The Dutch floricultural industry is going to see some big changes. And when it comes to adapting to the changing market demand, growers shouldn’t hold back, but go full speed ahead. It’s the only way the role of for example Royal FloraHolland can be preserved, stated Rabobank, the largest financial service company in the Dutch horticultural industry, in a recent study. “All entrepreneurs, from small to large, have to take their responsibility.”
Rabobank is optimistic with regards to the opportunities lying ahead for the Dutch floricultural industry. In their study about the future of the sector, the cooperative bank forecasts a 2% growth per year for consumer spending on plants and flowers. The Dutch floricultural industry can benefit from this growth. But only if entrepreneurs throughout the entire chain, including breeders, growers and exporters, act now. “The organisation of the chain and the companies within it are going to experience some major changes”, says Arne Bac, horticultural sector specialist at Rabobank. Bac conducted the study together with colleague Lambert van Horen, analyst with Rabobank’s Fresh Produce sector team.
They concluded that the chain will have to adapt rapidly, because European consumer demand is going to show some drastic changes. Plant and flower sales through supermarkets and online shops are going to increase strongly until 2027, while sales through florists are going to go down during that period. Rabobank expects that in ten years time, all three distribution channels will have reached a consumption value of €11.2 billion each, Europe-wide.
Online sales in particular, are really going to take off. The consumption value for Europe is at roughly €2.2 billion this year, but according to Rabobank it will be five times more in ten years time. The main reason for this is that the millennials, the generation born between 1985 and 2000, are buying more and more plants and flowers. And they’re used to online shopping. Research showed that men, in particular, tend to buy plants and flowers with one push of a mouse button.
And more customers pick up a bunch of flowers or a plant when they’re in the supermarket or the DIY store (retail). Bac and Van Horen expect that sales through the large European supermarkets are going to increase by 60% until 2027. However, sales through florists and specialist shops are going to go down by a third during the same period. This means that each of the main chains (florists, retail, online) would have a 30% share by 2027. “Ultimately, it’s not going to be exactly equal of course”, says Van Horen, laughing, “but the trend is clear.” The floricultural chain has to respond to consumers’ changing purchasing behaviour. The shift towards mainly online is a real game changer.”
Online sales is gaining ground very rapidly and that’s going to cause a real shock to the current floricultural sector, which has been around for quite some time. The role of Royal FloraHolland, nowadays the hub in the chain, is going to be crucial. “The first, and very important question is: who is going to be the consumer’s digital marketplace for plants and flowers?”, says Van Horen. “The digital playing field for business to consumer only has room for two, maybe three, large players. That’s all the consumer needs. FloraHolland could be one of those, but it might be a service provider or exporter who is going to take care of supply management for the online shops in the market. Don’t forget, there’s an awful lot of work involved with the physical handling of online orders.”
The online market is an extremely intricate chain, where speed and reliable IT systems are crucial. Large amounts of small orders need to be delivered to customers quickly, preferably the same day. “As a service provider, FloraHolland could excel in the organisation of this physical flow”, says Bac. “But only if the auction is able to adapt effectively, as new providers can join the market, too. And they are not burdened with ingrained patterns from the past.”
All in all, Rabobank concludes that the position of FloraHolland is under pressure. Just like Lucas Vos, CEO of FloraHolland, the bank feels that the increase of the world production and trade is clearly larger than the growth in the Netherlands and the turnover of FloraHolland in particular.
The share of the Netherlands in the global flower export has gone down the last ten years, from 50 to 43%. According to the bank’s forecast, this will see a further decline to 35%. Countries like Kenya, Ethiopia, Colombia and Ecuador are organising their distribution without the help of the auction more and more. And the Dutch production companies are not going to benefit from the enormous growth of plant and flower sales in Asia.
The forecast is that the Asian consumption value is going to increase by 80% the next ten years. “We are questioning whether Dutch production companies will be able to benefit from this growth in the long term”, indicates Van Horen. Intercontinental transport of plants and flowers is not sustainable. The increasing demand on other continents is going to be fulfilled by those continents themselves.”
Van Horen also expects that FloraHolland will have to let go of retail, despite the fact that Lucas Vos is trying very hard to keep this segment on board. The retail chain is going to organise its product flows without the help of the auction, that goes for assortment, distribution and especially payment. Rabobank thinks that FloraHolland will be able to maintain its current role in the market for florists and specialist shops. But that segment is going to be reduced by a third the coming ten years. “So getting in on the online segment is crucial for FloraHolland” according to Bac. “That’s why Floriday is a good initiative, but it remains to be seen how the market is going to respond
Fewer companies means narrower assortment
The number of Dutch floricultural companies cultivating in greenhouses, is going to be halved the next ten years. From 1,972 companies in 2016, to around a thousand by 2027. The main cause for this decrease is the lack of a successor. Although the total acreage of greenhouse plants and flowers won’t be halved, Arne Bac does consider this development to be risky. “The breadth of the assortment will be under pressure, when many smaller companies offering interesting niche products, are at risk of disappearing.”
In its study, Rabobank indicated they expect that in the coming years, many nurseries will merge, and growers are going to manage sales themselves. The added value of such mergers could be that companies no longer focus on one particular crop, but on a wider assortment instead, suggest Bac and Van Horen. And in that case they will no longer depend on trading companies in the chain so much and they’ll be a more interesting partner for the retail sector.
Bac thinks that a potential solution for the nurseries might be the so-called threading system that Dümmen Orange applied in the breeding sector. They brought together various breeders, large and small, who work on different types of crops. “That might be the best model to maintain differentiation within the chain.”