“Probably a lot of stress, right? This is the opportunity to make money for all concerned, right? This is the opportunity where you can clean up for the year,” he says Martin Lariviereprofessor of business at Kellogg.
In this episode of The Insightful Leader, we put on our rose-colored glasses to appreciate the long journey of the flower in our bouquets.
Podcast transcription
Laura Pavin: Hi everyone! Valentine’s Day is upon us, and so are the roses. Roses that we will either give, receive or simply see… everywhere. So we thought it wise to rerun a podcast we did about how all those roses get here in the US of A. Because it’s an impressive logistical feat!
You will hear it today.
Two quick notes: this episode is from 2019, so the invoices weren’t in the picture yet, but, in general, the mechanics of the system and how it moves and behaves haven’t really changed. So know that.
Second, and finally: Jess Love, its former editor-in-chief Kellogg Insightshe hosted this episode, so you’ll hear from her today. Well; I’ll let her take it from here!
…
Jess Love: As you might guess, every February 14th, there is a sudden huge surge in demand for flowers, and not just any flowers.
Martin LaRiviere: You might be content with sending whatever bouquet of flowers looks good to your mom for Mother’s Day, but for Valentine’s Day, go with roses. Nobody sends carnations on Valentine’s Day.
LOVE: This is Martin Lariviere. He is professor of surgery at Kellogg. Most of us think of Valentine’s Day as the day of love or the day of romance, but for those responsible for getting those roses from the field and into the hands of consumers, from the growers who grow the roses to the companies that ship them to the retailers that sell them, this holiday has a much different meaning.
JAKE SMITH: What could they say is Valentine’s Day?
LARIVIERE: Probably a lot of stress, right? This is the chance to make money for all concerned, right? This is the opportunity where you can clean up for the year.
LOVE: But for this lucrative love story to have a happy ending, everything has to go right.
Welcome to the Kellogg Insight Podcast. I’m your host, Jessica Love — nothing to do with the holidays. Today on the podcast, what does Valentine’s Day look like from the other side of the florist’s counter? As Martin Lariviere tells us, the humble rose can teach us a lot about what happens in a functional supply chain and the many ways it can go wrong.
The thorniest problem for those in the rose industry is how to match supply with demand. You see, it takes at least two years for them to produce roses that are ripe enough to be cut and sold. This means that years ago, growers had to bet how many roses people would buy this year.
And if that guess is wrong, there’s nothing anyone can do. It is too late to produce more roses or reduce production if they produce too many.
LARIVIERE: You see this in other markets. You see this, for example, with Christmas tree farms. You can predict that next year will be a great year for selling Christmas trees, and having this information a year in advance will do you no good. You can’t act on it because you can’t get the product ready soon enough. Roses are similar. And throw on top of that the general uncertainty you have about what the weather is going to be like and things like that.
LOVE: Things are also hard to predict on the demand side. First, consumer tastes for roses can really change a lot from year to year. For example, when Valentine’s Day falls on a weekend, people tend to buy fewer roses than when it’s a weekday.
LARIVIERE: Flowers tend to be a last minute purchase. You might decide in January first that you’re going to spring for Valentine’s Day flowers, but you won’t be ordering them six weeks out. You order them much closer to the holidays or stop in. And so you end up having more unpredictability of exactly what the sales are going to be.
LOVE: Both growers and retailers do their best to project how many roses they are likely to sell. For example, if they know Valentine’s Day falls on a Thursday, they might look at how much they sold in previous years when it fell on a Thursday, as well as general market trends and what competitors are doing.
But at the end of the day, it’s never a perfect science.
LARIVIERE: It is not true that you can guarantee that you have enough supply or, on the other hand, enough demand.
LOVE: Another big challenge: the flowers have to arrive at the florist looking and smelling fresh. This is difficult since most of the flowers we buy in the US are actually grown in Ecuador, Colombia, and roses are plants, meaning they must be transported like plants.
LARIVIERE: The same technologies that make it possible to buy asparagus in February are what allow you to get flowers in February.
LOVE: That is, cold storage technology. At every step of the supply chain, roses must be kept just above freezing to stay fresh. This means they need to be around 34 degrees when they are packed at the farm, when they travel abroad, when they are inspected by customs and in the truck on the way to the florist.
If the roses get too hot or too cold at any point in this chain, they could wilt, making them bare. And of course, all that cooling costs a lot of money. So you might be wondering, wouldn’t it be cheaper to just grow roses locally? Lariviere says, probably not.
LARIVIERE: If you consider what the demand for flowers will be in Cook County, how many greenhouses do you need to be able to keep Cook County happy with roses? And do you want to pay to heat greenhouses in February in Chicago? It’s not going to come cheap.
LOVE: That’s how South America is. And there’s really only one place to get roses from abroad into the United States.
REPORTER: More flowers and people touch Miami International Airport.
LOVE: It turns out that nearly 90 percent of all flowers entering the U.S. go through Miami airport. But why Miami? After all, there are many US airports just as close to South America. The word actually belongs to the people.
As Lariviere explains, flowers are usually carried on the same planes as passengers.
LARIVIERE: Airlines that have regularly scheduled flights between Latin America and the US sell the extra space for cargo, and that’s where most of the flowers go during the year. Miami has historically been a hub for travel to Latin America. So if you have a lot of flights from Ecuador or Colombia, a lot of flowers will come from there.
LOVE: As a result, Miami has become very good at handling flowers and other products. They have a cold storage facility the size of five basketball courts and several customs officers who are trained to handle agricultural products. But this specialty can be a double-edged sword.
LARIVIERE: If a particular port of entry carries an unusual portion of a branch, there is a risk of some sort of outage. If Valentine’s Day fell in September and there was a chance a hurricane would shut down Miami for a week, you risk not getting your supply.
You could serve through more ports than just one, but if you have to plan for a peak, if you have to plan to be able to serve Valentine’s Day or Mother’s Day, it’s much harder to replicate that kind of capacity across the country. There’s only reason to do it once, and it just so happens to be in Miami.
LOVE: Eventually, of course, the roses end up at retailers who fill them into beautiful bouquets and prepare them for customers. And you might think that at this point the retailer’s profits are all but guaranteed. But it is not so.
In order to unlock the full profit potential of Valentine’s Day, there’s still one critical question retailers must answer: How much should they charge for a rose?
This is difficult because on Valentine’s Day, the wholesale price of roses nearly doubles in many markets. So how much of these costs should retailers pass on to consumers? Lariviere says it depends on the retailer.
LARIVIERE: If you’re a Costco or a supermarket, flowers are kind of a bargain, so you don’t raise the prices too much. On the other hand, if you are an independent florist, this is the family business. Charging high prices for roses on Valentine’s Day is one way to pay the rent.
LOVE: But like everything in this delicate supply chain dance, pricing also requires a careful balance. Even though the rose may be the undisputed symbol of love.
LARIVIERE: Is there a price point at which you wouldn’t buy roses for your significant other? You just face the hell of going home empty handed.
[CREDITS]
LOVE: This program was produced by Kevin Bailey, Jessica Love, Rich Maltz, Jake Smith, Michael Spikes and Emily Stone. Written by Jake Smith and edited by Michael Spikes. Special thanks to Martin Lariviere.
