| "With consumer
spending continuing to be tight and our products not
being perceived as essential, it has never been more
important to position our industry to communicate the
positive benefits our flowers and plants provide."
challenging economy in 2007 put stress
on all segments of the
once I’d like to be able to write in this annual “State of the
Industry” report about how our sales grew at double-digit rates,
profits for retailers and growers increased even faster, our
economic engine was hitting on all eight cylinders, our
consumers were flush with cash and our industry was working
together to convey the positive messages about the power of
flowers to customers to position us for sustained growth.
alas, the 2007 report doesn’t include this. Like so many other
years in the recent past, 2007 was another challenging year. The
frustrating part of this is that many of the challenges we faced
were external factors that we had no direct control over but
could only react to. But though we’re a little beat up and
bruised, I view our industry as fundamentally sound and ready to
tackle the new challenges of 2008.
Foremost among our challenges was the state of the U.S. economy.
Last year, I talked about the “triple whammy”; this year, there
were too many whammies to count. The slowdown in the housing
market, which drives much of our sales, caused havoc for many
consumers. New-home growth has slowed to a creep and the
inventory of resale homes has ballooned, with the net result
being a major devaluation of housing prices.
homeowners had tapped into their inflated home equity based on
rising home values in the past few years to get fast cash while
taking on additional debt through second mortgages. With the
crash in housing prices, many of these consumers now find they
owe more on their combined mortgages than the fair-market value
these homes command; they now have negative net worth. The
subprime debacle in mortgages made headline news for much of the
year, and the repercussions will be felt for many years to come.
The result will be tighter credit requirements, making it
difficult for new homeowners to obtain mortgages.
foreclosures are at a record high, running about double
traditional rates; in October alone, there were almost 250,000
home foreclosures. Add to this the fact that many consumers over
the past few years had teaser loans with enticements like zero
down and a ridiculously low initial adjustable interest rate for
three to five years. When these loans reset, they’ll be at
interest rates that are double or triple what consumers
initially paid and resetting at a time when many consumers are
already hard pressed to keep up with increasing living costs.
Personal debt is at an all-time high while savings rates are at
an all-time low. As the baby boomers who have driven our
businesses for many years retire, they find that their
retirement nest eggs are cracked because much of their net worth
was tied to the value of their homes, which has dropped
will be more difficult to get as banks become more restrictive.
And there’s a new subprime concern to deal with—subprime credit
cards with usurious rates for those consumers who can least
U.S. dollar is hitting record lows against most world
currencies, including the euro and the Canadian dollar, further
reducing U.S. influence on the global economy.
of these economic factors will be with us in 2008 and will have
a definite effect on consumer spending. There’s even talk about
the U.S. economy going into a recession. Although our economy is
fundamentally strong enough to easily withstand a mild
recession, just the mention of the word makes consumers panicky,
and they generally react by cutting back on their spending.
often has been said that the floral categories aren’t affected
by economic downturns; we may not feel the crunch as severely as
other categories, but we’re not bulletproof. The conditions that
led to this downturn are different from those experienced in the
past, and we’re already being affected by them.
we’ve been faced with panicky consumers who are nervous about
the future—in October, consumer confidence was the lowest since
early 2005—and it looks as if they will continue to have to deal
with already-high energy costs and the byproduct of higher
production cost inputs on the food and manufactured products
international front, Colombian cut flower growers continued to
be under pressure from the low valuation of the Colombian peso
(COP) to the U.S. dollar while still dealing with higher
production costs. Further, while both Colombia and Ecuador got a
last-minute reprieve when Congress in 2007 extended duty-free
status under the Andean Trade Promotion and Drug Eradication
Act (ATPDEA) through February 2008, avoiding a 6 percent
duty on imported flowers, there’s no permanence or guarantee
that it will be renewed again.
the Colombian and U.S. administrations have endorsed a Free
Trade Agreement (FTA), but Congress has yet to consider this
legislation, which would provide permanent duty-free status for
flowers and many other products. A major concern for Ecuadorean
growers is that, if Congress approves an FTA with Colombia, it
may not renew the ATPDEA, and flowers from Ecuador would be
assessed duties. The Ecuadorean leadership has stated it has no
interest in pursuing an FTA with the United States.
outdoor products, sales were affected in many key U.S. markets
by severe drought, with local and state governments responding
by enacting watering restrictions. Without the ability to water,
consumers didn’t buy, and the fallout was significant,
especially at the retail level. For example, Pike Family
Nurseries of Norcross, Ga., the nation’s largest family-owned
garden-center company, filed for Chapter 11 reorganization, and
many other independent garden centers closed or are on the brink
of financial disaster. The drought also affected the big-box
retailers. The result was a ripple effect of slower sales and
payments, write-offs and so on that had a significant impact on
pohmer's predictions for 2008
External influences again will make sales and
profits elusive, and there will be continued closings and
consolidations at both the production and retail levels.
PREDICTION Major national retailers will dictate to their
suppliers which sustainability standards and certification
programs they want, and then market those standards and
certifications to consumers as a competitive benefit.
PREDICTION A national supermarket chain will follow the Tesco-United Kingdom model and start offering a
time-specific guarantee on cut flowers.
PREDICTION Cut flowers will be introduced in new retail
outlets under vendor-managed inventory or leased-space
models, as growers, wholesalers and importers look for new
distribution channels for their inventories.
chain and retail issues
these issues fostered the continuation of consolidations and
closings of domestic and offshore growers and domestic
Another frustrating area of continued concern was the lack of a
final immigration policy that would provide legal processes to
allow a ready supply of nursery and landscaping company labor.
Because this issue is so contentious and divisive, it doesn’t
appear that we’ll have a clear-cut direction that addresses our
industry’s needs any time soon, especially in the 2008 election
retail front, sales growth stagnated almost across the board in
all retail channels, and profits were fleeting. Retailers
reacted in many ways, depending on the way the economic issues
affected their individual businesses.
example, home-improvement retailers like The Home Depot, Inc.
and Lowe’s Companies, Inc. were affected by the lack of
new home sales and remodeling of existing homes. They lowered
both sales and profit expectations for 2007 and at least the
first half of 2008 because of lower demand and traffic.
Wal-Mart Stores Inc. went from a price-focused strategy to
trying to go upscale to appeal to a demographic segment like
Target Corporation, and back to a price-focused approach,
all within the same year. Supermarkets opened new business
platforms and formats, among them Safeway and Publix
Super Markets, Inc., in the hopes of better positioning
against price players like Wal-Mart.
just to make sure no one got bored or complacent, British-based
Tesco opened on the West Coast its first Fresh & Easy
Neighborhood Market grocery/convenience outlets, a format
that’s a cross between a 7-Eleven and a Trader Joe’s. Tesco has
major expansion plans; it’s been said that in the next three
years Tesco plans to invest between $3 billion and $5 billion in
U.S. expansion of this new model. U.S. supermarkets are quickly
looking at new business platforms that can compete against the
Fresh & Easy format.
coalition of cut flower industry associations and companies came
together under the Floral Logistics Coalition to work
collaboratively on issues and opportunities that affect the
entire supply/retail chain. Some of the issues being worked on
are developing bar-code protocols for boxes and selling units to
allow electronic communication of business activities and
data-driven inventory management, postharvest care and handling,
and grades and standards.
2007, sustainability went from being a word given lip service to
a movement that fundamentally could change what we grow, what we
sell, and how we produce and market our categories. Wal-Mart has
embraced this concept as a cultural change and is looking to
change facilities, operations, logistics and merchandise
purchased to implement sustainable business strategies. The Home
Depot has developed eco-friendly product lines.
Florverde, a voluntary certification process for Colombian
flower growers; FlorEcuador, a program for Ecuadorean growers;
Veriflora, a voluntary certification standard and label
developed for marketing to U.S. consumers; Fair Trade;
Rainforest Coalition and more all are competing to become the
label of preference for major retailers, causing havoc for
suppliers who sell to multiple retail chains and channels.
Scientific Certification Systems (SCS), the for-profit
certification company that owns the Veriflora label, has
submitted a draft proposal to the American National Standards
Institute (ANSI) that would establish a social and environmental
standard for agriculture in general, of which floral is a very
small part. A significant concern is that the draft standard as
submitted could force floriculture products to adhere to
business protocols that are designed for consumable products and
directs a progression toward organic production practices. (For
more information, see www.leonardoacademy.org; this is the Web
site for the ANSI-certified standards development organization
that is leading the three-year review process of taking this
from a proposed draft to a final standard.)
Flower Promotion Organization (FPO) (of which I am the executive
director) funded the research and public-relations activities of
the FPO/SAF (Society of American Florists) Alliance, conducting
behavioral research at Harvard Medical School and Massachusetts
General Hospital to quantitatively identify the tremendous
“power of flowers,” and communicating the benefits of flowers
directly to consumers.
Floral Marketing Funding Initiative Coalition, an effort to
develop a mandatory assessment on domestic growers/ importers of
record on cut flowers under a promotion order that would be
administered by the U.S. Department of Agriculture, was
unsuccessful in gaining support from the major assessable
company blocs, the California Cut Flower Commission (CCFC) and
Association of Floral Importers of Florida (AFIF). The lack of
permanent duty-free status on imported flowers, the weak sales
and financial position of both importers and domestic growers,
the concern that the proposed promotion order wouldn’t generate
enough funds to promote measurable consumer awareness and
behavior change, and a general sense that the timing for such an
effort was wrong all contributed to the lack of support in
moving the initiative forward. While this particular effort has
been shelved for now, the groundwork and research has been done
to identify the funding mechanisms that could work, if the
industry wants to look at it in the future.
consumer spending continuing to be tight and our products not
being perceived as essential, it has never been more important
to position our industry to communicate the positive benefits
our flowers and plants provide. The peace, serenity, and
positive emotions and behaviors that flowers and plants evoke
can play an important role in helping consumers cope with the
stress and anxiety they’re experiencing. Yes, price is important
in the purchase decision, but selling products at a price
without promoting benefits won’t change the perception that
flowers and plants are a deferrable purchase.
year was challenging, and 2008 looks to be at least as
challenging. But we deal with products that have real value, if
we choose to promote that value. sfr
pohmer's predictions for 2007
PREDICTION This will be a tough year for sales and, for growers,
profits. Those who were on the brink in 2006 will vacate the
Unfortunately, a B+
COMMENTS Weather, a bouncing economy, high energy costs and a
housing market crash all led to a challenging year for growers
and retailers alike.
PREDICTION Imports of cut flowers from new growing areas will
start coming into the U.S. market in greater numbers, putting
even more pressure on growers and importers to be profitable.
COMMENTS Although we saw rising imports from Africa and China,
the strength of other international currencies against the
weakened U.S. dollar made it more enticing to ship products from
these producing areas into countries other than the United
PREDICTION A repeat from 2006: A national supermarket chain will
develop quality and cold-chain standards and offer a consumer
COMMENTS Although almost all retailers offer a generic customer
satisfaction guarantee, none of the national chains offered a
time-specific guarantee on their perishable products supported
by a concerted postharvest care-and-handling protocol, similar
to what Tesco did a few years ago in the United Kingdom that
jump-started the movement in Europe.
PREDICTION Independent garden centers will start marketing
themselves more as home centers, offering consumers lifestyle
choices, competing effectively against the “big boxes.”
COMMENTS Many independent garden centers have done a good job of
adding product lines that cater to the lifestyle trend, but few
changed their consumer messaging or image to reposition
themselves in the marketplace as lifestyle centers.
PREDICTION Organically grown floral products will be introduced
and marketed by a major retailer.
COMMENTS While growing in quantities, there isn’t enough
“organic” product available in the marketplace for retailers to
consistently carry on a widespread basis. We did see a rise in
the use of certified “sustainably grown” products carrying the Veriflora, Florverde and Fair Trade labels, however, but no
retailer has made the commitment to transition its entire
assortment to sustainable/organic products and market this to
Pohmer writes his exclusive “State of the Industry” report every
year for Super Floral Retailing. He is CEO of Pohmer Consulting
Group, Minnetonka, Minn., and executive director of the Flower
Promotion Organization, www.flowerpossibilities.com. Reach him
at (612) 605-8799 or email@example.com.