IPM Essen market description, part 1
"Demand for living green products grows even further"
According to leading economic institutes (the Institute for Economic Research - Ifo / the German Institute for Economic Research - DIW in Berlin, the Rhineland Westphalia Institute for Economic Research - RWI in Essen, the Institute for the World Economy - IfW in Kiel and the Institute for Economic Research - IWH in Halle), things are going well not only for Germany but also for Europe. Due to good consumption, rising export trade and increased investments, the German economy will grow by 1.9 % in 2017. That will be 0.4 % more than still expected at the start of 2017. "The upturn has increased in strength and breadth" and will persist all over Europe in 2018, too (forecast: 2.1 % for Germany).
According to companies, the order situation and the future prospects are better than at any time since the reunification. No wonder that, with approx. 115 points in the autumn of 2017, the Ifo Business Climate Index (Ifo Index) as a soft early indicator for the economic activity in Germany also continues to show a value well above its long-term average of 102.1 points.
Shortly Before Overheating?
However, the economic institutes are simultaneously issuing a warning about an economic crash. Although the purchasing mood of the consumers has improved noticeably in 2017 and is still good at present, the capacities of the economy are not only exhibiting good utilisation factors but are similarly overloaded, just like shortly before the major financial and global economic crises in the "boom year of 2007".
Due to good order situations and low-interest policies, many companies were tempted to make overdimensioned investments which are not necessarily planned to be sustainable. The economic cycle has already advanced very far. The upward trend might stop. The interest rate turnaround is foreseeable, too. The horticultural sector and the trade in flowers and plants are also surfing on this wave and are not protected from "overheating".
In practice, REWE (gartenliebe.de) or the Bloomy Days start-up are the first examples where, after a successful start, traders are once again withdrawing from the "overheated" business field or surrendering this to others.
Weather Good - Everything Good!
The weather continues to be just as important as the economic framework conditions, if not even more important than them. Extremely fluctuating weather conditions in April and June 2017, late night frosts and a few weeks with exceptionally hot temperatures sometimes dampened the good mood in Germany and, for a short time, ensured slight decreases in the quantities not only of cut flowers but also of pot plants.
However, the first half of 2017 has been very good all in all. May and precisely the Mother's Day business were satisfactory. The wholesale trade registered identical to slightly higher turnovers than in the two previous years which had already been rated as good, too. In general, the public holidays on which flowers traditionally serve as gifts ("flower public holidays") went well on all the trade levels. The sales quantities were okay. As far as the prices were concerned, the consumer would certainly have been willing to accept somewhat higher prices. Thus, the gardener and the wholesale trade would also have been able to achieve adequate prices. In any case, it was not possible to recognise the courage to increase the consumer prices slightly which would have benefited the entire value added chain.
Larger and More Outrageous Products
The observations from last year that higher-value and more outrageous products were becoming more popular can be made in 2017, too. Thus, not only Veiling Rhein-Maas is reporting this trend. To an increasing extent, more higher-value products in larger pots are being traded at auction. In the case of cut flowers, too, the customers are becoming ever more interested in outrageous products, specialities, rarities, novelties and high-value varieties. Similar statements are also being made by the producers and the traders at the German wholesale flower markets.
Theoretically, this observation is necessitating a further advance in the price rises on the end consumer level with higher turnovers. In 2017, the per capita expenditure on flowers and plants in Germany should thus exhibit, at least, the Euro 106 mark from 2016, unless it even surpasses it.
An investigation conducted by IFH Retail Consultants GmbH shows that the per capita expenditure can be improved. Accordingly, the Dutch and the Luxembourgers, with Euro 377 and Euro 354 per capita respectively, spend substantially more on horticultural products (including garden accessories) than the Germans (Euro 225). Austria and Sweden also spend more, i.e. approx. Euro 275.
Large Number of Contacts is Important
How important the number of contact points and offer formats is for the sales of horticultural products is shown by the per capita expenditure of the countries from the Eastern European region such as Latvia, Slovakia, Poland, Lithuania and Bulgaria. Their per capita expenditure is in a range from Euro 40 to approx. Euro 54. This fact may certainly be explained by the generally lower purchasing power in the specified countries but not by a lack of interest in green products. Green subjects are trendy here, too. The growth potentials are considerable. For example, the per capita expenditure on garden articles in Latvia has risen by approx. 24 % in comparison with 2010. Thus, the explanation must instead be sought in the lack of shopping formats. These countries have hardly any specialist garden centres focusing on "living green products". Various offer formats are being introduced only gradually and are thus ensuring above-average dynamism. Thus, the Baltic states and the countries in Eastern Europe are becoming ever more interesting for selling flowers and plants in the EU. Because there is an affinity for flowers and plants here, too. Diversity wins - the sector must preserve that.
Flexible Trade Relations Ensure Sales
As a reminder: In 2016, the European market was characterised by uncertainty - in spite of rising imports and exports of flowers and plants. "Brexit" and "Russia" were the dominant talking points whose noticeable effects, at that time, were not expected before the end of 2017.
Precisely the Netherlands, as the absolute number one in the trade in flowers and plants in the EU (with an approx. 80 % share of the trade inside the community), feared losses in its function as the hub for the European market. Directly after the British referendum, the Dutch thus noticed approx. 5 % decreases in the sales quantities to Great Britain. The Britons import approx. 90 % of their needs for flowers and plants. At present, the decreases in the sales quantities every month are still approx. minus 6 % to 10 %. Above all, this is caused by the weak pound. Moreover, the export proportion of the Netherlands to Russia has dropped by half within the last three years. In a very short time (until the end of 2016), Russia disappeared from fourth place in the top-ten list of the export countries of the Netherlands. However, Russia is once again amongst the top-ten destination countries at present. Until the summer of 2017, the exports to Russia increased by approx. 36 % in total compared with the previous year. The Russian market seems to be recovering somewhat. It remains to be seen whether it will constitute a reliable sales possibility.
Anyway, both target markets are exhibiting developments which require the setting-up of new trade relations - this happened in 2017 also absolutely in this sense. Many experts agree: Great Britain and Russia will supply themselves with flowers and plants from elsewhere in the long term.
Challenges Were Accepted
This challenge was accepted and mastered in 2017. Already in the spring of 2017, it was emerging that the export value of flowers and plants from the Netherlands was rising in spite of the political uncertainties. At the end of April, it was, at approx. Euro 2.2 billion, already 6 % higher than in the previous year.
At the end of May 2017, the Association of the Wholesale Traders in Ornamental Plant Products - VGB in Aalsmeer reported a record: The turnover limit of Euro 3 billion had never been reached as quickly in any year as in 2017. It was primarily May which contributed to this. Moreover, a sales value of approx. Euro 730 million in a single month alone had never been achieved until then.
Focus Outside the Classic Destination Countries
In this respect, it is conspicuous that, in addition to the relatively great rise in the turnover and the higher export values to Germany, exports were destined, above all, for countries outside the top ten.
This is an indicator that the exporters are deliberately placing their faith in special markets on which they do not focus otherwise. While the export values of the top ten destination countries rose by 3 % in the spring of 2017, the values for the other export countries grew by 17 % to Euro 500 million.
Although the top-ten destination countries still make up almost 80 % of the export value, a comparison of the figures with 2014 shows that the share was once even greater at approx. 84 %. Thus, there is a slight shift in the market shares of the top ten export markets, towards the more than 100 other destination countries for exports.
Poland is Becoming Stronger
The significance of Poland as an export market for flowers and plants is growing even further in 2017, too. From the Netherlands alone, substantially more flowers and plants were exported to Poland in the first half of the year (plus 27 %). Thus, Poland has become even stronger as an interesting export market and has become established amongst the top five of the largest purchaser countries of the Netherlands for the first time.
Not for nothing are the Dutch rethinking their advertising with a view to the growth markets in Eastern Europe. According to Martijn Homann (a Dutch agricultural counsellor in Warsaw), there is still a lot of sales potential especially in the Polish market; precisely with regard to the sales via supermarkets. The sales of flowers and plants via supermarket chains such as not only Biedronka but also Tesco, Lidl and Auchan have risen constantly in the last three years. The imports from Poland which is currently characterised by the small-scale and fragmented production of flowers and plants are also rising correspondingly strongly. Moreover, the local production is exhibiting an extreme shortage of specialists and a limited production area (< 5,000 ha). In this respect, the flowers and plants produced in Poland are produced in a targeted way for cities, e.g. Warsaw, Lodz, Poznan or Wroclaw. Approx. 33 % of the population lives in the cities.
If consideration is also given to the economic development of the country with an annual growth rate of 4 % and an unemployment rate of 6 %, the country is an absolutely interesting destination for the export of flowers and plants.
Turkey is Becoming Interesting
However, Turkey is also an interesting market which should be developed in spite of political uncertainties. For example, Royal FloraHolland has been investing a very great deal of time in expansion plans for two and a half years. In this respect, Turkey should act as a hub in the trade between Europe, Asia, Africa and especially the Arab region. Here, it is primarily a question of dismantling the trade barriers between Turkey and the Netherlands. At present, the trade is characterised by import duties of 48.6 % on plants and 24.5 % on cut flowers and is correspondingly unattractive. By 2023, the exports of flowers and plants from Turkey are to be expanded from Euro 80 million to around Euro 500 million.
However, in addition to the hub function, the country is very interesting because Turkey has approx. 80 million inhabitants and a young population structure with rising consumption expenditure on flowers and plants and growing interest in them.
To Be Continued
The second part of the IPM market description focuses on increasing digitalisation and societal trends and supplies answers to the questions: What challenges are confronting the green stationary trade in times of e-commerce? What chances are resulting from these? What effects do megatrends have on the purchasing behaviour of the customers? How can the green sector profit from them?
For more information:
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