Consolidation in the floriculture value chain is a growing concern

Over the past 40 years, the agricultural industry has moved through different stages of consolidation. In my view, agricultural businesses will continue to merge with or acquire other companies, writes Arne Bac, Sector Specialist, Rabobank Food & Agri, in the Netherlands.

From my role as a Dutch banker, I can see that consolidation in ornamental horticulture is relatively slow compared to the global trend. The enormous variety of different types of flowers and plants is an important reason why many growers do not feel the urge to join forces.

And I can agree with them a bit on this point. Most flowers go to market as semi-finished products. The following links in the value chain take care to turn them into consumer products. Sometimes the flower merchant takes care of this, sometimes the florist or the garden centre takes care of the finishing touches to a bouquet. Growers often tend to oversee this preparative process.

But the market is changing. Rabobank expects that market shares in Europe will change to a market share of 30 per cent online, 30 per cent retail and 30 per cent for the florist/garden centre (10 per cent other) within six years.

In 2017, the florist/garden centres had a market share of 55 per cent, retail 22 per cent and online 8 per cent. In 2027, this will be a different playing field, especially when you realise that consolidation in the final stage of the supply chain is speeding up.

Already, retailers in Europe are scaling up rapidly to gain more market share to almost any price. This reaction is an answer to the attendance of discounters such as Aldi and Lidl.

As a result, all retailers are busy gaining extra market share with a well-dedicated price strategy, compared to mergers and acquisitions. This situation results in considerable buying power where their suppliers (flower traders, for example) must comply.

Simultaneously, the flower wholesale-trade industry is also speeding up. The big five is responsible for three billion euros (43 per cent) of the European flower and plants turnover. We expect them to grow to 4.8 billion (60 per cent) euros turnover within seven years. We may be talking about the big three instead of five. These big traders can deliver to the retail, florist, garden centre all over Europe. They are well-organised and very cost-efficient. We do not think their margin will increase due to the buying power of European retailers.

The main excuse that the idea of consolidation does not take the European growers (mainly located in the Netherlands) is due to the product – the wide variety of flowers in plants’ assortments. But is this point of view valid? As a business person, it could be helpful, but having awareness on this topic, by yourself, should be given more attendance. When your value chain develops, you should ask yourself which opportunities this could lead to for your business.

It might be that upscaling of your clients leads to other demands not known at this moment. It might be that a type of consolidation (upscaling, merger, or cooperation) can be a good answer to give your company a better position for future challenges. And one should realise that 2027 is not far away. Making your business future-proof is a time-consuming endeavour. Maybe today is the right moment to develop a strategy that will keep your business prepared for the things to come.