California Spring Trials are the place to see breeder consolidation in action. Jerry Montgomery presents a critical assessment of the green goods supply chain in light of recent consolidation:
According to the Council of Supply Chain Management Professionals, supply chain management encompasses the planning and management of all activities involved in sourcing, procurement, conversion and logistic management. It also includes the crucial components of coordination and collaboration with channel partners which can be suppliers, intermediaries, third-party service providers and customers. In essence, supply chain management integrates supply and demand management within and across companies.
Consolidation has arguably impacted the supply chain particularly in the supply of seed and vegetative inputs. There are fewer companies in the seed supply chain because of consolidation and fewer companies dominating in the vegetative segment. A prime example is Syngenta acquisitions of Goldsmith Seeds, Yoder Mums, and Fischer, Syngenta from a niche player to a position of dominance in both seed and vegetative.
Another example is the acquisition of Global Flowers and Sahin Seed by Takii, although far less impactful than the Syngenta acquisitions because al three companies are niche oriented and have not dominated in any major category.
|Genera||#1 Seed||#2 Seed||#1 Vegetative||#2 Vegetative|
|New Guinea impatiens||Danziger||Syngenta|
|* includes spreading petunias|
Although the estimates are subjectively garnered from market observations and talking to large growers, it is clear that consolidation has put more control of key categories into the hands of fewer breeder/producers. This trend will continue as larger, well-funded companies absorb smaller ones along with those who will go out of business.
|Benary Seed||Benary||Ball FloraPlant||Ball|
|Hem Genetics||Hem||Ecke Ranch||Ecke|
|Kieft Seed||Ball||Fides||H2 Equity|
|S&G Seed||Syngenta||Selecta Klemm||Klemm|
|Sakata Seed||Takii||Yoder Mums||Syngenta|
|Does not include perennial breeding companies|
Companies that have consolidated face many challenges, which include integrating information systems to a single platform, dealing with the different internal cultures and driving costs out – that is one of the drivers of consolidation. Economy of scale is an enticing motivation, but rarely does it come to fruition. Frequently, as companies that buy other companies get caught up in the business of integrating these new assets, they lose focus on the customer. That results in a decline in growth and opens the doors for their competitors.
Go to Market
A major issue that has been facing breeding companies for a number of years is their go-to-market strategy that is largely dependent on the distribution system of brokers. Since more than 90 percent of annuals inputs are sold through the national network of brokers, their ability to garner distribution support is essential to their success. This of course gives companies that are vertically integrated with their own broker sellers a clear advantage, if they understand how to position their own products while at the same time making the best interest of their customers the paramount concern.
On the other hand, you can easily make the case in today’s world for brokers who have no affiliation with breeding comapnies and can concern themselves solely with selling products that are best for their customer’s. There are too many companies at all levels of the supply chain that are so focused on the product transaction, they miss the most important part of selling – providing products that address the needs of the customer, not the sales goals of their companies.
Some breeders are so focused on the process of breeding, they don’t always consider what it takes to successfully go to market other than the merits of their new and improved variety. This mentality has been very costly as evidenced by the failure rate of many great new genetics. It is not enough to breed new and interesting varieties if the marketing, production and distribution are not in place to support them and ensure these news products actually go to market. The breeding pipeline is far larger than the market’s ability to absorb these new products, so the winners will be those who understand how to successfully produce, market and distribute new products.
What Does the Customer Expect?
Just as important, and maybe even more so in the eyes of the customer, is the reliability of the supplier who is the ultimate provider of the goods. Whether a breeder produces their own goods or licenses the production to others, the only way a variety will be successful is the reliability of supply. Many fail to understand and measure the element of supply because they get too focused on how great their varieties are, and this leads to failure.
Growers have told us all what they expect in the areas of service, but how many of us have listened? They want:
• Sellers they trust and can rely on for advice
• Ease of ordering
• Suggestions on how to use new products (product positioning)
• On-time delivery
• Correct quantities and varieties
• Immediate notification of any order changes
• Offered alternatives when the original order cannot be filled
• Immediate resolution of problems
• Access to technical information, especially with unfamiliar new products
If a customer receives what they perceive as quality products and all the service initiatives are fulfilled by the supplier, then price is not in the No. 1 position in the buying process. Good products combined with reliability of supply can help a breeder gain more share than price alone. Combine this with brokers who are trusted by their customers and you have a winning marketing solution.
Cutting Producers & Plug Producers
These two groups play an important role in the supply chain. Cutting producers are those producers that are normally off-shore and produce cuttings that are either open varieties or licensed from breeders and sell these cutting through the broker system. Examples of this segment are Oro Farms, FlorExpo, and GroLink. Cutting producers are normally very efficient, have contributed a lot to keeping prices from inflating and have been leaders in quality and reliability.
Plug producers play a major role in the supply chain, as more growers have opted for outsourcing their seed inputs in an effort to improve space efficiency and capacity utilization. The majority of the resale plug production has fallen into the hands of a small number of producers – Green Circle Growers, Tagawa Greenhouses, Speedling, Plug Connection, C. Raker & Sons, Van de Wetering Greenhouses, Bob’s Market & Greenhouses and Floral Plant Growers. Some plug producers add value by using high levels of supplemental lighting, returnable trays, sorting trays for uniformity and efficient low-cost distribution.
Intermediaries are playing an increasing role in the marketing of green goods. Examples include brands like Proven Winners, Viva and Southern Living. These are companies who don’t produce or breed but are marketers of their brand. In some cases they avoid the grower sector of the supply chain and go directly to the retailer, pushing their brand through to the consumer. Good for them but not so good for the big box vendor when the dictates come down to put these brands in their stores.
In most cases, the large growers have to buy expensive inputs, pay marketing fees and are faced with higher packaging costs. In some cases, if the product does not sell at a particular retailer, growers are not allowed to sell it elsewhere. One reason this has become so widespread is the lack of new innovative products and programs offered by the grower community. Retailers want a constant flow of new products, and if they can’t get them form one channel partner, they will find another one.
Brokers play a key role in the supply chain as they are very influential in the selection of vendors and the genetics that end up being produced by the grower. The role of the broker is to recommend and sell the right products for the grower from their selected vendors and to manage accounts receivable incurred from their sales. Their role has changed over time. In the past, the broker also provided marketing for their vendors, but in today’s world, the smart vendors know they have to control their own marketing.
As the retailers consolidated and assumed more bargaining power pricing pressure was felt at the grower level, who then applied that pressure to the brokers. Broker margins declined and receivables skyrocketed as the grower segment began shrinking at an increased rate. Large growers pitted one broker against another and most brokers responded by lowering prices to get the big orders. Although their margins shrank, many did not reduce their costs commensurately and were willing to live with higher sales volumes and lower net income.
Brokers fulfill an important role in the supply chain and some breeders who try to go direct find it very costly resulting in a high failure rate. The major issue with brokers is many are trying to be all things to all customers – a highly inefficient strategy that is not working for any broker. The most successful brokers have two things in common: one is a focus on a core group of targeted customers that have some commonality of need; and two, have driven non-value-added costs out of their operations, allowing them to compete and profit with single digit margins.
Clearly, this writing does not go into the detail of the entire supply chain but touches on the many aspects of how seed and vegetative annuals go to market and the issues connected with the performance of the suppliers.
Some of the other issues we see hear from the market about the supply chain are:
• The lack of accountability for order fulfillment at all levels
• The lack of measurement at all levels
• Forecasting based on gut feel, not metrics
• Information systems that are not equipped to measure performance
• Lack of new products that actually show up on the shelves of retailers
• Lack of measuring discards by variety by week
• Inability to capture information relative to unfilled demand
The future performance of the supply chain will be largely driven by information systems that can provide fast, accurate and understandable analysis of every transaction and making that information available to all who need to know in real-time. From sales forecasting to product life cycles, information systems will provide some companies with a strategic advantage.
Overall the supply chain has showed some improvement in recent years but how will consolidation impact future performance? No matter how consolidation or other market dynamics affect the market, there is one clear and indisputable trait that must be adopted by all members of the supply… RELIABILITY
About the author: Jerry Montgomery is a 40-year veteran of the floriculture industry and has worked for distributor companies, breeders and large growers specializing with a focus on sales and marketing. As an industry consultant, he works for large growers, distributors and breeder/producers. His focus is to understand the market dynamics from breeder to consumer through intense retail travel, visiting almost 1,500 stores since January 2008.