01 May 2015
Few people have had as much impact on the day-to-day management of FloraHolland as CEO Lucas Vos has. The 47-year old Huizen-native officially joined Royal FloraHolland on January 1st 2014 to spearhead a business strategy that should make the world’s largest flower auction more resilient and robust as tough times continue.
Royal FloraHolland presented its new strategy for the period up to 2020 in December 2014. The ‘Flowering the world together, planting seeds of opportunity for our members’ report provides a road map to guide and prioritize the work of the cooperative in the context of key issues affecting worldwide floriculture and our society. It specifies two main goals: better margins for the member growers and their customers and a higher consumer expenditure on cut flowers and plants.
Working closely together with his colleague Rens Buchwaldt, Director of Finance, Lucas Vos is one of the driving forces behind the auction’s new business model based on the principles of Lean Six Sigma. Simply put, the discipline increases revenue by enabling an organisation to do more with less, while focusing on customers and quality. The focus is not just on reducing costs for the business. It is also about passing these savings on to the company’s customers to offer value for money.
The arrival of a new chief executive to head up a company, large or small, is always a major event—especially for the CEO. The first 100 days constitute a critical phase. Commenting on the potential and pitfalls he encountered so far, Vos said, “It’s interesting you ask because I have a little book entitled the First 90 Days. It sort of describes a perfect situation. When everything goes well then you get your 90 days in which you work and you speak a lot to customers and employees. You don’t formulate an opinion, but you are just busy with gathering information all the time. I didn’t have that luxury as a strike was announced at the end of January 2014. It accelerated everything. Emotions were running high and I got to speak to so many people in the industry who were grabbing on to me basically, wanting to share their feelings. Their concerns were not just about the reorganization and its social aspects, but mostly about seven years of deteriorating relationships between management and employees, customers and FloraHolland. Growers were questioning themselves about the cooperative’s raison d’être at a time when direct trade continues to increase. I was offered a very limited introduction during which time I already collected more information than I could have done in the normal 100 days.”
In business jargon, it has been said that a tree is not planted until it has been in the ground for five years. Does this reflect the time Vos thinks is needed to feel perfectly comfortable and to be in control at FloraHolland? “(laughing) Well, I don’t think my working environment will allow me five years. But it was my own decision to get a better understanding of the sector first, by meeting as many customers and growers as I can. Only after that, can I start to formulate an opinion. Particularly when you have been in one type of industry for twenty years –in my case the shipping industry- it is easy to think that whatever was valid there will be valid in this industry as well. I didn’t want to make that mistake.
I do think people accept that I am still lacking in-depth knowledge of flowers and plants, especially when compared with people who have been working in this industry for a lifetime. I also believe they see what I can bring by uniting growers and customers and by providing a clear vision to where I feel things need to go. This is what we have accomplished with our new business vision FloraHolland 2020. At least, this is the feedback that I get from both growers and customers.”
This is a time of challenges and of change for FloraHolland and for the market as a whole. Vos believes that one of the major challenges for the ornamental horticulture industry is ignoring its own numbers. “Whilst preparing our strategy, reviewing the 2007 merger process between Bloemenveiling Holland and VBA, one of the findings was that FloraHolland lost 35% of its suppliers and 30% of its customers following the merger. It also came as a surprise to both our customers and supplier growers when we told them that 20% of the top suppliers generate 84% of the FloraHolland revenue and that there is an even higher business concentration at customer level, with 20% of the customers generating 91% of the auction’s turnover. Everybody became startled as they hadn’t realised that these underlying numbers make the situation so difficult. Another important statistic pointed out that it is only since 2011 that consumer spending on flowers and plants has been going done. This is against the common belief that consumer spending had already been dropping since 2008, since the beginning of the financial crisis. For four years now we have been losing out to our competitors such as chocolate and wine.”
2014 marked the year in which you ended the conflict between the organisation and the FloraHolland personnel. To Vos it meant a lot in that he was particularly interested in the reasons behind the conflict. “I can understand that FloraHolland was considered an employer for life. But times have changed and it’s an old model that hardly exists anymore. This was the first reorganization that took place in the company’s over one hundred years of existence. So it was a real and unexpected shock. I actually think it was good that it happened, as it allowed all emotions to come out. Only if you know the true problem you can start solving it. This is where my personality becomes useful. I am told that I am a good listener. I enjoy being on the work floor and just talk to everyone. I am not afraid of admitting mistakes when I make them and I encourage others to do the same and learn from them. That helped me create a different FloraHolland.”
Vos is quick to add that some tensions are still high and that it would be naïve to think that everything will be calm and quiet in a year’s time. “At least they are out in the open, they have been discussed and join action can now be taken. Meanwhile, the clock volume continues to drop and we have an issue with our revenues and thus with our costs. This puts us under constant pressure.”
FloraHolland is re-engineering many aspects of its business. In January, the world’s largest flower auction announced its exit from over 180 projects. Lean Six Sigma provides tools to reduce waste in any process and this raises the question whether all 180 projects were a complete waste? “No, not all of them. There was a combination of a lot of projects and a lot of services. We had around 340 services and 180 projects running that were about to be turned into services. Clearly, FloraHolland was not in good shape with a lot of energy going into how to improve its business. But this energy was not coordinated. Everybody was given freedom to do their stuff, but for all the good intentions, and probably sometimes also some good ideas, at the end of the day it didn’t add up. It pulled us in all different directions, with customers complaining about our unclear message. All these services and projects actually created a lot of confusion. What was also lacking was a good methodology to assess the value of each project. But it was all driven by good intentions and there is nothing wrong with that.”
Part of FloraHolland’s new business model is the launch of a next generation online trading platform. Revealing some details of the World Flower Exchange Platform, Vos stressed first of all that FloraHolland as a physical marketplace is widely renowned with its clock prices being used to calculate reference prices all over the world. “But we see that both production and demand are moving further away. And it would be naïve to think that this logistical hub could cater for all this supply and demand. We need to replicate the physical FloraHolland also in the virtual world. Please don’t get me wrong. It is not our intention to introduce a virtual clock. It is more about investigating how demand and supply come together these days. Today, Air BnB, Uber and even Tinder are all prime examples of how to efficiently blend supply and demand. We shouldn’t limit ourselves to a virtual clock, but investigate how online sales really happen these days. What does a company like Amazon do? What can we learn from it or should we actually team up with a company like Amazon? Let’s use the FloraHolland brand and system in an even more productive way. I know that a lot of growers around the world are jealous of this system but how can we connect with them? For that we need to have a virtual presence and to create a value proposition. For this we hired someone from outside. He joined us on the first of April so it is a really fresh project.”
Another important step FloraHolland has taken is towards a Netherlands-wide approach to auctioning. The clocks in Aalsmeer, Naaldwijk and Rijnsburg will be linked together, while the number of auction rooms will be reviewed.
Speaking about the auction business, the first question Vos asks himself is whether the auction clock is still the right marketing tool. Introduced in the midst of a buyer’s market, the clock worked perfectly well for a long time. Until 2008, when the world turned around.
Yet, Vos is convinced that this kind of perishable industry requires a physical marketplace.
“But seriously, the amount of transport flows between our different branches in Aalsmeer, Rijnsburg and Naaldwijk involves a lot of waste and we need to find a way of getting this resolved. As for the nation-wide clock, opinions differ. Some growers say that when their products are sold at 7 o’clock in Naaldwijk and at eight in Aalsmeer, they guarantee the price will be lower in Aalsmeer. Others say that they actually ‘play’ at the three auctions and sometimes prices are lower in Naaldwijk than in Aalsmeer. My customers are more strongly convinced though and thinking it is a good idea. Not all growers, however, are yet on board. So we need to better understand their objections to see where we can add to the concept to make it work. The main goal must be an auction clock that is not only good, optimal and stable, but also cheaper. As you can imagine a lot of interesting discussions are going on.”
FloraHolland’s new strategy starts with the customer in mind. Vos agrees that this isn’t something completely new. “But it is new to FloraHolland! If you asked my customers, they never thought of FloraHolland as being a customer-oriented company. It is an ongoing process with the first primary results. Instead of customers immediately shutting their doors when FloraHolland presented itself, we are now cautiously but cordially invited to come in.”
The same customers and also the growers are happy with the auction’s message that over the next few years priority will be given to promotion of flowers and plants. On what grounds do you feel that FloraHolland has the right to think of itself as a marketing company? Vos: “Because my customers and growers are asking for it. It doesn’t mean that we need to do it all ourselves but we do need to coordinate. For that, you don’t need to have the best marketers in house, you can also hire them, working closely together with Bloemenbureau Holland. In general, we as FloraHolland are not good in marketing and this goes for the entire industry. We are light-years away from companies like Procter and Gambler and Unilever who possess intricate understanding of their consumers.”
Speaking of promotion, FloraHolland has €8 million at its disposal to drive sales and increase market share. Vos agrees that the €8 million that is now being used for consumer promotion is too ridiculous for words. But our hopes are set on an increased budget now that the Dutch Association of Wholesale Trade in Ornamental Products (VGB) has announced its renewed willingness to fund the Flower Council of Holland. “Somehow, the VGB couldn’t agree on the payment mechanism. VBG and FloraHolland were blaming each other but have now re-embarked on constructive talks. As for the way of payment I have no rigid opinion on this. I do know that the collecting of joint levies will go through FloraHolland. Previously, FloraHolland wanted to instruct customers on how to raise the levies. But this is clearly not our business.”
Vos perfectly realizes that the real key to making Holland’s flower industry flourish lies with the industry itself and the businesses and organisations at its heart. But other sectors can play their part too using cross-sector promotion. “Plenty of other industries find beauty in flowers willing to link their products to flowers. Actually, you can never go wrong with flowers,” he said.
One of the biggest headaches is that fewer people of all ages buy flowers and plants.
Vos thinks that people are just not familiar enough with the product because the industry doesn’t do its utmost to create a brand that is top of mind for consumers.
Meanwhile, flowers and plants are facing non-traditional competitors such as gift cards that have become many shoppers’ desired way of giving and receiving gifts. Gift cards are so successful -not because of their powerful emotional meaning (they are often considered an impersonal and lazy gift), but because of the high profit margins at retail level. “Supermarkets know perfectly that 15 to 20% of the gift cards will never be redeemed so they are a real money-makers.”
What’s more, for some the thought of fresh cut flowers conjures up an image of effort, time, mess and hassle. “Flower stems need to be re-cut at a sharp angle, flower food is required to help maintain the vase life of flowers and then consumers keep on running into one problem: selecting the right vase with vessels on hand always almost ending up being too big or too small. And then I haven’t even touched upon all those complicated Latin plant names or the compost bin that is always located a long distance from the back door.”
This whole industry is run by men who only think of the production mechanics and the price, whereas women are all about the value. When asked how discomforting this situation is, Vos said, “That’s a very good point. Call it discomforting, but you can also try to discover the untapped opportunities. Our recent orchid market research, for example, has now revealed that not the price, but the colour of the plant is the main factor driving consumer preference.”
The financial results of an auction are not automatically a barometer of the financial state of its members. Across the board Vos can see improvements in business performance. “Banks are telling me that the companies’ solvency is improving. A lot of them have hit rock bottom financially and a large number of companies were forced to close their doors. Particularly annoying for growers is that, whilst they can control their own actions, they also depend on external events or processes that they have no control over. So far, this year has been very unpredictable due to a highly volatile market with fluctuating exchange rates. Take for example the rouble versus euro exchange rate, which badly impacted International Women’s Day sales, while the euro versus pound sterling exchange rate boosted English Mother’s Day sales. In the southern hemisphere, my Kenyan and Ethiopian growers badly suffer from the euro when the currency fell to a record low against the dollar in January. The situation is dreadful, as their costs are in dollar while their revenues are in euro or local currencies that are linked to the dollar. And it is exactly these things that are outside of our sphere of influence that prompt banks to ensure growers increasingly opt for contract growing with predetermined prices that then again puts our cooperative under pressure.”
In 2013, FloraHolland calculated that the average return at grower’s level was 1%. Interestingly, also the return among my customers was with an estimated 2% equally low. Profits being bad on both sides, creates some kind of shared pain that brings supplier growers and buyers together. “They become increasingly aware that there is no point of fighting each other as the real enemy is outside the supply chain. The enemy, for example, is the gift card downsizing our slice of the business pie. The reality is that most of the money in the supply chain is generated in breeding and at the point of sale. So the closer and more involved you are at the beginning or at the end of the chain the more money you earn. Once those who are halfway up the supply chain start to realise this, they will team up to have their fair share of the market too,” predicted Vos.
In the Netherlands, the future of the auction clock is under heavy debate. Buyers increasingly complain about the inferior quality of clock-sold products. They jokingly describe the auction clock as a ‘shower drain’. But saying that the clock is the auction’s new Achilles heel is a bridge too far for Vos. “Despite all the negativity spread around it, it is stronger than I thought it would be. Clock sales during the first quarter of the year didn’t disappoint. Those who have been betting on the clock have done much better than those who established predetermined prices. Clock prices have been excellent with 7% higher prices compared to last year, while prices in contract farming were 10% lower. Playing a key role was market uncertainty in the run up to International Women’s Day with very few long term contracts or contacts stipulating very low prices. It led to last minute purchases at the clock or in direct sales where prices are closely linked to the clock. It resulted in an overall surge in clock prices. I am actually convinced that this perishable, daily fresh product needs a market place like ours, we only need to improve ourselves in market regulation. If people decide to use our clock as a dumping ground , let’s be open and honest about it and create a second channel for them. And maybe we should then create a separate place for those suppliers who are reliable and trustworthy all year round. All this draws comparisons with the situation at airports these days. Flying KLM or EasyJet are two completely different experiences. The pertinent question concerning our own business is why should our products all pass through the same gate? The differentiation of our goods is a key concept, because the customer thinks he buys A while he is actually purchasing B quality.”
When asked about the auction’s key issues in the coming year, Vos says,“I don’t want to sound like a broken record but THE key issue is to get to the consumers and nothing else; to better understand them and to get our product top of their mind.”
Asked about the greatest risk of the adopted Lean Six Sigma philosophy, Vos concluded, “The risk is that we cannot deliver. We need to understand, to collect important data, we need to be very good in IT and marketing so the biggest risk is that we have this wonderful strategy but just don’t know how to do it. Of course there is a risk surrounding the amount of buildings and land that we have, but I can feel now the pull from customers, so I am a little bit less concerned about that. Looking at the economy in the short term, I don’t expect things will deteriorate any further right now though I cannot guarantee that longer term. Right now the economy’s outlook is pretty good. All in all, FloraHolland’s impressive real estate is a burden, especially when you know that product volumes will go down with the trade being increasingly direct. But I think we can manage. The real endeavour lies in building the new competencies we need to execute our strategy.”