"A lovely bunch of flowers. I was very pleased to receive them. All the roses opened, and they lasted much longer than expected. A wonderful gift. I would order again."
This is exactly the kind of customer review a flower business wants to receive. People who buy flowers want them to stay fresh for as long as possible. This is no easy feat, given the vast distances that flowers must travel these days from the grower before ending up in a vase.
The floriculture industry is a blooming business worldwide. Kenya supplies well over a third of the European market, which accounts for more than half of the global demand for cut flowers and ornamentals. Since the '90s, Kenya's floriculture industry has grown at a rate of 20 percent a year. In 2010, floriculture accounted for 20 percent of Kenya's exports, worth some 400 million euros.
For a country like Kenya, it can ill afford to jeopardize such trade, which also includes exports of fruit and vegetables to mainly European markets, as well as tourism. All of this depends on two important factors: transportation, over which a manager has limited control, and climate, over which a manager has no control, as the events of April 2010 proved with devastating clarity.
Coming Up Roses
Nzuri rose farm (name has been changed) is located in Kenya's southwestern highlands, whose temperate climate conditions are ideal for growing flowers. The entire flower-growing process takes place within standard drip-irrigated greenhouses. Once the roses are harvested, they are put in buckets of water and nutrients, and placed in cold storage to preserve their freshness. Then they are sorted, packed into boxes and loaded onto refrigerated trucks. They are driven a few hours to the Nairobi airport, which serves as an airline hub for Eastern Africa, resulting in competitive air-freight charges for transportation to Europe.
The supply chain followed two operating models. Being vertically integrated, and having invested in sophisticated post-harvest cold-supply storage, they could ship directly to large retailers such as Tesco in the United Kingdom. They also shipped to the central flower market in Aalsmeer, the Netherlands, where middlemen would buy and sell flowers at auction and then deliver them to the final retail point, ending up, for example, in Barcelona.
A Typical Supply Chain (based on public sources)
Growing (14 weeks) > Cutting & Packing (6 hours) > Transport to Nairobi Airport (3 hours) > Loading on Plane (4 hours) >
1. To Heathrow (8 hours) > To U.K. Supermarkets > Consumer
2. To Aalsmeer (8 hours) > Auction (3 hours) > To E.U. Wholesalers > To Florist > Consumer
The time and costs involved in the two distribution channels were almost identical up to the port of entry - either London Heathrow or Amsterdam Schipol. After that, the direct retail channel moved faster, albeit with advance planning and preparation, as stores had to arrange their displays in time. Normally the flowers would then be sold within two days.
Business Is Grounded
On April 14, 2010, the Icelandic volcano Eyjafjallajökull erupted, spewing an ash cloud that grounded all flights leaving Nairobi for Europe for at least five days. The floriculture industry was losing more than 2 million euros a day.
Farm managers urgently had to consider what to do. They had the capacity to harvest up to 180,000 rose stems daily, but with a backlog of roses waiting in cold storage, they had halted all further harvesting. But how much longer could they wait? Something had to be done to clear the storage room and make space for the fresh lot of roses. There was an option of flying the roses to Spain and transporting them by land to northern Europe. But chances were they would wilt during the extra travel time and fetch very low prices at auction. Plus, the alternate route would be costly.
Who would have thought a volcano in Iceland would affect a flower business in Kenya? Granted, Kenya was prone to strikes by transport workers, as well as waves of social unrest, like the violent post-election clashes of 2008. There were also torrential rains and flooding. Although there were intelligent systems on the market that controlled the harvesting time of flowers, the farm had not installed them at the time of the volcano because it was felt they cost too much.
How would you overcome the immediate crisis? Was it time to consider a different distribution strategy longer term?
WHAT I WOULD DO
January 4, 2012 20:55:04
Creo que la empresa debe analizar a fondo su trayectoria de rendimiento y el modelo de negocio.
1) Trayectoria de rendimiento: La trayectoria de rendimiento es el factor motivador o justificativo que hace que valga la pena invertir o no en un sector.
Ningún negocio potencialmente rentable es costoso, puesto que entonces no sería un negocio rentable. Pareciera que hubo un descuido en no monitorear la tendencia del sector y su rentabilidad (como sucedió con BlackBerry, que perdió la batalla de las tabletas ante Samsung y Apple o el de Google en 2011, que invirtió casi 700 millones de dólares en tecnología eólica porque le sale sumamente costoso pagarle al estado casi 100 millones dólares anualmente en electricidad para poder mantener sus servidores).
Si Kenia decidiera robustecer su red de transporte y mantener su mismo modelo de negocio, sería cuestión de revisar las actuales expectativas de retorno de la inversión, ya que, lógicamente, las expectativas actuales no contemplaron un volcán ni mucho menos robustecer la red de transporte.
2) Modelos de negocio: Desde los años 90 hasta la actualidad, los modelos de negocio en Occidente han girado en torno a los servicios (intangibles) y no a bienes (tangibles). Es más, muchas empresas que venden bienes, buscan ofrecer algún tipo de servicio adicional a fin de ser un poco más competitivos. No estoy del todo de acuerdo en esto, porque una cosa es “vender servicios” y otra muy distinta es “vender una experiencia”, ya que la intangibilidad de los servicios exige crear una experiencia para el cliente. Lo que quiero significar es que en Occidente el 75% de los ingresos PIB son originados por servicios y no por bienes. Kenia bien podría analizar esta realidad mediante la microsegmentación, como un factor de innovación en el sector floricultor de su país, ya que su mercado objetivo es Occidente.
En los llamados “mercados maduros” ya se sabe todo: las reglas, gustos y conductas psicológicas de consumo, por lo que hay poco margen de maniobra. Únicamente quedan dos vías: la microsegmentación (crear un nuevo mercado dentro de un mismo mercado) o cambiar las reglas del juego (ver casos como Zara, Benetton, etc.). Dicho esto, cualquier cosa que haga la empresa en pro del sector y sus clientes será bien recibido y compensado, ya que al no existir un mercado maduro o al no estar claramente definido como maduro, no se pone en riesgo al público objetivo. El público objetivo lo “percibiría” como una innovación en el sector.
Dada la trayectoria de rendimiento del sector, creo que la compañía debería:
1) Robustecer e innovar en transporte (su verdadero modelo de negocio no son las flores, sino el transporte), que se tratará siempre de una inversión y no de un costo. En contabilidad internacional, las catástrofes naturales son consideradas como costos operativos ordinarios y no como gastos extraordinarios, ya que se supone que son riesgos propios del mercado.
2) Revisar, mediante indicadores conservadores, el actual modelo de negocio para Occidente y ver si su actual diseño está subutilizado o por debajo de las expectativas o potencialidades del mercado europeo.
3) Asumir más cultura de la innovación. El mercado no está maduro y tomar ciertos riesgos es un “lujo” que hoy podría permitirse sin consecuencias importantes.
January 11, 2012 12:04:47
> EDITED ENGLISH TRANSLATION OF RAFAEL CASTRO COMMENT:
I think the company should take a good look at its track record and business model. It seems there was an oversight in failing to monitor industry trends and profitability, as happened with BlackBerry, which lost the battle of the tablets to Samsung and Apple. If Kenya had decided to strengthen its transportation network, it would have been a matter of reviewing current ROI expectations in light of new realities.
Since the ’90s, Western business models have revolved around services rather than goods, and even companies that sell goods offer some additional service in order be more competitive. Considering that the target market is in the West, Kenya may well consider this through micro-segmentation – innovating the flower industry within the country and creating a new market within a market. Or it can try to change the rules of the game, like Zara or Benetton has done. Anything that improves the company’s standing in terms of its industry and its customers will be welcomed and rewarded. The target audience will perceive it as an innovation in the sector.
I think the company should:
1) Strengthen and innovate transportation. The real business model is not flowers but transport, which is always an investment rather than a cost. In international accounting, natural disasters are considered to be ordinary operating costs and not extraordinary expenses, as risks are considered market hazards.
2) Review the current business model for the West to see if its current design is underused or below expectations or market potential.
3) Create a more innovative culture. Since the market is not yet mature, taking certain risks is a luxury the company can still afford.