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SAFEC Market Research Opportunities in Asia and the Middle East markets

for South African Cut Flowers

4th October 2013

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Purpose of this presentation

This presentation summarises the key findings of market research undertaken in:

the UAE Russia Thailand India

additional research was also conducted in the Netherlands to fully understand the role

of the flower auctions in re exports and the impact on the selected research markets.

Work was undertaken in July and August 2013 and involved both desk and in market

research.

These findings identify the opportunities to develop and deliver a promotional campaign within these markets for South African cut flowers – particularly proteas.

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Summary Points

A marketing/promotional campaign is justified in:

Russia & the UAE

There is low level trade in imported flowers in India (due to high domestic production volumes).

Thailand is a significant flower exporter, but imports are totally dominated by China and other SE Asian based suppliers – neither the NL or Kenya are active in the market and SA has no track record of supply.

Russia offers opportunities for both direct sales and via the NL To develop the market, a two tier campaign is proposed:

in the NL auction – with the trade (posters, advertisements, website etc). in market – importers, wholesalers and consumers (posters, advertisements, website

and attendance at trade shows). The UAE offers potential for both SA chrysanthemums and proteas, however further

development is required to improve the quality (of chrysanthemums) and to develop an fuller AYR supply.

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Import volume of fresh cut flowers, 2001 - 2011

Imports of cut flowers have grown in all of the research markets.

In 2011, Russia imported the highest volume of cut flowers – just over 60,000 tonnes, an increase of 288% from 2001’s import volumes.

Thailand’s imports grew by 7,856 tonnes between 2001 and 2011, reaching just over 9,000 tonnes in 2011.

Imports into the UAE increased by 168% between 2001 and 2011, reaching 3,862 tonnes in 2011.

India’s imports were the lowest - and totalled 520 tonnes in 2011, however this is from a starting level of just 1 tonne in 2001.

Source: UNCT & Promar estimates

NOTE: HS Code accessed - Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage // Cut flowers and flower buds of a kind suitable for bouquets or for ornamental purposes, fresh, dried, dyed, bleached, impregnated or otherwise prepared. However dried cut flowers have been removed from this data set.

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Russia Thailand UAE India

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Imports of cut flowers, 2001 and 2011

2001 2011

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Import volume of other cut flowers, 2007 - 2011

No specific HS code exists for proteas, instead they fall under code (060319 - Cut flowers & flower buds of a kind suitable for bouquets/ornamental purposes excluding roses and chrysanthemums).

Russia imported the largest volume of other

cut flowers – 10,692 tonnes in 2011, an increase of 16% between 2007 and 2011.

Thailand’s imports have grown by 81% in this time period, rising from 3,760 tonnes in 2007 to 6,796 tonnes in 2011.

The UAE has grown by 16% within the reporting period, increasing from 979 tonnes to 1,294 tonnes in 2011.

India has seen the highest % growth, increasing by 181% between 2007 and 2011 but rising from just 28 to still only 79 tonnes in 2011.

Source: UNCT and Promar estimates

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Russia Thailand UAE India

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Other cut flower imports, 2007 - 2011

2007 2011

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Key Findings – UAE

In terms of volume, the cut flower market is primarily made up of largely commodity products such as roses and chrysanthemums. Other products traded include gypsophilia, lilies, hydrangea and orchids.

Cut flowers are mainly used in decoration (hotels, weddings, events, government buildings), second as gifts, and thirdly for personal use (via retailers).

This market is still underdeveloped in terms of the offering of cut flowers via retail outlets – this is however developing and growing.

Wholesale operators dictate events in this market - there is no ‘formal’ auction market, but wholesalers/importers will trade with one another.

There is diverse competition from the likes of Kenya, Holland, Egypt, Malaysia, Ethiopia, and Thailand. Importers will either go straight to the source for flowers or buy on the Dutch auction.

Holland is important - they are very strong suppliers, the quality is good & they provide an assortment of flowers and smaller volumes.

The most popular colours are red (50%), white (25%) and mixed (25%).

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Key Findings – UAE (continued)

SA is known for the supply of chrysanthemums, proteas and greenery (fillers).

Proteas are used – through all channels (retail, wholesale, and hospitality). It is recognised

as a hardy product, with a positive vase life and the overall response regarding the quality of the SA protea is very positive.

Proteas are viewed as a niche product (tropical) - and therefore volumes are minimal.

Importers/wholesalers report that the SA season is short and are looking for more variety

and fuller AYR supply – they would encourage the SA sector to develop this. Australia and NZ are competitors of the SA protea. The quality is competitive with SA, but

high logistic costs act as a barrier – this is a strength of the SA sector – competitive logistics costs and shorter travel time.

In terms of SA chrysanthemums - quality is good and is generally better than Malaysia and Ecuador. However, SA varietal development is believed to be limited.

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Promotional Activities – UAE

Very little promotions are carried out by SA competitors (apart from attending trade

shows).

Customers/florists are not knowledgeable regarding ‘speciality/niche’ products, and they require further information regarding these products.

Importers/wholesalers acknowledge that more could be done to promote SA specialities. This could range from: Attendance at trade shows would raise the awareness of SA flowers.

Providing knowledge and demonstrations to event organisers/florists illustrating how to

use proteas. This would also help to raise the profile of the SA flower sector.

Importers, however query the success of a large promotional SA campaign, particularly as proteas are only in the market for a short period of time.

Some florists and importers that source from the Netherlands use a flower directory from the Flower Council of Holland.

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A florist display in a shopping mall (above)

and left, a flower display in a retail outlet

(Spinney’s)

Above: A selection of cut flowers for sale, florist.

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Example of imported flower packaging (flowers have been imported from Holland to the Dubai

Flower Centre)

An arrangement for display in the public sector.

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Key Findings – INDIA

India is among the world’s largest producer - cut flower production in 2012, reached 75.4 million tonnes.

Imported cut flowers are a fairly small sector in comparison with just 830 tonnes imported in 2012.

Thailand is the dominant supplier. In 2012, it accounted for 80% of the total market, supplying 660 tonnes. The large majority of these imports are orchids.

China and the Netherlands have been other consistent suppliers, albeit with low volumes, of 40 tonnes and 20 tonnes respectively in 2012.

There is virtually nil import activity in regards to cut flowers such as chrysanthemums

and proteas. Imported flowers are mainly purchased by middle/upper class consumers for social

occasions, such as decorations for weddings, grand parties and religious festivals.

Large hotels (typically 5 Star) also purchase imported flowers for floral displays in lobbies and meeting rooms.

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Key Findings – INDIA (continued)

Cut flowers are not sold in modern supermarket retailers - instead the selling of cut flowers to end consumers is focused in two key areas: florists and traditional road side sellers.

There are a large number of modern retail florists across the country, with over 140 in Bangalore alone. These will typically have dedicated websites.

Imported proteas are available in India, but it is a very niche and low volume market.

A number of different varieties can be found for sale, but knowledge is still lacking, with colours used as differentiation, rather than varietal names.

The most commonly imported proteas are Banksia, Telopia, Leucadendron, and

Leucospermum.

Proteas are good for decorations, because they have a long shelf life and stand out from the domestic flowers often used:

“For proteas, a shelf life of 10 – 15 days is crucial due to their high cost”.

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Key Findings – INDIA (continued)

Although often supplied from the Netherlands, these were also being sourced from other

destinations, such as NZ, Australia (and SA):

“The proteas we purchase from the Netherlands are of a high quality as they source them from a number of other destinations, like Australia and NZ.”

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Promotional Activities – INDIA

Some promotional material (posters and a flower directory) from the Flower Council of Holland was seen during trade visits in the west of the country, particularly in Pune.

“No promotional activities are undertaken in this market, unless done so by a florist at their own cost. We have our own in house promotions, but this is not supported by any

external sources or countries.”

As well as the directory, large posters with all available varieties would be displayed.

This allowed end consumers to browse the images and select which ones they wanted to purchase.

As imported flowers, outside of orchids, hold such a small % of the market, promotional activities are not common.

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Promotional Activities – INDIA Floral decorations being made at a local market in Kolkata. The wholesale flower market at Kolkata.

Left: Typical wedding flower decorations surrounding the bride and groom. Visual appearance and smell is very important.

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A covered market in Kolkata where floral decorations are constructed and sold to locals.


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Examples of floral decorations sold in modern retail florists in India


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Key Findings - RUSSIA

In 2012, Russia was the fourth largest importer of cut flowers, behind Germany, the Netherlands, and the UK.

Russia produces relatively small quantities of flowers & the market is nearly totally reliant on imports.

Nearly all the Russian imports come via the Netherlands.

Exact volumes of imports can be difficult to estimate, due to the high percentage of re-exports from the NL and the high volume of trade entering through the grey market – maybe as much as 40%.

Roses are the most developed product.

Carnations and chrysanthemums are also well developed, due to bouquets being popular with customers.

Exotic flowers (including proteas) are at a very early stage of market development.

Orchids are popular, but supply is dominated by Thailand. Other exotic flowers have irregular demand, and are viewed by importers and wholesalers as being erratic in terms of supply

Flower purchasing is the strongest in major cities, particularly Moscow and St. Petersburg.

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Key Findings – RUSSIA (continued)

Flowers are mainly purchased for special occasions, and only as gifts for others.

Unlike the European market, flowers are not typically often bought for decoration in the home.

Purchasing of exotic flowers, such as orchids is undertaken directly, evident in the high

imports from Thailand – and this is on the increase.

Longer stemmed flowers sell best in Russia, and this is the case as well for proteas.

Proteas have a 10 – 15 day vase life - this is a problem in the Russian market, as the transport time can be quite lengthy.

The Netherlands views of SA proteas – very high quality, with all the varieties which they need being available.

However, SA is very expensive, and the importing of them to Holland and then shipping on to another country increases the end cost.

This is too high for many customers in some areas of Russia.

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Key Findings – RUSSIA (continued)

Some respondents import some proteas from Ecuador.

they acknowledge that there are not as many varieties available when compared with

SA, but proteas can be bought in mixed loads with other flowers such as roses, reducing the cost.

it is more cost efficient to import flowers from Ecuador via the Netherlands, than

directly to Russia.

Customers purchase flowers through florists, chained kiosks, and some supermarkets.

Retail outlets, will buy an assortment of flowers in bunches before arranging into bouquets.

Wholesale markets are used by the smaller florists and kiosks.

Larger, and more specialised stores, such as supermarkets and large florists, work directly with importers.

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Promotional Activities – RUSSIA

Advertising is widely carried out - including the participation of trade shows, websites, direct marketing, along with outdoor and in-store advertising.

Wholesalers and importers will carry out marketing targeted at retailers and florists. The cost of this is often shared, or the cost of flowers reduced as a promotion.

The Netherlands is very strong in providing promotional materials, providing information on flower varieties and seasonal availability.

Flora Russia is a large, international three day trade show - however, 90% of exhibitors are rose producers.

Russian importers used Ecuador as a good example for the use of the internet. Importers preferred the way in which ordering could be done on-line.

To have the most impact, information should be produced for both the Russian and the NL markets.

The Russian exotics market is very new, and so trade education is needed & it will be a market of slow growth.

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Dutch Flower Lorry Dutch Flower Auction

Bottom left and right: Examples of branded packaging.

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Florist flower display

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Key Findings -THAILAND

Imports of cut flowers are modest at just over 9,000 tonnes per annum plus c. 6,000 tonnes of “other flowers”

This volume has grown, however, from c. 1,000 tonnes just 10 years ago.

The culture of using artificial flowers is strong - and they can be 50 – 70 % cheaper than fresh flowers.

Thailand has developed a substantial export business for flowers over the years, especially for orchids to other Asian markets, the EU and US.

Imports are totally dominated by supplies from the likes of China and Malaysia - c. 90% between them.

Both these countries supply Thailand on the basis of acceptable quality and highly competitive prices.

There is also some ad hoc trade from other Asian based suppliers, such as Vietnam and Indonesia.

The NL has almost withdrawn from the market & Kenyan exports (to Thailand) have never really got off the ground.

SA flower exports are just about unheard of - there is no track record of supply and/or accurate knowledge of the SA floricultural sector is just about zero.

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Key Findings –THAILAND (continued)

Flowers are a strong part of the Thailand culture - especially for religious festivals and occasions.

All imports in Thailand are traded through the main wholesale market based at Pakklongtalad Road.

There are c. 10 importers/wholesalers based there.

Trucks tpyically arrive from China every 2/3 days and loads are shared by importers.

Imported flowers are mainly distributed to independent florist shops – seldom to hotels and/or modern retailers.

Modern retailers such as Tesco/Lotus & Big C are hardly involved in the flower sector, but this will change in the future.

SA flowers are virtually unheard of in Thailand.

Proteas have only been seen by the most experienced of Thai traders – this is rare.

With no commercial knowledge of how the SA flower sector works – views of how it might be structured etc are highly varied.

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Promotional Activities – THAILAND

The concept of promotions for the cut flower and floricultural sector in Thailand is poorly developed.

There is almost no promotional activity at the POS - be it in modern retailers and/or specialist florist shops with the exception of occasional price discounts.

Some high class (florists) might offer some floristry type classes.

Some international hotels might a “Flower Week” - but these will be locally based.

Chinese and other Asian traders visit the market from time to time - but these are B2B type activities.

Kenyan growers and exporters did visit - but this was a few years ago and no real trade developed as a result – we assume this was organised by the likes of the Kenyan Flower Council and Fresh Produce Export Association of Kenya.

Netherlands based traders seldom visit the Thai market and are of an ad hoc basis.

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Right: Supermarket on

Siam Paragron

Right: Tesco Lotus

Below: Big C

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Promotional activities proposed & next steps

Market Activities Justification

UAE

Very little promotion, if any, is delivered Attendance/exhibitor at trade shows

should be encouraged.

Shows include Hortifare (5th – 8th November 2013, Holland), WOP (17th – 19th November 2013, Dubai) and IPM (28th – 31st January 2014, Germany).

Providing knowledge and demonstrations

to event organisers/florists showing how best to use proteas.

Promotions (posters, articles in trade publications, advertisements in the flower directory) could be undertaken directly in the UAE and the Netherlands.

To educate customers/florists regarding ‘speciality/niche’ products.

To raise awareness of SA flowers.

To present the versatility of the protea flower and its hardiness in hot climates.

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India

This market is mostly served by the

domestic market, therefore very little international promotional activity is seen in this market.

Possible grower/export visits - inward and outward in the future

Advertisements in the directory from the Flower Council of Holland.

As well as the directory, large posters with all available SA varieties will help consumers select flowers they would like to purchase.

Small import volumes will

arrive from the NL auction.

Without spending direct in this market, promotions in Holland (on the back of other research markets) will also benefit SA exporters in the Indian market.

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Russia Promotion in the NL market (flower auction) as well as direct in Russia is required.

Promotional activity should include: Attendance at the main trade show

(Flora Russia). Development of SA flower website. Direct marketing – posters and in-

store advertising (direct to retail/importer and wholesaler).

Information should be provided on

flower varieties and seasonal availability.

Flora Russia is a large, international three day trade show, enabling producers from all around the world to meet with importers and other businesses.

This will provide SA exporters with the opportunity to explore this market and identify key players.

The Russian exotics market is very new, and so trade education is needed, it will be a market of slow growth.

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Thailand Inward trade mission to SA for a small group for Thai flower importers/wholesalers - and even exporters – development of any trade with Thailand for flowers probably has to be a two way thing.

Follow up with small scale trial shipments as might be appropriate.

Small scale promotional work maybe in market - but difficult to justify at this stage – maybe with other SA products

Attend trade fairs such as HORTI Asia -but which are not dedicated flower trade events. Other new trade shows for horticulture are being planned for 2014.

There is almost zero knowledge of SA as a flower supplier to Thailand - what is “known” is often incorrect.

SA flower exports to this market are starting from scratch.

The promotional culture in the Thai domestic market is not at all well developed.

There is only very modest activity taking place in the market vis a vis promotion.

This might change as modern retailers become more involved in this sector.

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