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Despite the unprecedented challenges we faced in 2009, the floral industry has proved, overall, to be remarkably adaptable and resilient.
   by Stan Pohmer

      Okay, sit back and take a deep breath. It’s been one heck of a year, one that challenged all of us—and our consumers. We’ve faced tough economic periods before but nothing like this. Also for the first time, we were impacted by a crisis that was global in scope.

      Will 2010 bring us the relief we need and want, or are we in for more of the same? Let’s take a look at what 2009 served up, shine the crystal ball, and see what we’ve learned and what we can look forward to.

fundamental changes in consumers

      Although we didn’t create the financial crisis or contribute to the pickle many people got themselves into that led to their personal crises, we had to deal with the outcomes. And the changes in consumers’ mindset and values—what they bought (or didn’t buy), why they bought and where they bought—were almost overwhelming.

      We’ve heard that our mission is to provide solutions to consumers’ needs, wants and desires, but 2009 was the epitome of us having to march to the beat of the very loud consumers’ drums. The changes consumers experienced were significant, and the retailers and suppliers who anticipated those changes and who have developed products, programs and services that adapted to the changed consumer mindset were the ones who have felt the least pain.

      It’s safe to say that almost all of us felt some pain, whether it was in image/positioning, sales or profits; the speed of our adaptation and the way we adapted determined the degree of pain we suffered. Unlike past recessionary periods, this time the effect was felt by all demographics, including the upper-middle and higher-income consumers, our core buyers. We used to think our industry was somewhat recession proof because past recessions didn’t really impact our core customers. But the recession of 2008/2009 was far broader and deeper than any others, and we learned that we aren’t bulletproof.
 

  pohmer’s predictions for 2010  
 

PREDICTION Distribution and logistics will become major focuses for the entire demand chain in order to generate cost-saving efficiencies (e.g., GTIN, a new California distribution model, standardized box sizes, etc.)

PREDICTION In the face of price-focused consumers, some retailers will develop marketing positions that connect with consumers by effectively communicating the true value of plants and flowers to them. These marketing strategies will act as catalysts for industry change and repositioning.

PREDICTION As consumers learn to deal with the new economic realities, sustainability will become a more prominent factor in the purchasing decision process, and growers and retailers will work together on promoting certification labels.

PREDICTION Retailers will start to use social media (e.g., Twitter and Facebook) to develop relationships with their customers through reminders, education, and care and handling guidance as well as to communicate/promote sales and events.

 

causes of the crisis

      Here are a few of the most impacting contributors to the economic crisis. It was a “perfect storm”—the result of a concurrent combination of factors:

  • The bursting of the housing bubble, where people were in homes at inflated values, and, as the market rationally adjusted, they ended up under water, with negative net worth and mortgages that were higher than the homes’ values, leading to foreclosures.

  • People funded their lives and lifestyles with credit-card debt, and when their lines of credit were cut back and they had to live within their means, they had problems paying down the debt and had to cut back spending.

  • This curtailed spending affected retail sales and the service economy, impacting producers, which led to layoffs and a 10.2 percent unemployment rate (and some will say that figure is understated and could be as high as 18 percent when those who have used up their unemployment benefits and have stopped looking for jobs are taken into consideration).

  • Underemployment, where those who were/are laid off had to take/are taking positions at far lower salaries than they were previously earning.

the impact on consumers

      Individually, any one of the factors above would have been significant for consumers and the economy, but when they all hit simultaneously, it brought consumers and the economy to their collective knees. Not only did consumers have to adjust to their changing financial situations but their faith in their financial futures and the health of the economy, as reflected in the Consumer Confidence Index®, plummeted. And because consumer spending accounts for 72 percent of Gross Domestic Product (GDP), a prime economic indicator, if consumers see their future as bleak and uncertain, they cut back on unnecessary purchases and, as a natural reaction in uncertain times, start putting money in savings. Add to this the need to pay down credit-card debt and start living within their means, and a significant reduction in disposable income results, affecting retail spending.

      Consumers reacted to this turmoil and uncertainty by changing their values and purchasing behaviors in ways that will most likely transcend the economic recovery. They became more price sensitive. They became more discreet in purchasing luxuries and “want” items. They started buying more private label and store brands, not only to save money but also because the perceived image of being a brand snob became socially unacceptable. They traded down in store and venue, and “good” quality (versus “better” or “best”) became acceptable.

the impact on retailers

      Some retailers, especially those who sold on price value, saw this runaway train coming and aggressively promoted their price advantage. Others, especially those who had positioned themselves with a value-added/upscale image, tried to buck consumers’ changing behavior and fought to maintain their nonprice value statement; however, unless their unique value proposition was clearly demonstrated and resonated with consumers above price, their positioning worked against them. It’s difficult to maintain value-added and price-point image strategies simultaneously, and in today’s marketplace, confused consumers take their shopping where the message is clearly understood.

      Because the inventory for Christmas 2008 had already been brought in before the full impact of the economic downfall occurred, many retailers had to revert to fire-sale prices of 60 percent to 70 percent off, to move through the inventory, and this set the stage for consumer expectations that we’re still dealing with today. Consumers came to realize they have a distinct advantage—they can wait out retailers who pull the trigger on reduced prices. It is the classic game of “chicken,” and consumers quickly learned that retailers usually blink first.

      A good example was consumer behavior on Black Friday 2009. There were 17 percent more people shopping, but sales increased only 0.5 percent. Consumers cherry-picked the door-busters and deferred buying anything that wasn’t a giveaway.

      At press time in early December, some retail experts were suggesting that sales between Black Friday and the week before Christmas would be dismal, with consumers forcing retailers to panic and offer the 60 percent to 70 percent discounts to clear their inventories just before Christmas. Consumers know they have the power over retailers, and they’re clearly using that power to their advantage.

2009 in review

  • Most mass marketers will take small consolation in the fact that they fared better than other floral channels, but it’s true. They continued to pick up market share of the floral industry, especially in the cut-flower and potted plant categories.

  • For the cut-flower category, total stems sold was little changed from 2008, but the dollars generated at both the grower and retail levels were down due to lower costs and retail price points. Overall, supermarket sales of cut flowers ranged from -5 percent to +5 percent while sales in the traditional retail florist channel were down 15 percent to 30 percent.

  • Bedding plant sales in the mass-market channel were generally higher in 2009 than in 2008 due to better weather; however, they were still down significantly from 2007. If the weather hadn’t cooperated, bedding plant sales would have been dismal.

  • The economy has taken its attrition toll on growers, importers and wholesalers, with quite a few of them shutting down. And unlike past years, where financially challenged companies were absorbed by other companies and production was continued, in 2009, companies that went out of business stayed dark, and their production was taken out of the supply chain. While we hate to see companies go out of business, it was a bit of a blessing in disguise because it brought supply a little closer to the reduced demand and slightly mitigated price pressures.

  • With minor exceptions, mass-market retailers were hard-pressed to deliver positive corporate sales rates, with very few showing comparative store sales increases. The result of this is that new-store growth has been slashed, to save on capital expenditures and maintain focus on organic sales. Relatively few new stores are planned to open in 2010.

  • We did see some major remodeling and repositioning of existing stores to more price-value formats in response to consumers’ changed buying behaviors. And even in value-added formats, there was a renewed focus on price-oriented private-label and store brands, in order to appeal to price-conscious shoppers.

  • With the continued challenge to take costs out of the process of doing business, the GTIN (Global Trade Item Number) project is gaining traction, with a planned implementation in mid-2010. This process is already being used in many other supermarket categories and establishes a protocol for growers to assign vendor-specific bar codes to cut-flower boxes and UPC’s to bunches and bouquets, allowing the electronic communication of purchase orders and invoice reconciliation and payments. The protocol also provides for systemic inventory management and a perpetual inventory. This project is the result of an all-industry effort, with the Association of Floral Importers of Florida (AFIF), California Cut Flower Commission (CCFC), NORCAL/California Association of Flower Growers & Shippers (CAFG&S), Produce Marketing Association (PMA), Society of American Florists (SAF) and Wholesale Florist & Florist Supplier Association (WF&FSA). For more information, go to www.floralgtin.com.

  • A manual, Cut Flower Minimum Guidelines & Standards, was created by the Association of Colombian Flower Exporters (Asocolflores) and AFIF to develop a common understanding of minimum standards for 41 flower types. Each page of the manual shows the various harvest stages and minimum specifications. The goal is to expand this list to include all flower types from all growing areas. For more information, and to obtain a copy of the manual, contact Christine Boldt at AFIF at (305) 593-2383.

  • Although at press time in early December it had not yet been addressed by the U.S. Congress, it appeared that the Andean Trade Preference and Drug Eradication Act (ATPDEA), which was due to expire on Dec. 31, would be extended for Colombia and Ecuador, allowing their flowers to continue to enter the U.S. duty free. Colombia is still challenged by the Colombian peso and U.S. dollar exchange rate, putting added pressure on grower profitability.

 

REPORT CARD
pohmer’s predictions for 2009

 
 

PREDICTION Although I would like to be able to state otherwise, sales and profits will be challenged due to the outside influences of the global economy.

GRADE A+

COMMENTS Unfortunately, the global economic crisis/recession was worse than I anticipated, and the impact on our industry was severe. Virtually no sector or product category was able to buck the negative trends.


PREDICTION 2009 will be a shakeout year, with growers and retailers, especially independent garden centers and traditional florists, forced out of the market due to lack of profitability and the inability to obtain working capital.

GRADE B-

COMMENTS We lost quite a few retail florists and a few wholesalers, a few independent garden centers, and some farms in Colombia and Ecuador, but overall, our industry once again showed its resiliency and ability to weather the financial storm better than I anticipated.


PREDICTION Growers and manufacturers will further consolidate to gain distribution and logistics efficiencies.

GRADE C

COMMENTS Due to the lack of capital and slow sales, there weren’t too many consolidations of companies in 2009. Two areas, however, showed some activity: 1) Multiple-facility wholesale florists expanded into new markets, filling the voids left by wholesalers that went out of business, and 2) full-service pay-by-scan growers increased the use of contract growers and/or purchased additional production capability to service a broader geographic reach.


PREDICTION Sustainability initiatives and certification programs will gain traction with producers, and retailers will start to use this as a marketable differentiation advantage.

GRADE C-

COMMENTS With the slowed economy, even the ardent “green” consumers weren’t willing to pay the higher costs for sustainably produced product, so the pressure for growers and retailers to implement sustainability processes and get certified was low.


PREDICTION Because of the worldwide oversupply, products from nontraditional markets, especially cut flowers, will make inroads into the U.S. market, putting additional cost pressures on existing trade partners.

GRADE C

COMMENTS Although there were cost pressures due to poor markets throughout the world, there was relatively little sourcing from new grower communities of cut flowers (e.g., Africa and Mexico) into the U.S. market. Two reasons for this were that the higher transportation costs remained a barrier, and the traditional suppliers maintained their competitiveness to keep the newcomers out of their markets.

 

2010 and beyond

  • The economy will continue to be challenged for the next year or two, and there’s no indication that consumers will go back to their old buying habits anytime soon. The housing market is still in turmoil, and prices will stay low for years. Although the rate of people going onto the unemployment rolls is slowing, unemployment will continue to rise, and it’s said that serious job creation won’t occur until late 2011, at the earliest. And unlike past recessions, where the economy crashed and recovered quickly (a “V”-shaped cycle), led by increased consumer spending, the recovery from this recession is not being fueled by consumer spending but rather by government stimuli, meaning that the recovery will be slow and prolonged, especially when consumer confidence remains low.
       This means that the current consumer purchasing values and behaviors will become more entrenched over time and more permanent than temporary. This is the new world we’ll have to adapt to.

  • Unlike specialty retailers such as traditional retail florists, mass-market florists are lucky that they have traffic coming through their stores on a regular basis. Your opportunity is to convert that existing traffic to floral sales. You have products with relatively low retail prices that can bring great joy, convey emotions, and improve consumers’ lives and lifestyles. Your challenge is to convey this message to become more relevant to today’s and tomorrow’s consumers. Yes, price will continue to be a major consideration in purchasing decisions, but you have tremendous opportunity to sell the benefits of your products, to add to your value statement.
       Will 2010 continue to be a challenge? Absolutely. But with your grit, determination, resiliency, and willingness to learn and adapt, you’ve proven that you can rise to the occasion and beat the odds.

Stan 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 spohmer@pohmerconsulting.com.
 

Super Floral Retailing • Copyright 2010
Florists' Review Enterprises, Inc.