buy pre-arranged base bouquets to which they addtheir own focal flowers. Most also have a big range of driedarrangements and potted green life in addition to flowers.

Florists typically deal with a number of wholesalers andsome buy from wholesale markets if they have access tothem, like other independent businesses. The number offlorists is shrinking due to the strong competition from themass merchants, e-commerce and catalogue companies.They work on a 300 to 500 per cent mark-up.

Table 4.2 Key segments


4.4 Grocery stores and street vendors

Street vendors, small grocery stores and delicatessens areprominent in North America, many of them run by Koreans.The street vendors typically sell fruit and bottled water, aswell as flowers, and they are quite prominent on streetcorners in major cities. They have a very limited stock;bouquets and bunches in the $US4.99 - $US10.00 range andcarnations and roses figure strongly. Unlike Australia, thequality of flowers is generally very high, although they areexposed to the elements. They buy from wholesalers andhave a 100 to 200 per cent mark-up.

4.5 Mass merchants

The mass merchant segment comprises supermarkets,supercentres, and super discounters. Estimates of the massmerchants’ market share ranges from 20 to 40 per cent.Their share is growing rapidly at the expense of florist shops,many of which are going out of business each year. Publixfor example, a Florida-based chain with 600 stores, indicatedthat their flower business is growing at 15 per cent perannum and others indicated a similar level.

4.6 Supermarkets

There are an estimated 40,000 supermarkets in the USAof which 90 per cent sell flowers. There has been aconsolidation and rationalisation in the supermarket sectorwith smaller regional companies being absorbed by largernational chains.

Supermarkets in the USA tend to be regionally based, albeitlarge. There are also great variations in store quality;whereas Woolworths and Coles in Australia are almostidentical, in the USA supermarkets range from very up-market to budget.

Of the supermarkets that sell flowers, an estimated 27 percent offer self-service, 35 per cent a limited service and 38 percent full service with a trained florist on staff to preparecustomised arrangements.

The bulk of the business is in prepared bouquets which areshipped to the store in a sleeve pack complete with bar code,either in dry or wet form. Bar codes are now virtually acompulsory requirement when supplying supermarkets. Thelower price point bouquets almost all come in from South

America in a pre-prepared form. The up-scale ones tend tobe made by local bouquet makers.

The key price points are: $US3.99 (three stems with limitedfiller), $US4.99 (five stems), $US5.99 (six stems with morefiller), three bunches of stems for $US9.99 (customer canchoose from a limited selection) going up to $US20 whichhave more exotic flowers and more sophisticatedarrangements. Only the $US15 plus bouquets will haveWaxflower or Thryptomene. The vast majority of the volumeis in the $US3.99 - $US5.99 range.

Supermarkets work on a 20 to 100 per cent margindepending on the lines, 20 per cent for the high volumebouquets, and work on an average 10 to 15 per cent wastagefactor. Supermarket sales peak at holiday times: Easter,Thanksgiving, Christmas, St. Valentine’s and Mother’s Day.

Increasingly, supermarkets have serviced florist shops thatmake arrangements both for sale out of their in-store cool-rooms as well as a made-to-order service. It is noticeablethat supermarkets are placing more emphasis on their floraldepartments and are moving more up-market. Many ofthem are putting in up-market full service floral shops withtrained staff. Typically their arrangements retail in the $US20to $US50 range with customised arrangements in the $US50to $US100 range. Increasingly, supermarkets are buying basearrangements to which they add their own focal flowers.

Supermarkets work on on-going promotional programs withspecial offers based on seasonal availability or variousthemes. The promotions (known as features) usually involveadvertisement in a colour letter-box drop leaflet. Flowersare usually positioned in the produce section of the store forstores without a floral section. They plan their business sixmonths in advance and have a year round promotionalcalender. They also want to work with suppliers who canprovide a total marketing package on a year round basis.

As with other product, supermarkets use promotions togenerate interest and store traffic and to build volume andcross-subsidise the promotional lines with higher marginproduct. The holiday promotions tend to be theme ratherthan price-based. Each holiday is strongly linked to a colourtheme, for example, Thanksgiving is brown and yellow andChristmas is red and white etc. They use price and bonuspromotions such as two for one in the slow times(eg.summer) to build volume. Exporters, therefore, need toplan as to how they can tap into these promotionalprograms.


Supermarkets are experiencing strong growth in grower andconsumer bunches, the former with eight to twelve stemsand the latter with four to eight stems. Most of them havea three bunches for $US10 offer and the consumer is ableto choose a mixture of different varieties. The range isextensive but based on seasonality. Publix, for example, has40 SKUs (stock keeping units) in its bunch program. Roses,carnations and tulips are popular on the bunch program.

Depending on the season, they offer filler flowers in the mixsuch as Thryptomene, Gypsophila and Waxflower in theCalifornian season. Almost all of these bunches go forhousehold use as distinct from gift. Grower and consumerbunches now account for 30 per cent of the volume forsupermarkets. The growth of this category is attributed totelevision lifestyle shows such as Martha Stewart. There isvirtually no Australian product on offer in supermarketsbecause it is too costly to include in budget priced bouquets.

Supermarkets do good business in potted colour. They arealso are trying to build their e-commerce business but asyet it is small.

4.7 Supercenters

These are general merchandise stores such as K Mart,Target,Walmart, etc, with a food and general merchandise offer.These stores have a limited floral offer, typically only alimited range of bouquets and no service. In holiday timesand the spring peak they often sell flowers, potted plantsand Christmas trees in their car parks.

4.8 Super discount stores

These are the large warehouse stores with a rather starkshopping environment, concrete floors, pallet racking andlimited service. In most cases they are clubs where shopperspay an annual fee for a membership card. The prominentchains are Sam’s Club (Walmart), Cosco and B&Js. Typicallythey sell consumable items in bulk, for example six packs ofsoap powder. They have a very limited bouquet offering andno service.

Martha Stewart

Martha Stewart is the Don Burke of the USA with a TV and radio show and has become one of the biggesthomemaker brands in the USA. Her brand appears on homemaker items, seedlings etc. Her products are availablethrough catalogues (home delivered) and increasing on the web. Recently she launched a range of flowers through acatalogue which tends to be based on colours. Rather than bouquets, the range is mainly stems and bunches as thebrand is positioned as “farm grown direct to you”. The product is packed by US Floral in Miami and shipped toFederal Express depots in Memphis for distribution throughout the USA. US Floral indicated that from theirperspective it was a tight margin business.


4.9 Garden centres

Garden centres typically sell flowers as simple bunches anda limited bouquet range which they mainly buy in. There isa trend towards garden centres making a feature of theirfloral offering and some are putting in full service counters.

4.10 Direct marketers (wire services,catalogues, web, etc.)

The direct marketing business is growing steadily due to theadvance of technology and active and effective promotion.The wire services, such as 1-800 Flowers, facilitate orders andcredit card payment and send the order to a member floristnearest the address. They do well because they offer aconvenient way for a person to give a gift, together with theimage of fresh flowers from a florist. They actively marketthemselves, heavily advertising on television and in outdoormedia such as signs, taxis and billboards.

The web is also starting to take off, although at presentvolumes are small. One of the leading web companiesdedicated to flowers is proflowers.com which offers a rangeof floral bouquets with dried arrangements figuring strongly.These operate in a similar way to the catalogue companiesworking with fulfilment and courier companies. Apparentlyweb companies are having teething problems, mainly withregard to fulfilment, particularly at the peak holiday periodswhere orders come in at the last minute; they are offeringincentives for early orders.

Some of the traditional retailers, such as supermarkets, arealso offering their product on the web. Flowers are beingused as a cross-promotional tool with companies such asGap.com offering a discount voucher on web flowers withevery order over a certain value. Chapters Books, a majorweb book company, is now offering flowers in its range.

4.11 Event and corporate specialists

Event and corporate specialists cater for the big events suchas exhibitions, society weddings, corporate events, hotels,etc. They are run by designers who usually operate out ofwarehouse type facilities, although many operate out ofretail shop front outlets. They tend to have long standingrelationships with their corporate customers such as hotels,corporate offices and events organisers.

These operators place a lot of emphasis on unique and novelitems, and are prepared to pay a premium for them. Theyare also prepared to pay for items that have a higher yield,i.e. in terms of more usable stems per bunch. They tend to

There is also a number of catalogue companies, such asMartha Stewart and Hallmark, which offer flowers as partof a gift range. They heavily feature dry flowers and theybring out seasonal catalogues which are letter box dropped.These companies use fulfilment companies which areusually associated with bouquet and wholesale companies.Courier companies, such as Federal Express (Fedex) andUnited Parcel Service (UPS), deliver the product.

1 800 FLOWERS

Their main business is as a phone delivery service.It heavily advertises in the media and also hasseasonal catalogues. It fulfils its orders throughlicenced member independent florists. It alsohas company owned and franchised storesthroughout USA.

Hallmark

Hallmark, the greetings card company, has justentered the floral industry in the home deliverybusiness. It has set up a bouquet assembly areain Memphis which was chosen because it is theheadquarters of Federal Express which is undertakingthe delivery. The product is sold through its 15,000stores, 8,000 of which are company-owned. It sellsthrough catalogues with a limited range of product.No product is displayed in store.


plan a long way ahead and work with major wholesalerswith advance orders. The choice of flowers they use isdependent on what wholesalers stock.

Event designers are always on the look out for new and novelitems and visit the wholesale markets regularly looking fornew types of flowers. However, the best way to develop thisbusiness is through wholesalers who set the agenda. Thisis an opportunity for Australian exporters.

4.12 Funeral companies

Funerals are a major market for flowers. A number oflarge companies are starting to form national chainsthrough acquisition of smaller independents. These biggercompanies have an in-house flower operation with floristson staff. There is not much information available but funeralcompanies are a major user of flowers and purchase throughwholesalers. Some even deal directly with farms in Californiaand South America.

SupplyChain


5. Supply ChainThe USA and Canada floral supply chain is going through aperiod of evolutionary change, the most obvious being thegrowth of mass merchants and direct marketing at theexpense of retail florists. This is being driven by thestructural changes in the retail sector, the shrinkingof margins at every level and the impact of digitaltechnology, although the jury is still out on the latter.This point is discussed in more detail later in the report.

The supply chain is also becoming quite blurred as partiesperform multiple functions in various configurations as asurvival strategy. The following is a description of the keylinks in the supply chain and their modus operandi.Diagram 5.1 Supply Chain Links

Grower

Exporter

Freight Forwarder

Freight Carrier

Handler

WholesalerDistributor

ImporterWholesaler

Event/CorporateDesigner

CorporateCustomer

RetailShopper

ElectronicShopper

Homemaker

BouquetMaker

RetailFlorist

Phone/e-commerceFulfilmentCompany

ImporterBroker

5.1 Exporters

Exporters provide the function of assembling flowers fromgrowers and supplying importers and wholesalers. Onlybigger growers have the volume to deal directly withimporters. Their job is to provide a central contact point,assemble and consolidate orders and organise the freight.They are the go-between point linking growers withoverseas customers. Their method of operation varies; someact purely as brokers whilst others provide a qualityassurance, branding and marketing service.

Mostly the trade is on a Customs, Insurance and Freight (CIF)basis with the importer paying customs and handling attheir end.

Full service exporters take a financial position in the product,buying from the grower on their own account and selling tothe importer, and assume all the risk. In some cases theywill expect a credit from the grower if the product is not upto standard. Brokers on the other hand move the productfor a fee or commission on behalf of the grower. Much ofthe business by brokers is done on consignment with thegrower assuming all the risk. This practice has a major pricedepressing effect.

The key asset of exporters is their contacts, both at thegrower and customer end, which they guard jealously.

5.2 Freight forwarders, handlers and customs brokers

Freight forwarders and handlers take care of the handlingof the product once it arrives in the importing country. Theyare notified of a shipment by the exporter or importers. Thehandlers at the importing points pick the product up fromthe airport and take it to their facilities (usually adjacent tothe airport), and pre-cool it. The pre-cooling phase isrequired to revive the product after its plane trip to improveshelf life. The forwarders organise the freight to the finaldestination. They can also sort orders for cross-docking toindividual customers.

They also schedule inspection by USDA and take care oftreatments such as fumigation. Handlers charge on a perbundle basis which usually consists of ten boxes; anindicative charge is $US3 per bundle per day for a dropshipment and $US5 if the bundle has to be split and go todifferent customers.

There tends to be specialist customs brokers who take careof the customs clearance and pay any duties due. Custombrokers charge in the range of $US85 - $US110 per shipment.As freight forwarders charge on a batch or bundle basis,there are substantial economies in moving larger shipments.

5.3 Freight carriers

Most of the flowers in North America are supplied byscheduled passenger airlines as the size of the shipmentsare too small to justify charter aircraft. There is some charterout of Europe and South America.

The fact that flowers are freighted by passenger planes isoften a problem as freight gets bumped off to accommodatepassenger luggage. When this occurs it greatly affects itsquality; worse still, if a flower order arrives late or afterthe occasion, it is often rejected by the customer. As ishighlighted later in this report, freight and logistics are majorissues for the Australian flower industry.

5.4 Importer/Brokers

Traditionally, most of the importation has been done bylarger importers who then sell to wholesalers. Increasinglythough, larger wholesalers are by-passing importersand acting as importers themselves. Some of the moreprominent importers include Everflora, Zurel, Florimex andBlumex. To some extent they specialise by country, althoughmost import from Europe, South and Central America, Italy,France, Australia and New Zealand. They need to do thisbecause of the seasonal availability and the different typesof product available. They buy from farms and exportersand some of them buy off the auctions in Europe throughagents. A lot of the business by brokers is done on aconsignment basis.

Importers and brokers sell on to wholesalers and distributorsand typically work on a 15 to 20 per cent mark-up. Their keyfunction is to act as the funnel between the large numberof exporters and farms, hold inventory to fill shortfalls,handle the documentation and offer credits.

Another important role is to consolidate shipments toreduce per box freight and handling charges. Smallshipments become prohibitive because many of the costsare on a price per shipment rather than per kilogram basis.Freight rates are lower per kilogram for larger shipments.


They also supply specialist product to bouquet makers;bouquet makers tend to deal directly with farms andimporters for the volume lines.

Some of the large importers have bouquet makingoperations. To varying degrees they have distributionfacilities direct to retailers. Some of them also offerfulfilment services for catalogue and e-commerce operators.

It is important to differentiate between importer/wholesalers and brokers. The former, typically, are far moreservice oriented with a high percentage of their product onadvance order or pre-sold. They offer a comprehensiveinventory which they use to fill short falls. Typically theyhold three to five days of inventory. They tend to operate infacilities near to an airport and have chillers and pre-coolers.Import wholesalers offer both delivery and pick-up service,however, unlike wholesalers they deliver in big quantities inlarge refrigerated semi-trailers to wholesalers and manymarketers. They also typically have a strong qualityassurance program grading a sample of all shipments andproviding feedback to growers.

Brokers on the other hand tend to be far more traderoriented, buying and selling on a speculative basis mostlywithout opening the boxes and checking quality. Brokerstypically operate a cross-docking distribution system; flowerscome in from exporters and are broken down into smallershipments still in the exporters boxes for re-shipping, usuallywithout the boxes being opened.

Increasingly, the larger wholesalers tend to deal directlywith exporters and farms and by-pass the importers, puttingthe importers and brokers under threat. It is likely that someof the brokers will eventually disappear. The brokers areincreasing their service levels as a defence strategy.

From the exporters’ point of view, one of the crucial rolesthat importers and brokers provide is distribution in theregional centres away from the importing ports. Exporterscan get access to coastal customers via wholesale marketsbut need import brokers to get distribution into inlandstates.

5.5 Wholesalers/Distributors

Wholesalers/distributors supply the product to retail outlets.They tend to specialise either in market segments (eg. top-end designers, mid-level retail florists), regional areas orproduct type. Many of them operate in wholesale marketssuch as Los Angeles, New York, Boston. They offer a dailydelivery service in small shipments, for example, a box. Someof them service the outer lying areas with route trucks whereproduct is sold directly off the truck. These wholesalers tendto service the mid-level suburban florists.

The up-scale florists and designers are more likely to buyfrom the markets because they are looking for novel itemsand are more fussy about quality. Wholesalers sell in smallbatches often down to individual bunches or stems, andtypically work in a margin of 25 to 45 per cent.

5.6 Bouquet makers

Bouquet makers are in the business of constructing stockbouquets for mass merchandisers, delis, grocery stores andstreet vendors. They work out of factories in low rentindustrial areas. Many of them are operated by the largerimporters, wholesalers and growers. Increasingly thebouquets are coming from makers in South and CentralAmerica which have the advantage of proximity to a varietyof low cost flowers and cheap labour.

The bouquet business is totally price driven with marginsfor bouquet makers very tight and difficult to increase.The bouquet makers typically work on a 50 cent margin. Thevast majority of the volume is in the $US3.99 - $US5.99 retailprice points. A $US3.99 bouquet will have three or fourstems and a small sprig of filler or green. There are alsohigher priced bouquets up to $US20 but these have lowvolume except for holiday periods. At these prices themakers can’t afford to be quality or variety conscious.

There is also a growing high-end bouquet market in the$US20 - $US60 range being sold through florists and someup-scale supermarkets. Most of these are being madelocally.

Mostly the bouquets are made to a recipe. The bouquetmakers make regular range presentations to the massretailers. There is also the provision for farm or designerschoice, in other words, the farmers or designers are ableto select flowers that are in plentiful supply. This givesthem some flexibility to use lower price seasonal lines.



The bouquet business is growing rapidly due to theincreasing market share of the mass merchants, particularlysupermarkets.

There is apparently good growth in the higher end bouquetsin the $US10 - $US20 range. Tropical bouquets are popularbut have been slow to take off. These higher priced bouquetsare mostly made locally.

There is very little Australian product going into massbouquets as selling prices are too low but an increasingamount is going into the high end bouquets, particularly inCanada. Recently some Australian exports have been valuebouquets assembled in Australia which are apparentlyselling quite well in the $US20 price range, albeit in smallvolumes.

5.7 Fulfilment companies

Fulfilment companies are those who facilitate the orders forcatalogue and e-commerce companies. They assemble thebouquets and organise shipment which is done by one of thecourier companies such as Fedex. Typically the e-commerceor catalogue company will take the order and electronicallytransfer it to the fulfilment company.

The e-commerce and catalogue companies work offstandard recipes at different price points, which they thencontract out to fulfilment companies. Bouquet makersprovide most of the fulfilment services.

5.8 Marketing margins

Table 5.1 is indicative of the pricing and margin spread atvarious levels in the marketing chain. It is hypotheticallybased on Waxflower shipped to the West Coast. It must bestressed that the margins referred to are the revenue thatthe chain member receives for performing the function andshould not be confused with profit. For the East Coast it isnecessary to add a further freight and handling component.

The most striking thing to note, which is true of anyagricultural product, is that it is the retailer and, to a lesserextent, the wholesaler who gets the biggest share of thecake and makes the largest profit.

Channel Member Sell Price $US Mark-up $US Mark-up per cent

Grower 1.40 - -

Exporter 2.83 1.43 50

Freight Forwarder 0.60 - -

Customs & Duty 0.24 - -

Handler 0.20 - -

Freight Carrier 0.13 - -

Import Broker 4.00 - -

Wholesaler /Distributor 6.00 2.00 50

Bouquet Maker 8.00 2.00 50

Mass Merchant 16.00 8.00 100

Florist 18.00 12.00 200

Designer 24.00 18.00 300

Table 5.1 Marketing Margins


5.9 Tightening margins are driving change in the supply chain

Clearly margins are being tightened at every level of thesupply chain, but particularly for growers. Prices appear tobe declining slightly in real terms mainly due to supplypressure from South America. Much of the South Americanproduct is sold on consignment and this tends to erodeprices dramatically in a slightly over-supplied market.

This tightening of margins is likely to result in changes in thesupply chain. These are already starting to occur. The mainpressure is on exporters and import brokers. Larger farmsin South America and California are now dealing directlywith second tier wholesalers and by-passing brokers. Thereverse is also occurring with wholesalers forgingarrangements with farms. This eliminates another margin.

It is likely that there will always be a role for exporters inAustralia because of the relatively small quantities, the needto source from different growing areas to get seasonalcoverage, as well as the need to consolidate freight andhandling in order to get economical shipments.

Similarly, Australia will probably always need to deal withimport brokers in order to get the market distribution,particularly into the middle states and regional areas.

6. Specific MarketsAs has already been highlighted, it is a misnomer to thinkof the North American market as one large homogenousmarket. In fact it consists of a large number of disparate andquite diverse sub-markets with subtle but significantvariations.

All have a low price driven bouquet market, a main market,a medium end and a high end. All are heavily price drivenbut the key difference is that some markets have a moredeveloped high end that is prepared to pay for variety,novelty and quality.

It is beyond the scope of this study to attempt to bring outthe differences between markets in any detail. The followingnotes on the markets visited give some of the flavour for thedifferences.

6.1 Los Angeles

Los Angeles is the most important market region forAustralia because the majority of product destined for theUSA enters through Los Angeles. There is a strong wholesalemarket, the Wall Street, market out of which the largerimporters operate. Los Angeles is an extremely competitivemarket because of the strong supply from Californiagrowers, as well as imports from all over the world, and isan important shipping hub to the East Coast and the mid-West.

6.2 San Francisco

The San Francisco market is noticeably more sophisticatedand quality conscious than Los Angeles even though theyare only 600 miles apart. There are a number of reasons forthis. San Francisco is a cosmopolitan and sophisticated citywith a strong demand for flowers from householders.

The florist shops are generally more up-market with higherprice points. Even the street vendors sell more up-marketranges, whereas in New York there was little over $US10 andmost in the $US3.99 range, in San Francisco there was awide selection in the $US20 plus range. The area has anabundance of high quality florist shops and has a largecorporate and event trade. There is a strong wholesalemarket called the Brannan Street markets.

SpecificMarkets



There is also an abundance of high quality, locally producedproduct on the market. Northern California is close to beingself-sufficient except for seasonal and specialist product.San Diego is a major supplier of Protea.

Imports from Holland have all but dried up because most ofthis product can now be sourced locally. Compared withother markets, there is not much product coming in fromSouth America either, apart from some special roses.

There is a fair amount of product coming in from Australiaand New Zealand. Australian Waxflower and Thryptomeneare coming in the local off-season. Much of this is comingin from New Zealand exporters who are consolidatingshipments with locally grown product.

New Zealand does a strong trade in Peonys, Hydrangeas,Peony buds and Cymbidium in the off-season, and doesparticularly well in the Thanksgiving holiday in Novemberwith Calla lilies in traditional autumnal colours.

6.3 Miami

Miami is one of the main hubs of the US floral industry.Historically this was because Florida was a prominent flowergrowing industry. However, in recent years the local industryhas been overshadowed by the fact that Miami is the entrypoint for the booming South American growing industry.Virtually all flowers from South America come in via Miami.Most of them are sold into the market on consignment.However, despite its prominence there is no wholesalemarket in Miami.

In recent times, Miami has lost some of its business as adistribution hub as some of the larger cities, such asHouston, Atlanta and Dallas, have started to direct import,albeit still entering through the Miami airport. Despite this,Miami is still regarded as the capital of the USA flowerindustry. Many of the large importing companies have farmsin South America.

Australia is not a prominent player in the Miami areabecause of the strong competition from Central and SouthAmerica and California and also because of the added freightcosts across from Los Angeles.

6.4 New York

Like any of the USA markets, New York is crowded,oversupplied with a large number of vendors offeringidentical product with the only negotiating point on

commodity product being price. However, the differentiatingfeature of the New York market is that it has a significant topend of up-market florists and designers who will pay foruniqueness and quality.

Whilst the New York market is probably the mostsophisticated, up-market in the USA, it also has its lowerscale segments. The New York market spans the low-endKorean delis and street vendors through to the up-marketdesigners and florists. New York also has a very large eventtrade, with many sophisticated designers who seek out theunique and unusual product and are prepared to pay for it.

Wholesalers comb the world for new products and some areeven working with breeders to come up with new varieties.The New York market generally is more quality consciousand the top end segments commonly pay a 10 to 15 per centpremium for better quality.

New York markets consist of individual wholesalers in shopfront outlets spread over several blocks. They tend tospecialise either by product type or source, for example, thereare a number who source out of Holland and commonly bidon the Dutch clocks.

This market services the New York, New Jersey andConnecticut areas and ships speciality product all over theUSA. The up-scale wholesalers service the top end floristsand designers and others at the middle, more price sensitiveend with most of their product coming out of Equador andColumbia. Some of the wholesalers have route trucks thatcall on florists in the adjoining areas to florists selling outof the truck.

There is some Australian product coming in, mainlyWaxflower, Thryptomene, and exotic bush picked foliage.Australian product mostly clears customs in Los Angeles butsome is coming in directly through JFK airport. New Zealandwas strong in the market with off-season Hydrangea andenjoys an excellent reputation for quality.

6.5 Boston

The Boston market is very similar to New York althougharguably slightly more up-scale. Whilst it has its lower endprice conscious segments, there is a strong top end thatseeks, and is prepared to pay for novelty and quality. TheBoston area has a very strong event trade that caters for thesociety events and strong hotel and corporate trade; Bostonis a strong merchant banking and finance centre.

Boston has a very impressive Flower Exchange out of which21 wholesalers operate. Florists and designers visit on a dailybasis. Designers want to come in and see what is unique andinteresting. As was highlighted earlier, this presents anopportunity for Australia to export the more exotic base withvalue filler flower.

Flowers are sourced from all over the world but with a strongrepresentation of European flowers.

The top end segments tend to shun South and CentralAmerican product and favour European because of theirquest for novelty and quality.

Australia is a significant supplier of filler flowers in theseason supplying Waxflower, Heather, Erica, Thryptomene,Banksia and Protea. Boston wholesalers are very happy withthe quality. New Zealand is also a prominent player in themarket.

6.6 Chicago

Chicago is an important distribution hub for flowers from allaround the world. The Chicago market is big in its own rightbut also distributes right through the middle of the USA.The Chicago market is very similar to New York and Bostonin the sense that it has a larger and more sophisticated topend market, with a large number of up-scale florists and acorporate/event market. The market is also more qualityconscious than Los Angeles or Miami because of its strongertop end and because of the need to ship flowers longdistances by road throughout the Mid West.

6.7 Canada

On the surface, the Canadian market is identical to the USAbut on closer examination there are some subtle differencesthat need to be taken into account. The supply chain isvirtually identical, with importers bringing in product fromoverseas and selling on to wholesalers who in turn sell toretailers.

There are a number of characteristics, which differentiatethe Canadian market, but in essence the market can becharacterised as being more sophisticated and qualityconscious. The consumer is more sophisticated and moreinclined to regularly purchase flowers for their home. Thereis a strong European influence, especially the Frenchinfluence in Quebec province but also Italian and Germanthroughout the country. Whilst there is no reliable data on


per capita use, household penetration of flowers is far higherin Canada.

Like in the USA, florists dominate the market; there appearto be more better quality, high-end florists in Canada. Likethe USA, supermarkets in Canada are becoming moreinvolved with flowers and are increasingly putting fullservice florists booths in their stores with trained florists.They have around 20 per cent of the market and their shareis growing rapidly at the expense of florists because theyare offering convenience, far better value and are activelypromoting. Increasingly the budget end bouquets are beingsourced out of South America.

The e-commerce business is growing but seems to belagging behind the USA.

The event and corporate market is far less developed thanin the USA as there is far less of a convention and eventmarket, with the exception of Vancouver. Most of thisbusiness is handled by up-scale florists.

The trade also appears to be noticeably more sophisticatedwith a very big Dutch presence in the industry. The industryis far more aligned with Europe with Dutch, French andItalian flowers having greater prominence in the marketthan in the USA.

Like the USA the Canadian market is fiercely price driven,however, at the same time it appears to be far more qualityconscious and prepared to pay a premium for it.

The importers in Canada source product from around theworld with South and Central America and California themain suppliers. Canada also has a strong local industry tothe degree that, for many products, it is close to being self-sufficient. Traditionally a lot of product has come in fromEurope, and still does, but this is declining because of theaccess to cheaper, better quality product from other sourcesand the unfavourable exchange rate.

Australian and New Zealand product is prominent in themarket during the off-season. The location disadvantage forAustralia is nowhere near as great in Canada as in the USA.In fact, some wholesalers indicate that it was often easier toship product from Australia than Miami.

Australian Waxflower, Thryptomene Gyp, Leucadendron,Banksia and Protea are widely available on the market. Someexporters are just starting to trial native bouquets as wellas Emu Grass and more unusual foliage, which seem to bewell received.


6.8 Canadian Production

There is a large green-house and field production industryin Canada located in Southern Ontario which supplies a widerange of product, including roses, carnations and other focalflowers. Most of the product is consumed locally althoughsome of it finds its way in to the USA. Canada is a majorsupplier of high quality potted plants into the USA.

The Ontario Flower Growers Cooperative runs a clock auctionin Toronto at which growers can sell their product. Retailerscan bid at these auctions. The cooperative also trades inimported flowers. Exporters can list sell product on aspeculative basis. Importers and wholesalers are highlycritical of the auction as they believe it to undermine themarket because retailers can buy at low prices directly offgrowers and also, at times of oversupply on the floor, themarket can be manipulated.

There is also a small growers’ market in Montréal, whichoperates twice per week but is only for growers.

6.9 Montréal

Wholesalers in Montréal service a radius of 1,600 km takingin Quebec Province, Southern Ontario and the Maritimes.There are around 45 wholesalers in the area, who tend to beregionally specialised with the exception of those in theMontréal area. They tend to purchase from large importerwholesalers. Most of the product comes in from SouthAmerica and Peru via Miami and California by road. A lot ofproduct is also sourced from Europe. There is a smallgrowing industry in Southern Ontario with green-housegrown flowers. Montréal has a twice-weekly growersauction.

6.10 Vancouver

The Vancouver market is probably the most sophisticated inNorth America. It reportedly has the highest per capita usageof flowers in the continent. It is also more discerning andquality conscious, with a large proportion of the marketprepared to pay for quality and novelty compared to otherparts of the continent.

Vancouver’s sophistication comes from the very strongDutch presence in the industry. There is a very large localgrowing industry in British Columbia province, which

produces virtually anything that can be produced in Europe,making it close to self-sufficient in many lines.

Another reason for the high household usage of flowers isthat they are highly accessible and affordable. Every streetcorner has flowers for sale in Korean grocery stores, delis,street vendors, supermarkets and farmers markets. Thequality of flowers on display is noticeably better than otherparts of North America. There is a bigger top end marketwith more up-market florists. There is also a larger marketfor higher price bouquets; for example in the Grantville retailmarket where locals shop for produce there were bouquetstargeted at home makers for $C60-$C80, some featuringAustralian filler.

Because of the abundance of local product, the prices arevery affordable. Purchase for in-home usage is a commonthing in Vancouver. The mild climate means that flowers arepurchased on a year round basis.

Tourism has now taken over from mining as Vancouver’spremier industry, meaning that the event and designermarket is very large and sophisticated.

Local production is strong, growing virtually anything thatcomes out of Europe. There is also a lot of bush pickedfoliage with Salal the biggest item.

Unlike other parts of North America, Vancouver is not a bigimporter from South America or Europe. In the case of SouthAmerica the issue is freight which, because of the location,is a big cost and logistical problem. In the case of Europe,the issue is that there is an abundance of local productavailable of comparable quality and cheap prices.

Australia is a significant supplier in this market. This is dueto the novelty of the product, which is sought after by themore sophisticated Vancouver market, and also thefavourable exchange rate and a relatively more favourablefreight and logistics situation. There is a significant quantityof foliage, particularly grasses, being imported fromAustralia. The wholesalers like the more novel varietiesof foliage from Australia. California has a big locationadvantage but, in the off season, Australia is highlycompetitive with Peru and Equador.

Australian traders enjoy a high level of respect in Vancouvergenerally being seen to deliver good quality and beingtrustworthy and reliable trading partners.

MarketingIssues


7. Marketing Issues

7.1 The pricing dynamic

The USA market is heavily price driven. Essentially this isbecause there is a world oversupply of flowers most of theyear and, being the biggest market, North America manifeststhis more than other countries.

California and Florida are the most price driven, the formerbecause of strong local production and the latter because ofthe flood of flowers entering the USA from South andCentral America. The demand curve for flowers in the USAis very flat with limited ability to get a premium for quality.

The base price is being eroded because the market isoversupplied. Much of the South and Central Americanproduct is being sold into Miami on consignment which isseriously undermining prices. Growers take whatever pricethey can get.

Unfortunately, it only takes a slight over-supply to bringdown prices. There is a rachet effect, prices go down in anover-supplying situation but are far harder to push up whenthe supply drops off. Once prices drop to a certain level thisbecomes established as a psychological price point for thebuyer and they are unwilling to pay more.

The pricing imperative starts with the retailer and worksits way down the supply chain. Mass merchandisers(supermarkets, warehouse stores), which have a large andgrowing share of the market, typically work off sub $US6price points. The bouquet makers, who in turn supply them,are forced to make an acceptable product within theseparameters, keeping in mind that the mass merchandiserswant to sell at double their buying price. This process worksall the way down the chain ultimately reaching the growerin Australia.

As a result of this process there is a limit that the wholesalersand bouquet makers can afford to pay for better quality.Whilst they are quality conscious they can’t afford to paymuch of a premium for quality.

The problem with filler flowers is that florists and bouquetmakers value an arrangement by the number of focalflowers and as such don’t place a value on fillers and foliage.

The market is so price point dominated that, in cases wherethey will pay a premium, it is in the form of a smaller bunch


at the same price point. For example, Australia is getting apremium over California for Waxflowers during our seasonby virtue of the fact that the Australian bunches are half thesize for the same price. There are customers, mostly up-market florists who will pay a premium for top quality buteven then the premium is no more than 10 per cent. Thewillingness to pay for quality is mostly based on yields, ie.more useable stems.

Australian exporters are their own worst enemy withregards to pricing. They compete with each other on price,even when there is no competition from other countrieswhich drives prices down unnecessarily.

7.2 The corporatisation of the USA flower market

Traditionally the flower industry in the USA has beenstrongly family and personal relationship oriented. It is quitecommon to see companies that are three generationfamilies. Furthermore the business has been built onrelationships, dealing with trusted friends. The industry isalso highly fragmented with a large number of small players.

Over the past two years there have been a numberof attempts at corporatising the industry and applyingthe contemporary management principles of verticalintegration, supply chain management, licensing,franchising, branding and mass marketing. Two notableexamples are US Floral and Gerald Stephens.

US Floral went on an acquisition trail, buying wholesaler andimportation companies, as well as distribution and bouquetmaking operations. They claim to be the biggest wholesalerand importer in the world.

Gerald Stephens, on the other hand, has attempted to builda chain of retail florists by acquiring independent floristsacross the country supported by central buying anddistribution and strong branding and promotion. Thisoperation was established by the same team that builtBlockbuster videos, feeling that the same principles couldbe applied to flowers.

At first these ventures were enthusiastically embraced byWall Street with share prices taking off, going over the $US20mark, but whilst it is early days, it would appear that thesetwo ventures have not gone well. Both of them areapparently struggling and the share prices have fallen like a

stone as Wall Street has abandoned them because of theirdisappointing results.

The general view is that these organisations will be brokenup and the corporations will downsize or disappear. Thefeeling is that the flower industry will always be based onrelationships which can’t be corporatised.

7.3 Branding

Despite the huge potential for using branding as a tool forproduct differentiation, there is not much in the way ofbrand development. Flowers are generally considered to bea commodity where branding has little relevance. Otheragricultural industries have successfully used branding as amarketing tool and it can be effectively applied to thisindustry. There is some branding activity going on and signsthat some organisations are starting to look seriously atbranding.

Gerald Stephens Co

Another recent entrée in to the USA floral market isFort Lauderdale based Gerald Stephens and Co. whichwas founded by the team that started BLOCKBUSTERvideo. Their intention was to organise a previouslyfragmented industry. The company was listed on thestock exchange. The plan was to buy up the best retailoutlets and brand them with the companies name.Longer term the plan is to become vertically integratedwith centralised buying and telephone ordering. So farthe company has had a modest start with only threeof its stores branded. The share market has lostconfidence in the plan with share prices falling from$US16 to 70c. Recent reporting indicates that revenuefor the six month period to February 2000 was$US130.80 million, an increase from $US40 millionin the same period last year. The increases are areflection of retail expansion into Los Angeles, Chicago,Philadelphia, Las Vegas, Minneapolis and Omaha aswell as the merger with Florafax International.


7.4 Consumer/retail brands

Several attempts are being made to establish consumerretail brands. Dole, which is prominent with branded fruitand vegetables, is attempting to do the same with flowers(see box). Its aim is to market Dole branded bouquets andbunches through supermarkets and other mass merchants.However, to date, it has not succeeded because of the

problems of achieving consistent quality, which is essentialfor an effective consumer brand. Even with its own farmsand bouquet making operation, it cannot assure the qualityof the product reaching the consumer.

Martha Stewart, a prominent TV lifestyle presenter, ismarketing a range of bouquets and bunches in her catalogueprogram. This appears to be quite successful as a marketingexercise but it has proved to be difficult for the fulfillmentand bouquet companies because of the holiday peak.

7.5 Grower/wholesaler brands

Branding is starting to become important at the grower and,to a lesser extent, the exporter level. Increasingly product isgetting through to the wholesaler in the growers’ orexporters’ boxes especially with the growing trend towardssmaller and mixed boxes. Wholesalers are finding that theirretail customers are starting to specify a particular groweror farm if they find the quality to be good and they areprepared to pay a slight premium for it.

Some wholesalers are developing their own private labelswhich they are promoting strongly. Some growers areinvesting in more expensive, strongly branded boxes.

7.6 Regional brands

There are a number of regional brands around. Californiahas a common brand, which it markets quite effectively, asdoes Peru. Many growers in California are using a commonbox, which is produced by some of the carton manufacturers.The Dutch are the most successful promoters of regionalbrands. Whilst there are no common brands, they havesuccessfully elevated awareness of their collective product.

7.7 Promotional opportunities

Apart from building relationships with importers andwholesalers, the most effective way to promote flowers isthrough participation in key industry trade shows andadvertising in industry magazines. With promotion, the keypoint is to target wholesalers; without their support newproducts will struggle. Wholesalers are the most importanttarget for promotion because they are the pivotal point inthe market.

DoleDole Food Inc. is a long established company prominentin the USA for branded fruits and vegetables. It recentlyentered the flower business with the intention ofextending its brand to fresh flowers. Dole fresh flowersreported $US201 million in sales in the 1999 annualfiscal report issued by Dole Food Co. Inc. The FreshFlower division was 4 per cent of Dole Food Co. Inc.’s$US5.6 billion total 1999 sales.

Dole Fresh Flowers employs 13,000 people in fourcountries. The main distribution is through Miami,although their aim is to move one third of their USAsales through Los Angeles. They started out 18 monthsago and have bought farms and wholesale distributionoutlets. The Columbian farms acquired specialise in 1or 2 crops only, each were leaders in the crops grown.The product is marketed under several ‘farm’ brands,for example ‘Sunburst Farms’ and ‘Four Farmers Farm’.At one farm four brands are grown. They also marketunder brands such as ‘Signature Flowers’ or ‘FinesseFlowers’. Dole’s Columbian bouquet making operationcan produce 100,000 units a day. Whilst they areselling flowers mainly into supermarkets, as yet theyare not putting their brand on the product becausethey don’t have adequate control over their brandwhich they protect strongly. The general view is thatthey have made a mistake as they will never have thecontrol needed to protect their brand; even if they getthe product to the store in excellent condition there isthe chance that the supermarket will not handle itwell. Dole Fresh Flowers are active in developing e-commerce. They have a trading arrangement withFloraplex to sell to wholesalers; they also fulfill ordersfor companies like 1800 Flowers.com, Calyx & Corolla,FTD.com, PCFlowers and others. Their own site is beingkept low key at FlowerNet.com.

7.8 Trade shows

There are a number of major trade shows that would providean excellent vehicle for Australia to show-case its product.

The key shows are:

• Association of Floral Importers of Florida annual tradeshow, September in Miami;

• Agri Flowers, September in New York([email protected]); and

• American Institute of Floral Designers (annual tradeshows and workshops) ([email protected]).

7.9 Trade magazines

There are a number of prominent magazines which providea high level of reach to wholesalers, florists and importers.The most prominent ones are:

• Floral Nursery Times [email protected];

• Florist & Grower; and

• Floral Management. [email protected].

Others include:

• Florist’s Review [email protected];

• Florist Magazine [email protected]; and

• Green Profit [email protected].

7.10Trade associations

Another effective promotional tool is networking throughtrade associations such as:

• Association of Floral Importers of [email protected];

• Wholesale Florists and Florist Suppliers of [email protected]; and

• Society of American Florists [email protected].


7.11 Usage development

One of the best opportunities for Australia is to demonstrateto florists and designers novel and fascinating ways to useAustralian product in arrangements. This could becommunicated through participation in trade shows andadvertising in industry trade magazines. New Zealand hashad great success with a high quality booklet showing howits product can be incorporated into floral design.

7.12 Duties and market restrictions

Australia is at a disadvantage to its main competitors,California and South America, because of duties. The dutylevel varies, but for most of the product from Australia, it issix per cent of invoice value.

SupplierCountries


8. Supplier Countries

8.1 California

California is the major flower producing state in the USA,growing a very wide range of focal and filler flowers.Californian region flowers account for 66 per cent of USAproduct sold. California is a strong supplier of filler flowersespecially Wax and Thryptomene. It has a good reputationfor quality. For some months of the year it competes directlywith Australia and is a lower price supplier because, whilstthe price per bunch is the same, it has much bigger bunchesthereby providing much better value for money. It also hasa major freight advantage into most areas of the USA, andpays no duty. San Diego is a strong producer of Protea.

8.2 Florida

Florida is the main supplier of foliage for the USA andCanada. Florida dominates the green foliage segment andproduces 80 per cent of the USA grown foliage sold.Florida product accounts for seven per cent of total USAgrown product sold. Its focal flower business is shrinkingdue to competition from South and Central America andurban encroachment. Miami is the largest trading anddistribution hub for flowers out of South and CentralAmerica.

8.3 Hawaii

Hawaii is a supplier of tropical focal flowers and someProtea. This state accounts for four per cent of USA productsold. It does a big trade in tropical bouquets.

8.4 Canada

Canada is a major supplier both to its own markets and alsothe USA. There is a strong green-house growing industry inSouthern Ontario and British Columbia which has taken a lotof business from Dutch suppliers.

8.5 Washington State & Oregon

Production in Washington State and Oregon accounts foreight per cent of USA product sold. As in Canada there ismuch green-house production.


8.6 New Zealand

New Zealand is a major competitor for Australia because itcan supply in roughly the same seasonal window. It appearsto be growing its business into this market, apparentlythrough a more focussed approach. It enjoys a goodreputation in the market for quality and is an aggressivemarketer. New Zealanders are renowned for the quality, butmore particularly the presentation of their product.Apparently New Zealand has perfected the growingpractices and disease control, which are a problemparticularly for focal flowers.

New Zealand has built a good business in out of season focalflowers such as Peonies, Hydrangea, Cymbidium and lilies. Infact, New Zealand does a good trade in lilies for theThanksgiving holiday. Much of Australian product isbeing exported through New Zealand traders who areconsolidating shipments with their own product.

8.7 South Africa and Zimbabwe

These countries have been major suppliers in the past,particularly of Protea. The industry is thought to besubsidised by the respective Governments. Their presencein the market seems to be shrinking because of strongcompetition and a freight disadvantage.

8.8 Holland

Despite strong competition from South and CentralAmerica, Holland is a major supplier. Notwithstanding theovercrowded supply situation, the Dutch clocks are requiredto fill the volume particularly in the holiday peaks. Holland’sinfluence on the West Coast and Canada seems to beshrinking because of strong competition from SouthAmerica and Canada but it is still a major supplier on theEast Coast, particularly New York and Boston. Dutchcompanies have wholesale offices located throughout NorthAmerica.

8.9 Columbia, Equador, Chile and Peru

These countries now dominate the North American marketfor focal flowers because of good quality, lower productioncosts, close proximity and effective marketing. Parts of theregion are close to the equator and have virtually year roundproduction. Peru is narrowing Australia’s seasonal windowfor Waxflower. The quality of production from this region isvariable and generally regarded as inferior to Australia.However, quality seems to be improving and, with the newvarieties, is rapidly posing a competitive threat to Australia.The industry is also subsidised by the Government.

Many of the farms now have joint venture investment withUSA wholesalers, growers and distributors.

8.10 South East Asia

Singapore, Malaysia and Thailand are strong suppliers oforchids and tropical focal flowers which are used for exoticarrangements.

E-commerce


9. E-commerceThere is a lot of development with e-commerce in the USAfloral industry at all levels. At present the jury is still out one-commerce. There is much expectation about the future ofe-commerce but at present no-one appears to be makingany money out of internet trading. It is likely that the webwill dramatically change the industry by breaking downtraditional supply chain arrangements. For example, withthe web there is theoretically no reason why Australianexporters couldn’t sell directly to consumers, although thelogistics would be difficult. E-commerce will certainlyimprove information flows and improve market accessibility.

9.1 Business to Consumer (B2C)

There are a number of sites targeting retail consumers.These companies heavily promote their web sites andapparently the business is growing steadily from a smallbase. FTD.com, whilst reporting substantial losses inDecember 1999, is indicating significant sales increases.Total revenues in the period were $US23.6 million, up 86 percent on the same period in 1998. During the December 1999quarter, internet orders increased by 200 per cent to 282,309orders.

1-800-Flowers.com reports a 127 per cent increase in on linerevenues to $US30 million, for the third fiscal quarter toMarch 2000. Non-floral products account for 18 per cent ofon-line revenue. This company is also reporting losses todate.

Some other business to consumer sites are:

• Proflowers.com;

• Florashop (see Floraplex); and

• PC Flowers.

Other retailers are also promoting flowers on their web sites,such as Walmart, Martha Stewart and major supermarkets,and new sites are continually appearing. The peak of theirbusiness is at holiday times, particularly Mother’s Day. Infact, the holiday peaks are causing a problem as they arehaving trouble delivering on time because of the spike oforders that come in at the last minute. In order to eliminatethis problem, direct marketing companies are offeringdiscounts and bonuses for early orders.


Some of the bigger web retailers, such as Gap.com, areoffering discount coupons for web flower orders forpurchases on their site greater than, say, $US40.

In Canada Chapters Bookstores, which has a large e-booktrade, has just introduced flowers to its range along withother gift lines.

9.2 Business to Business (B2B)

There is also a lot of activity at the wholesale level. The twomain active e-commerce sites are Floraplex and TheAmerican Clock.

Floraplex is an e-commerce company with two main portals,one for produce and one for flowers. It is essentially focussedon business to business trading but does have a consumeroriented site for flowers. The site was started in 1994 andis still functioning in a developmental mode.

Site loyalty is fostered by information services such asvarietal information from breeders including seasonalavailability, care and usage. Growers can contribute articlesto the site. Some communities of growers provideinformation, such as the Californian growers group andother such grower associations who run community pages.Information pages can link back to the grower’s ownwebsite.

Essentially there are three shop fronts:

• Tradelink - grower to wholesaler;

• Floramall - wholesaler to bouquet makers,supermarkets, some retailers. It is also possible to buyhardgoods such as vases and foam, shop fittings etc. onthis site; and

• Florashop - local florist to consumer. Florashop differsfrom Martha Stewart and wire services in that it is avery simple formula that directs buyers to a local storeat the destination town and that store has completeflexibility.

The attraction for companies like Dole is that they don’t haveto go to the expense of setting up an electronic shoppingcart facility. They have registrations of 600 plus users inEurope, 200-300 in South America and yet only 90-100actively trade at this stage.

There is also an internet trading system in Canada calledflowerbuyer.com which is a trading system where growerscan offer flowers for sale and wholesalers can bid.

9.3 The American Clock

http://www.theamericanclock.com

This site focusses on growers selling to wholesalers andoperates as an auction. Many growers use this device todispose of excess stock and wholesalers use it to fill productshortfall. Wholesalers, such as Natural Blossoms use it tosource cheap product or urgent requirements. Wholesalersor larger retail buyers register as members and then theycan submit bids for listed product. There is also an on lineDutch auction facility at certain times of the day.

StrategicAnalysis


10. Strategic Analysis

10.1 The Australian market is under threat

Australia’s traditional filler flower market in the USA is underthreat and it is not an overstatement to say that unless ittakes a more focussed approach to salvage its market, itcould all but disappear. The conventional wisdom is thatAustralia has only three years. The main threat is comingfrom California and South America. Peru and California areproducing very similar type of product and have a significantfreight cost advantage. The Californian bunches are of equalor better quality and the bunches are twice the size at thesame price.

Australia’s traditional seasonal window of opportunity isalso shrinking as Peru’s growing season is expanding. Perustill has a lot of catching up to do in terms of its varieties andquality, although apparently they are progressing rapidly andthe gap against Australia is narrowing.

Clearly the Australian industry needs to change its strategyif it wants to continue to be a player in this market. Thismust be based on preserving its traditional markets for fillerflowers as well as developing markets for new products.

The situation is not as grave in Canada as Australia has someinsulation because of distance and exchange rate.

10.2 The lack of critical mass

Australia suffers in the North American market from lack ofcritical mass, supplying less than one per cent of the market.The small amount of Australian product is spread widely tothe point that it has no market presence. It also lacks thevolume to support a marketing program that will providethe much needed visibility. By comparison, California, Peru,Columbia and Holland have high market presence whichbuilds demand.

10.3 Cannibalistic selling practices

The Australian industry complains about the very low pricesit receives for its product in this market but, to a large extent,it brings this upon itself through destructive over-competitive pricing. For about three months of the year, ithas the filler flower market virtually to itself and the onlycompetition is between Australian exporters.


Importers admit that they can play Australian traders offagainst each other on price; as one trader put it, “it’slike shooting fish in a goldfish bowl”. This overzealouscompetition is reducing returns by as much as 25 per centat some times of the year with the growers carrying mostof the burden. The USA market is price driven enoughwithout unnecessarily exacerbating the problem.

Better communication between exporters and perhaps avoluntary code of conduct with respect to pricing andtrading practice would eradicate much of this problem.Knowing the competitive nature of the Australian exportindustry, such an approach is unlikely. All this report can dois highlight the issue.

10.4 Lack of industry cohesion

Following on directly from the above point, as an outsideobserver it is clear that the industry is highly fragmentedand this is greatly affecting its performance, particularly inthe North American market. This is a fiercely competitiveindustry with exporters and importers strongly protectingtheir customer and supplier base.

Because of Australia’s lack of critical mass in this market, theindustry needs to co-operate to build and protect itsbusiness which, in our view, is under threat. Its competitors,the Californians, Peruvians, Columbians and Dutch, arehighly organised with strong and cohesive tradeassociations, industry brands, common industry boxes andpromotional and marketing programs.

10.5 Trader rather than a marketer mentality

The Australian flower industry approaches the NorthAmerican market as a group of traders rather thanmarketers. This is the traditional way of business, on a dealby deal basis. Whilst some individual exporters may havelong term marketing strategies, there is no evidence of thisin the market nor is there any evidence of an industrystrategy. In contrast the main competitors have clearlydefined and focussed strategies and it is apparent that NewZealand has approached the North American market in amore thoughtful way, which is paying off. This has to changenow if Australia wants to be a serious long-term player inthe market.

Most other agricultural export industries have evolved tothe point that the traders and brokers have disappeared andbusiness is now done by marketers who are strategicallyaligned all the way down the supply chain and are intimatelyinvolved right through to the end customer. In contrast,most of the flower business is done on a deal by deal basiswith exporters commonly not opening the boxes and seeingthe flowers they ship, and never following through to seehow they perform for the end customer. As a result therequired customer responsiveness is lost. The industry failsto get in touch with its markets and never enters into cyclesof continuous improvement that are required for it toprogress and succeed.

Increasingly the market is dominated by mass, corporate anddirect marketers who think in terms of marketing programs,which they do in co-operation with suppliers, throughstrategic alliances.Typically, their focus is long term, planningtheir business and marketing activity 12 months in advance.They work with suppliers as strategic partners.

From what we can see there is no one in Australia, at anindustry or individual level, who is putting togethermarketing programs. For example several of the large, moreup-market supermarket groups indicated that they werekeen to use and promote Australian product “but no-one hadpresented them with a program”. They don’t just wantshipments of flowers, they want total marketing programs.

If Australia is to succeed in this highly competitive marketit needs to behave like a marketer, rather than a trader, andimplement a cohesive and planned approach.

However, Australian exporters probably can’t do this bythemselves and will have to work more closely with theirimporters. The key discipline of a marketer is to get closerto, and better understand, the end user. For a grower orexporter this means developing strategic alliances all theway down the supply chain and better understanding andtaking accountablity for how the product performs for theend user.

In most other industries the trader has all but disappeared;to survive you need to be a marketer.


10.6 The lack of a cohesive marketing and promotional program

An extension of the above point is that Australia lacks acoordinated marketing program, or any marketing programat all, for that matter. Australian product is not promoted,whilst its competitors are participating in trade shows andadvertising in wholesale magazines.

Australia’s major strength and source of competitiveadvantage is that it has unique products, although this isgradually being eliminated as other countries growAustralian natives very successfully.

If Australia is to grow the market and improve returns, itneeds to promote its product and, particularly, educate themarket about caring for, utilising and displaying product.In other words, Australia needs a cohesive marketing andpromotional program.

As a starting point, wholesalers and importers will have tolearn a lot about Australian product. The next stage is tothen move down the chain to retail florists, decorators andmass merchants.

Australia needs an industry presence in the key wholesaletrade shows, to advertise in trade magazines and toparticipate in trade association activities. The appropriatemagazines, shows and activities have been listed previously.Obviously the industry would have to agree on a system andon implementation strategies.

To do this the industry needs to generate a significant andon-going marketing budget.

10.7 The lack of a grading system

Australia could improve its performance in this market, andits average returns, by implementing an industry-wideproduct description, labelling and grading system. Theindustry is calling out for it and Australia could achieve acompetitive advantage by being the first country tointroduce such a scheme.

Australia is perceived to be capable of producing an excellentproduct geared to the rigors of the Japanese market. Theproblem is the lack of consistency. A system based on stemthickness, length, consistency of bloom and yield would giveAustralia a major advantage in this market.

10.8 Freight and logistics

Freight and logistics are a major issue for Australia in thisregion. Australia’s closest competitors, California and SouthAmerica, have significant freight advantages. Not only dothey have a cost advantage but also a logistical and timingadvantage. Virtually all Australian product is shipped onpassenger planes with the risk that it can be bumped off atany time as the airlines give priority to passenger luggage.Also a high percentage of product is transhipped and oftenleft at the airport at variable temperatures for extendedperiods and suffers generally from poor handling.

By comparison California and South American product isfreighted across North America in refrigerated reefers withconstant temperature, increasingly in wet packs, meaningthat it arrives in far better condition.

There is also the issue of critical mass in the sense that it isnot economical to handle small shipments because of thehigher freight costs and the fact that the clearance andhandling costs are on a per shipment basis.

10.9 Australia’s quality image in the market

Australia’s image in the market is polarised. Whilst manyAustralian exporters have a reputation for quality, theindustry as a whole suffers from the reputation ofinconsistency. There is a feeling that Australia is capable ofproducing a good quality product if it wants to. The generalview is that when Australian product is good, it is excellent.

There is a view that Australian business is focussed on Japanand the industry uses North America as a dumping groundfor product that it can’t sell in Japan. The problem is one oflack of consistency. A common theme is that Australian fillerproduct varies, particularly in terms of stem length, yield(mainly with the evenness of bloom), bunch size andbearding in the early season. There are many complaints inthe early Waxflower season about the yield of Australianproduct due to variation in stem weight from 300-450grams, the number of stems per bunch and woody stems.

There are also criticisms about the presentation of much ofAustralian product, the appearance when the box is openedand the packaging itself. New Zealand is apparently doing afar better job.

California supplies 1 kg bunches with consistent stem lengthand bunch thickness. Australia supplies 400 gram buncheswith less consistent quality for the same price.


The practice of selling by bunch weight comes in for criticismbecause of the short selling on weight and the widevariation in yield between bunches. Many wholesalersmentioned that they would like to see a grading systembased on stem count, length and stem thickness.

There is a perception in the USA that Australian growershave an inflated sense of the value of their product.

10.10 Presentation

Another issue for Australia is that, in general, its product isnot well presented relative to other supplying countries,notably Holland and New Zealand. Other suppliers tend touse better quality and more attractive boxes and are moremeticulous in the manner in which they pack the flowers.Some suppliers have also done an excellent job with theirown brand, which appears to be paying off.

10.11 Opportunities for branding

The Australian floral export industry has a lot to learn aboutbranding.There is good potential to develop brands providedthat the necessary conditions of consistency, critical massand effective marketing can be met. A brand will work in anegative manner if the product is of poor or inconsistentquality. A brand is only as good as the worst product thatgoes out under its name. The second requirement is criticalmass in terms of market presence and marketing support.Marketing expertise is also important. The lack of brandingin the flower industry is due to the fact that not manyorganisations can meet these necessary conditions.

The Dutch are the masters at branding. For branding to beeffective it really needs to get as far down the chain aspossible and, ideally, to the end consumer. The box providesa good vehicle for branding especially as an estimated 25per cent of flowers get to the retailer in the original box.This will increase with the growing use of smaller andmixed boxes.

Some companies are doing an excellent job with their boxes.The quality and strength of the box becomes moreimportant with branding. A crushed box does nothing forthe brand.

Sleeves and care cards provide an excellent vehicle to get tothe end consumer. Some of the better marketers are startingto use these devices to build a brand presence.

10.12 The lack of unique product

Australia’s entry into the USA market came about becauseit had unique product. Unfortunately it is progressivelylosing this advantage because other suppliers aresuccessfully growing and marketing Australian flowers.Australia therefore needs to invest in breeding programs togenerate new product. It does not need to actively marketnovel bush picked product.

Australia needs to build the out of season market forWaxflower as retailers are accustomed to it not beingavailable and move to substitutes. Australia needs topromote during its opportunity window.

Research and development programs are required to identifyvarieties and to implement breeding programs.

10.13 Niche market opportunities

Australia’s best prospects appear to be in pursuing nichemarkets. It has become increasingly difficult for Australia tocompete in the volume commodity filler market where thebulk of the product has traditionally gone.

It is beyond the scope of this study to undertake detailedanalysis of the niche market opportunities; however, in broadterms there are four categories.

Geographic market

Some markets are more quality conscious and prepared topay a premium for high quality Australian products, forexample Montréal and Boston.

Novel items

High-end florists and designers are always on the look outfor novel items for which they are prepared to pay apremium. This will require a new varieties breeding programand developing business in novel bush picked items.

Out of season

As New Zealand has found, there are lucrative markets forfocal flowers such as Hydrangeas and Peonies in the NorthAmerican off-season. Some of the biggest holiday salesperiods occur in the USA off-season, including Thanksgiving,Christmas and St. Valentine’s Day.


Obviously Australia will have to do a lot of work both ingrowing practices and marketing to develop this marketopportunity.

Exotic foliage

There may be an opportunity for exotic foliage such as EmuGrass, particularly in Canada.

10.14 Dried flowers

There is a big trade in dried flowers in North America, inwhich Australia is a significant participant. Australianproduct is popular because it is unusual. Dried arrangementsfigure strongly in florist shops and mass market and are alsopopular in catalogues and e-commerce.

In recent times, some florists are marketing Australian nativebouquets as a fresh/dry option (i.e. purchase fresh and thenkeep on as a dried arrangement). There will always besignificant opportunity for Australia in dried arrangements;however the market is extremely price driven and marginsare thin.

10.15 The outlook for Australia

If the Australian industry continues on its current course itsoutlook is not optimistic. A common view is that Australia’sdays in the USA market with filler flowers are numbered,the conventional wisdom is three years. The USA market isoversupplied and, in the main, very price driven. Australiahas a cost disadvantage because of freight and duty. Thebulk of the business is filler flowers for which there isgrowing competition from South and Central America.Australia’s seasonal window is shrinking as competitorsperfect new varieties. The Waxflower coming fromthese competitors is improving all the time. AustralianThryptomene comes into the market when there is anabundance of other product around.

The market is becoming oversupplied with the type ofproduct that Australia has to sell; clearly it is a buyers’market. Much of the South American product is sold onconsignment into Miami which has a depressing effect onprice. The lack of communication between exporters isheavily eroding margins.

Growers in Europe, South America and California willincreasingly be looking to by-pass exporters and evenimporters through strategic alliances such as retailers,designers and bouquet makers to maintain a margin, whichwill further fragment the market. As this occurs it will closeoff many market opportunities for Australia.

The lack of communication and industry marketing andpromotional programs is holding back performance in amarket where Australia suffers from a lack of critical massand is at a distinct disadvantage.

Apart from better industry cooperation, the best long termprospects for Australia are in pursuing niche markets, eithergeographical niches where the Australian product is moreattractive or with new products. There is good potential forout of season focal flowers but Australia needs to work ongrowing practices and improving its presentation. It canlearn a lot from New Zealand in this regard.

The freight costs and duties are unlikely to abate and couldget worse, which puts Australia at a disadvantage.

10.16 SWOT for Australia

This section outlines a strengths, weaknesses, opportunitiesand threats analysis for the Australian flower industryrelative to the North American market. The purpose of theanalysis is to highlight the strategic issues that need to beaddressed in the formulation of programs for the industry,as well as individual operations.

Strengths

• Unique varieties and material

• Seasonal window opportunities

• Diversity of product

• Generally good reputation for quality

Weaknesses

• Distance, freight costs and logistics

• Lack of critical mass and market presence

• Higher cost structure vis a vis third world countries

• Lack of industry cohesion

• Inconsistent USDA compliance requirements


• Destructive selling practices

• Lack of marketing and promotion

• Inconsistent quality

• Australia pays duty whilst its competitors, California andSouth America, are duty free

Opportunities

• Voluntary code of conduct on pricing and sellingpractice

• Freighting by sea

• Niche markets

• Focal flowers in off-season peaks such as Thanksgivingand Christmas

• Dried flowers

• Foliage into Canada

• New protected varieties

• Industry brands and common boxes

• Voluntary product description, quality assurance andlabelling system

• Industry promotion and representation

• Branded quarter boxes as a marketing and brandingtool

• Building stronger supply chain relationships

Threats

• Competitors taking Australian varieties

• Shrinking seasonal window due to Californian andPeruvian production

• Strengthening of the $A

StrategicMarketing


11. Strategic MarketSignposts

It is beyond the scope of this study to provide detailedrecommendations as to what strategies individual players orthe industry as a whole should pursue. However, out of thestrategic analysis there emerge a number of potentiallyadvantageous strategy directions, which are outlined inbroad terms below.

The strategies fall into three broad groups:

• the commodity end filler market;

• the higher end filler market; and

• the off-season focal flower market.

These strategy directions are summarised below.

11.1 Commodity market filler

Background

Australia’s traditional business in the commodity fillermarket is under serious threat because of the strong andgrowing competition from California and South America.Moreover, the seasonal window that Australia has enjoyed,particularly for Waxflower, is shrinking as Peru comes onstream with new varieties. Australia has a much higher coststructure because of freight and duty. Returns to theAustralian industry are also being unnecessarily eroded bycannibalistic trading practices by exporters.

Key strategy points

• Rationalise trading practices through bettercommunication between exporters and perhaps theintroduction of a voluntary code of conduct with respectto trading and costing practices.

• Introduce a product description, quality and labellingsystem. Whilst Australia has generally good quality, ithas a reputation for inconsistency particularly at thestart of the season. The introduction of a voluntaryquality assurance, grading product description systemwould give Australia a source of competitive advantage.Once the system is in place there is also the opportunityto leverage off this with industry packaging andbranding and promotional and marketing programsas occurs in other industries.


• Becoming a marketer rather than a trader and buildingdownstream relationships all the way down the supplychain through to end retailers. It is essential thatAustralian exporters and growers develop strategicalliances and partnerships and take a greater interestin how the product is used and performs with theconsumer. The fastest growing segment is the massmerchants in which Australian product has a very smallpresence. Increasingly the market is moving towardsannual marketing programs, which require pre-planningand involvement with the retailers.

• Build an Australian marketing presence throughpromotion and the implementation of plannedmarketing programs. Australia needs to build itsmarket profile through an annual promotional program.It needs to join the various wholesale and tradeassociations, participate in the major trade shows andadvertise in trade magazines. This activity will be moreeffective if there is a common box, stem tag and brand.

• Address logistics and freight issues. Australia is at a hugedisadvantage because its distance from markets notonly causes much higher freight costs than itscompetitors but also causes logistical problemsaffecting time to market and quality. Other industrieshave found that with a collective voice they cannegotiate better deals with freight companies.There is also substantial scope for gains through loadconsolidation. New technology is being adopted byfreight companies that may be applicable to floralproducts. Australia should give priority to investigatethe feasibility of sea freight. Other marketers ofperishable products are finding that sea freight is notonly much cheaper, but that the product arrives in muchbetter condition. The sea freight option could only beentertained at peak holiday selling times. Even then itwould need to be carefully managed and supportedwith a well planned marketing program to avoid theprice depressing effects of loading large volumes ofproduct at one time.

11.2 High end filler

Background

There are key opportunities for targeting the higher endmarkets for filler, where there are significant groups whowill pay a substantial premium for unique fillers and superiorquality. The volumes would be relatively small but returnsand margins substantially better.

Key strategy point

• Develop new and novel varieties through industryconsortium funded breeding and research anddevelopment (R&D) programs. This could be run as alicenced program with growers and exporters paying afee to produce and market the product. As with otherlicencing programs there would be a standard varietyname and brand and a quality standard and code oftrading practice. Licence fees could fund a targetedpromotional program. This product would be targetedat the top end florists and designers in the moresophisticated markets such as New York, Boston andVancouver which have more developed top end usersegments.

11.3 The off-season focal flower market

Background

As New Zealand has found, there is an excellent opportunityto market focal flowers in the North American off seasonwhich coincides with some of the biggest peak holidayselling season, Thanksgiving, Christmas and St. Valentine’sDay. New Zealand is doing big trade in Hydrangeas, Peonies,and Cymbidium but there are other varieties that may besuitable.

Key Strategy Point

It would seem logical for the industry, or at least sections ofit, to collectively explore this opportunity. As well asexploring the market opportunity and the type of productsto grow, there will need to be a lot of R&D work to sortout the growing problems as these varieties are moresusceptible to disease.

IndustryPrograms


12. Industry Programs Given the laissez faire nature of this industry, in the main itis up to the individual parties to digest the informationcontained in this report and decide on their own individualdirection and strategies.

A repeated theme throughout the report is that Australia’sperformance in this market is being severely harmed by thefragmented and lack of industry collaboration in itsapproach. In the North American market, Australia suffersfrom a of lack of critical mass and market presence. Clearlya cohesive industry approach will achieve far more than thecollective effort of individual players. Most of the areas forindustry collaboration have been identified elsewhere in thisreport and are summarised below.

12.1 Trading practices

There is no doubt that aggressive price competition betweenAustralian exporters is eroding returns which is being passedon down the line to growers. For several weeks into peakselling season Australia has the filler flower market to itself,meaning that with a more considered approach, returnscould be improved. Whilst this report is not recommendingovert collusion between exporters, the introduction of moreformal information sharing processes on market conditionsand pricing, together with a voluntary code of practicecovering trading practices, would greatly improve thesituation without impinging on individual commercialopportunities. In our view, with the effective communicationlinks between exporters, there is the potential tosignificantly improve average return.

12.2Freight negotiations

Because of its location, freight costs and logistics poseongoing problems for Australian exporters. Not only doAustralians pay a high freight rate, they also have to dealwith having product taken off passenger planes withoutnotice and being badly handled at the airport. As otherindustries have found, the possibilities exist for negotiatingbetter rates and higher priority through collective industrynegotiations. With freight there are substantial volumediscounts that can be negotiated. In addition, significantsavings can be gained from container loads, which can beachieved through two or more exporters consolidating theirshipments. Industry collaboration on these issues, either ona formal or informal level, will produce significant gains.


12.3 Sea freight trials

The option of sea freight needs to be more closely examined.Quite apart from the substantial cost advantage, the moreconsistent temperature and ability to use wet packscan more than compensate for the additional timeand allow the product to arrive with better vase lifethan compared to air travel. Sea freighting would need tobe done in refrigerated reefers, which require largeshipments, probably beyond the scope of individualexporters. The sea freight option is only really feasible duringpeak holiday selling times, for example Thanksgiving.

Sea shipments would need to be supported with a co-ordinated marketing program to control the potential pricedepressing effects of dumping large volumes into themarket at one time. It is understood that other exportingcountries have used sea trials with some success.

12.4 Lobbying on duties and quarantine restrictions

Australia is at a distinct disadvantage vis-á-vis South/CentralAmerica, Canada and California, which have duty free status.

There is also a non-tariff barrier imposed by inconsistentinterpretation and implementation of phytosanitary controlsby USDA inspectors. Market access issue involves anongoing process of bilateral negotiations. The flowerindustry could potentially gain from more forcefully puttingits position to the relevant government authorities in acohesive manner. Unfortunately, because of the low volumeof trade relative to other commodities, it is low on thegovernment agenda for bilateral negotiations.

12.5 Promotion and representation

If Australia is to grow, or even maintain its market, it needsto mount an ongoing promotional program. Promotion isneeded to build a market presence and particularly togenerate design ideas incorporating Australian product.

The most effective promotional device appears to beadvertising in the high-profile trade magazines andparticipating in the main trade shows, identified earlier inthis report. The focus on promotional effort should be onwholesalers who control the agenda with regard to adoptionof new varieties and product concept. Ideally, the Australianindustry would have a permanent representative located inthe USA to promote Australian product, and to trouble shoot

and feed back market information. Obviously this would becostly, posing the issue of how such representation would befunded.

12.6 Plant breeding programs

Australia’s best defence against the formidable competitionfrom South/Central America and California is through acontinuous stream of new, exotic varieties. Over the yearsAustralia has been known for its unusual varieties.Unfortunately it is only a matter of time before they areavailable from competing countries. Potentially, Australiahas a wider genetic pool to choose from.

An ongoing variety identification and breeding programwould provide a stream of new product which would appealto the up-scale market segments and would take it out ofthe low price commodity market. Logically, this would berun as a licenced program with growers and exporterspaying a fee to market the product.

12.7 Grading and uniform productdescription and labelling system

Australia could gain an edge from being the first country inthe world to introduce a voluntary grading/quality assurancesystem. Australian product is generally well regardedfor quality but there are some complaints about theinconsistency between packs in terms of stem length, stemsper box, thickness, yield, uniformity of bloom etc.

A voluntary code and uniform product description andlabelling system would provide an edge. This would involvehaving a standard lexicon and product standards whichwould differentiate between production of different qualitystandards or types which would facilitate more precisecommunication between buyer and seller.

12.8 Industry brands and common packaging

Australia is at a disadvantage by virtue of its relatively lowmarket presence and lack of critical mass.

A common industry brand, supported through an attractivecommon carton would increase market visibility. Obviously,this would be all the more powerful if it was underpinnedby a grading/product description system and an industrypromotion program.


Other industries have successfully implemented licencingprograms where a trust company is established to representthe key stakeholders. In turn licenced operators use thebrand in compliance with rights and conditions establishedin the licencing document. Typically these involve forminga trust company which controls and manages theintellectual property. Licencers then enter into an agreementto use the brand or marque under specified conditions.In most cases a royalty is paid for the use of the marquewhich in turn generates a revenue stream to fund futureR&D, marketing, promotion etc.

12.9 Tips for exporters in approaching the North American market

Clearly, the decision whether to enter the North Americanmarket and how to approach it, must be made by theindividual.

Chapter 10 of the report identifies and discusses the keyissues to be considered, and Chapters 11 and 12 identifystrategic issues.

The following are some tips as to the types of issues to beconsidered by an exporter or grower when approaching theNorth American market.

1. Think carefully before entering the market given thatit is fiercely competitive and price driven; there maywell be better opportunities elsewhere. Also, in thelong term the commodity end of the market is underthreat from cheap South Central American andCalifornian production.

2. Search out niche market opportunities and customerswho are prepared to pay a premium for better quality,more interesting and unusual material. As a generalrule, these market opportunities tend to be on theEastern Seaboard of USA and in Canada (althoughthere are others).

3. Use the report to get an understanding of the entiresupply chain and learn about where your product isgoing in terms of end users and how it is being used.

4. Work on developing longer term working relationshipswith a small number of importers based on mutualinterest and trust rather than focussing onmaximising return for each single deal.

5. Focus on meeting customer needs and expectations interms of quality, consistency and presentation andattempt to use this as a point of differentiation.

6. Look to building a brand identity based on areputation for quality, consistency and reliabilityas a trader, and project this through an attractivelydesigned box and logo.

7. Don’t fall for the temptation of dropping your pricesto secure the deal but instead look for ways toaccentuate non-price factors based around quality,consistency, and attractiveness of presentation andreliability as a business partner.

8. Depending on your situation, search for seasonalopportunities aimed at specific market segments.

Appendices


13. Appendices

13.1 CompaniesAppointments were arranged with the following companies:

AGA Distributor - Miami

Altman Plants - Living Treasures - Vista

Bayview Flowers - Toronto

Bill Suyeyasu Wholesale - Fremont

Blumex

Brannan Street Wholesale Florist Inc. - San Fransisco

Continental Farms - Miami

Designers Choice - Cambridge

Dur Mex

Everflora Miami - Miami

Fischer & Page Ltd - New York

5000 Acre Farm - Santa Barbara

Florimex - Montréal

Floraplex - Orlando

Floraquest - Englewood

Freshplex - Orlando

G. Page Wholesale Flowers - New York

Gerald Stephens Co. - Fort Lauderdale

Hofland - Mississauga

Jewel - Osco - Melrose Park

Kelley Wholesale Florist - Boston

Kirby Floral - Burnaby

Loblaws - Mississauga

Monterey Bay Bouquet - Watsonville

Mellano & Company - Los Angeles

Melex Customer Broker - Miami

Natural Blossoms - Miami

Ocean View - Lompok

Priority One - Scots Valley

Pulbix - Deerfield Beach

Quality Handling - Los Angeles

Roche Bros. - Wellesley Hills

The Rod McLellan Co. - San Fransisco

Sierra - Lachine

Vans Inc. - Alsip

World Commerce Online - Orlando

Zurel - Miami

In addition there were many discussions with unidentifiedparties in the wholesale markets, florist shops, massmerchants and designers.


Project Title:

RIRDC Project No.: Researcher: Dr David McKinna

Organisation: David McKinna et al Pty LtdRear 131 Victoria Avenue Albert Park VIC 3206

Phone: (03) 9696 1966

Fax: (03) 96961965

Email: [email protected]

Objectives To undertake a strategic assessment of the North American flower market for Australian Native flowers and Proteaeceae, with the viewto;

• Identify opportunities and best prospects for Australia

• Understand the distribution chain

• Understand how flowers are marketed and promoted

• Identify the constraints and barriers in Australia andperformance issues

• Identify strategies to manage Australia’s performance in the market

Background An earlier study commissioned by RIRDC indicated that whilst thepotential in North America was good for Australian Native flowers, theindustry returns were not nearly as good as other markets such asJapan.

Research The project involved a field trip to the key flower markets in the USAand Canada to observe the market first hand and hold discussions withkey supply members and other stakeholders.

Outcomes The study found that the bulk of Australia’s trade was predominantlyin filler flowers.

Overall the market is very price driven because of an oversupply.However, the study identified markets which were less price sensitiveand willing to pay a premium for novel or higher quality items. Thereport outlined strategic issues that growers, exporters, and theindustry in total needs to consider.

The study concluded that Australia’s trade in the USA market is underlong term threat, mainly because of competition from South andCentral America.

Implications The Australian industry and stakeholders need to reassess theirposition and adapt strategies that will reposition their business toavoid head-to-head competition based on price.

Publications Nil.

* Growers clock is a term used for growers’ markets which operate in key markets throughout the USA.

Plain English Compendium Summary

Documents

A Study of the USA and Canadian Flower Markets