Beware of becoming too engaged in Dutch mathematics

In spite of the economy’s effect on horticulture and especially on the tropical indoor plants business , Dirk Mermans, awarded third prize in the 2012 International Grower of the Year Awards and one of Belgium’s largest growers of indoor plants, opened a new 14,000m2 greenhouse facility in Wommelgem on February 1st, 2011.  A vital part of the business plan was a highly resource-efficient approach to ornamental plant production

Dirk runs an indoor tropical plant operation in Wommelgem,  a small town located around 8 km from Antwerp’s city centre that was once a large horticultural village. “Actually, there’s an aerial photo from the 70s  hanging on of the walls of our  town hall, clearly showing how the area was dotted with small-sized vegetable greenhouses”, said Mermans.  He added, “Wommelgem’s sandy/loamy soils were great for growing a wide range of vegetables.”

Things don’t come easy

In Spathiphyllum, Mermans is the sole grower of the oldie, ‘Alfetta’, which is  originally a Belgium breed and really makes a difference in terms of large shiny dark foliage with nicely contrasting white flowers.

Horticulture in this part of Belgium has its own  life cycle with upward and downward movements as can be seen in many other industries. Mermans draws a parallel to the movie rental industry.  “Although this business model was highly popular in the ’80s and ’90s, the advent of the internet and digital TV saw the slow decline of the rental video rental industry. The first entrepreneurs who enter a new business always make good money, but those who  have to prove themselves in a mature market such as indoor plants have to fight. It’s not a fight for life, but things don’t come easy either.”

The small family businesses are long gone and modern Wommelgem now hosts four large greenhouse operations, including Dirk’s company of 2 ha of large indoor plants, greenhouses planted with 7 ha of bell peppers, 1 ha of Gerbera and 3 ha of Helleborus.

Dutch dominance

Dirk runs the only indoor tropical plant operation in the area and in the whole of Belgium, there are probably no more than ten of these companies. While the horticultural horizon of Wommelgem is completely transformed, one important thing hasn’t changed: the Dutch dominance of the  market. “It’s plain and simple, there is only one market which dictates everything and that is the Dutch market.  Most of our plants are sold through the auction to Dutch wholesalers. In the past, there was some trade with the wholesale market in the Ghent area but this has diminished significantly. To a certain extent the problem is like that of the chicken and the egg. Most plant nurseries have gone out of business heavily affecting the level of trade in houseplants. The diversity of green plants has consistently diminished and consequently consumers lost their interest. This development can also been seen in the Netherlands where even the large scale nurseries find it increasingly hard to grow 50 or more plant varieties.”

It’s all about variety

Clusia, Monstera, Philodendron, Tetrastigma, Scindapsus, Aspidistra, Schefflera, Peperomia and Spathiphyllum: at Mermans’, however, it’s all about variety. Dirk: “My customers are no longer interested in full truck loads and buy plants in much smaller quantities. By offering a complete range of products, they are still able to fill an entire Danish trolley and save on transport costs. Personally, I am not interested in growing bulk plants for the big box stores.

I always prefer to produce something special. In Spathiphyllum, for example, I am the sole grower of the oldie, ‘Alfetta’, which is  originally a Belgium breed and really makes a difference in terms of large shiny dark foliage with nicely contrasting white flowers.”

Band wagon effect

In-house propagation of Clusea rosea.

Commenting on the current state of his business, Mermans said that overall sales have been better this year than last except for March, which was a very poor month with big parts of  Europe repeatedly being hit by cold conditions. Snow and record low temperatures kept consumers away from garden centres with early spring sales of bedding plants at a record low. “This also influenced our business and has something to do with the bandwagon effect. It’s the kind of consumer behaviour whereby people tend to do something primarily because other people are doing it. When bedding plants are ’hot’, more people tend to “get on the bandwagon” and buy bedding plants and also closely related products such as our tropical houseplants.”

Multi segment strategy

Mermans choose to use a multi-segment strategy, focusing their marketing efforts on two distinct market segments: hydroculture plants and soil-grown plants. In particular, the range of hydroplants is very wide, as these are targeting a relatively small market. One of the things Dirk Mermans prides himself on is that his nursery is now established as market leader in hydroponically grown Zamioculcas. “When transplanting Zamioculcas cutting from soil to hydroculture in the traditional way,  the soil is washed from the tuber-like rhizomes and frequently damaged and followed by die back. Our Zamioculcas is grown in hydroponic from cutting until saleable product and doesn’t have to suffer that transplant shock.”

Tetrastigma comes in different sizes and shapes.

In soil-grown plants, Mermans specialises in ‘oldies’ such as Monstera, Clusia and Hoya. “In the Benelux, for example, a Dutch grower and I are the only two left growing Monstera. Overall, one can say that we have become a household name for vigorous and extremely strong houseplants providing consumers with long term pleasure. Our plants are anything but disposable, in contrast to most flowering plants.”

Personally, Mermans said he’s happy serving two distinct market segments, but it is a working pattern that needs to be flexible enough to respond to business demand. “In fact, it works both ways.  Growing media are easily interchangeable so according to the demand in one of the two segments plants such as Clusia and Schefflera can be transplanted. My business is like a big jig saw puzzle where you constantly move the parts. Last year for example, the largest amount of plants were destined for the hydro market. This year it’s the other way round.”

Appropriate greenhouse lay out

The greenhouse layout is very appropriate for Mermans different product mixes and production volumes. Determination of the layout type was a major design decision because it impacts on so many other aspects of the production system. The main idea is flexibility as hydroculture or soil plants can be grown in different spots. “I am not bound to a certain system,” said Dirk. He continued, “In the original greenhouses, the decision to grow in hydroculture or soil could be made bay per bay, while in the new greenhouses there are two central pathways to facilitate efficient and quick order picking. One of the challenges is to pick items more frequently and in smaller quantities. This means that the process of picking orders has become an increasingly cost-intensive function. And walking  from one end of the greenhouse to the other to pick 3 pots is clearly not efficient enough.”

Potting of Strelitzia.

Hydroculture plants and soil-grown plants share many characteristics, but there are differences.

“Considering the Total Cost of Ownership, the majority of interior landscapers prefer hydroculture plants. Often, interior landscaping companies offer maintenance contracts and in such cases hydroplants allow to save money. A more accurate watering regime can be established, routine servicing is simpler cleaner and more reliable and plants survive for a very long time.”

Propagation

A good start is only half the work, and Mermans traditionally grows young plants for internal use. Large tropical houseplants such as Monstera, Hoya and Clusia are propagated by taking cuttings of the stock plants. “One of the major benefits of maintaining your own mother stock plants is that it provides some market protection as availability of cuttings becomes difficult for third growers,” said Dirk . He added, “My Spathiphyllum young plants are available from tissue culture and acquired from a lab, while Scindapsus cuttings and rooted Schefflera cuttings are sourced from Costa Rica or Sri Lanka.”

Expansion

In spite of the economy’s effect on horticulture and especially on the tropical indoor plants business, Mermans opened a new 14,000m2 greenhouse facility in Wommelgem on February 1^st, 2011.  “In fact, I didn’t expand my business. This should be seen as a site rationalisation, where  all of my production (formerly spread over 3 nurseries in three different villages) was relocated to a new site. A new greenhouse complex was added to the existing 6,000m2 greenhouse, which was bought in 2003.”

A vital part of the business plan was a highly resource efficient approach to ornamental plant production. At the heart of this truly sustainable approach to manufacturing is a very energy efficient CHP plant commissioned at the end of 2010. The CHP plant provides a lower cost source of energy for the facility and has, therefore, been a significant enabler to the expansion of Mermans greenhouse operation.

CHP

Mermans chose to install an MTU gas engine combined heat and power (CHP) plant from Ener-g devoted to the production of peakload supply.

Mermans chose to install an MTU gas engine combined heat and power (CHP) plant from Ener-g Nedalo devoted to the production of peakload supply. The plant is fitted with a super-sized exhaust gas condenser (surface area for condensing 150m2 instead of the 70m2 used in the traditional CHP plant) from Enalco of Holland. This device allows extraction of the maximum waste heat.

To really benefit from the heat, the storage tank and mixing valves required modifications. As the temperature difference between top and bottom should be as high as possible and the mixing layer in between as small as possible, the buffer was equipped with an additional three inlets, which completely separate low temperature from high temperature. By keeping a higher delta-T (temperature difference between hot and cold side) extra high grade temperature can  be stored. The new system offers a total thermal efficiency of 105%, whereas in a traditional setting the overall system efficiency is not higher than 95%.  As a result, the heating cost have been reduced. The surplus electricity is sold to the grid, pushing Mermans into a dual role: that of an electricity seller and a plant grower. When asked if he shouldn’t concentrate on the plant growing Mermans said, “Today, the problem is that traditional plant growing is hardly viable anymore. A modern greenhouse grower cannot simply spend his whole day walking between his plants. Some of the responsibilities have been delegated to a supervisor, while I have to manage multiple tasks: selling electricity, growing plants, organising transport, dealing with human resources.  I can assure you that my agenda is a pretty full one!”

Low cost auction with low service level

Mermans admits that despite the adopted business model, which is relatively low cost, times are tough. When asked about his biggest fear, he says he is sometimes worried about the market situation. “The performance of your customers will ultimately also affect your own business. But I think we are close to a tipping point with the economy in Europe slowly recovering. Over the past few years, many growers of indoor tropical plants have closed their doors. Meanwhile, I have concentrated on a wide range of products and customer demand is now growing. Once we have overcome the economic headwinds, I am the first in line…but honestly speaking, I had more than one sleepless night, especially after reading Jaap Kras’ columns explaining that two giant floral wholesalers in the Netherlands had gone bankrupt. Together they represented a turnover of €410 million. And the auction continues to stress that there is no problem! Personally, I find it scary to see and listen to what’s happening at the Dutch auction. Auction members like me pay a contribution. The number of members continues to decrease and everybody can see the decrease in the level of service provided by  FloraHolland Connect, the auction’s intermediary office. We have come to a situation where you have a low cost organisation with low standard service. All extra’s come with additional costs.”

Bloom instead of gloom

In the new greenhouses there are two central pathways to facilitate efficient and quick order picking.

Over the last decade, the market demand for large house plants has plummeted. Official figures from FloraHolland indicate that the market share of foliage plants in total plant sales went down from 45% to 25%. But Mermans prefers to think about bloom instead of gloom.  Mermans says, “There will always be demand for large tropical indoor plants as they add beauty to homes and offices. But I mean mind-blowing beauty and superior quality. Not the quality everybody say they grow.  I have a growing customer base of the leading European indoor landscaping companies and  discerning customers,” said Mermans. He added, “My clients are selective with their purchases, but they still want premium quality plants. The key to quality? Precision watering, well-balanced nutrition, heating and spacing of the plants are key to top quality. Meanwhile, one should be careful not to become too engaged in ‘Dutch mathematics’. This philosophy believes that the first answer to disappointing yields is expansion, to reduce the cost price per m2. When earnings are still not high enough, the second step is to grow quicker by pumping up the heating. Eventually, with yields still being too low, plants are put closer together in order to grow more plants per m2. By doing so, growers automatically decrease their product quality. One cannot become rich only by economising.”

When asked about the factual cause of diminished demand for foliage plants, he mentions potted Phalaenopsis. “Phalaenopis is a prime example of market cannibalism where a relatively new houseplant eats up the sales and demand of existing houseplants. However, something inside is telling me that Phalaenopsis is starting to reach market saturation. Consumers start to be somewhat bored with the product. It’s as simple as flicking through a magazine and seeing that large indoor foliage plants are slowly but surely getting back into the home decor scene. It’s the type of product that perfectly fits a healthy, sustainable lifestyle.”

On 15 September 2013 Mermans will host an Open Day giving visitors the opportunity to see inside one of Belgium’s largest tropical houseplant nurseries.