A Flower Crusade That's Going Nowhere
By William Echikson
It's 7 a.m. on a Friday morning, and cart after cart of roses, tulips, geraniums, and dozens of other varieties of flowers are being wheeled into a large room. Dozens of buyers sit behind rows of desks, judging the blooms, banging away at calculators, and pressing purchase buttons. By the end of the morning, they will have bought some 19 million flowers and filled fleets of trucks and airplanes ready to race off around the world. This is the Aalsmeer Flower Auction, located in a suburb south of Amsterdam. It's the world's largest and most famous flower market.
Gijs Pol watches the auction unfold, scenting opportunity. Pol is a Dutch software entrepreneur who wants to wield the Web to streamline flower distribution. Under the present auction system, middlemen and markups triple the price of a blossom before it reaches the final customer. And yet, five years after Pol started his crusade, few flowers are sold online. The problem: Incumbents don't want to jeopardize their entrenched interests by dealing with an upstart prattling on about the Internet. "I've learned to preach evolution, not revolution," says a chastened Pol.
The foot-dragging is a problem Net-savvy entrepreneurs across Europe are learning about the hard way. European online marketplaces--Web sites that allow companies in an industry to buy and trade goods and services--are encountering many of the same obstacles as their U.S. counterparts: difficulty raising financing and resistance from established players. Here in Europe, they face an extra problem--the heavy shackles of tradition. In recent months, Britain-based webfreight, pulpandpaper.net, and worldoffruit.com have all gone bust. Only 100 of the 500 e-marketplaces running in Europe today are likely to survive, say researchers at Jupiter MMXI. "2001 won't be a good year for European exchanges," says Jupiter analyst James MacAonghus.
"THIS IS CRAZY." And yet, if any industry seems ripe for an e-marketplace, it would be flowers. Consider the path a bouquet of red roses takes on its way from a grower in Kenya to a wedding in Rome: A jet flies the flowers from Africa to Amsterdam, where they're auctioned to an exporter. The exporter ships them by truck to a wholesaler in Italy, who sells the blooms to a florist. By the time the roses reach the reception, the process has taken a quarter of their month-long lifespan, and the price has grown threefold. "If you look at all the players involved, all you can think is: `This is crazy,"' groans Pol, who has been struggling to build an e-marketplace linking the various players in the flower industry.
And if anyone can transform the tradition-bound business, it will be a Dutchman like Pol. The Dutch have dominated the world flower trade since the 16th century, when frantic speculation in tulip bulbs caused prices to balloon and then crash in a striking precedent to last year's Internet bubble. Today, some two-thirds of the world's flowers are either grown or traded in the Netherlands, generating a total of $5 billion a year for the Dutch.
Flower auctions date from about a century ago, when the Aalsmeer growers banded together and formed a cooperative auction. Until then, buyers would play one off against another, driving down prices. The first sale was held in the town's Café Welkom. Flower consumption began soaring after World War II, particularly in Europe; here it's still common to buy a bouquet a week, and the European Union accounts for three-quarters of the total world flower trade. Not surprisingly, the Aalsmeer auction, still a cooperative, has grown steadily, merging with a competitor in 1972, until today it brings together 7,000 commercial growers and 1,700 buyers. Turnover last year reached $1.8 billion. Aalsmeer and two smaller Dutch flower auctions sell 95% of the country's total.
To Pol, this looked uncomfortably like a cartel. Five years ago, he led a revolt by African growers that shook the cozy Dutch flower trade. The Africans were furious because auction houses in the Netherlands tried to slap a 20% surcharge on non-Dutch flowers. Pol ran two companies in the Netherlands, one that supplied bidding systems to auction houses and another that sold inventory software to flower buyers and wholesalers.
The Africans hired him to develop a computerized system allowing buyers to see pictures of flowers and purchase them online. It worked. But the Aalsmeer authorities tried to ground it by imposing a 20% handling fee. The Africans sued. After a few weeks, the European Court of Justice in Luxembourg ruled in their favor. "Gijs really showed that technology could change this market," recalls Rein Kielstra, the upstart system's managing director. Today, the alternative Tele Flower auction for African flowers does about $75 million a year in business and is growing at 15% a year. There's only one catch: The system is off the open Net and is limited to 100 or so top buyers hooked into Tele Flower's private system.
Pol thought he could do far more by tapping the power of the Net. But he didn't have the resources to go it alone. So in 1999, he sold his companies for $5.5 million to Aucxis Corp., a Toronto outfit, and stayed on to run its Dutch flower operations. Aucxis already had developed Internet auction software for food industries, cutting out middlemen and facilitating sales of surplus inventory. "When you look at markets for all types of perishable goods, they are all fragmented, waiting to be improved by the Internet," says Dan McKenzie, Aucxis' CEO.
Originally, Aucxis had envisioned a direct sales model. Instead of cutting flowers in Kenya, flying them to auction in the Netherlands, and then trucking them to Italy, flowers still in the ground would be sold to consumers and delivered directly to Rome, ensuring lower prices and longer-lasting blooms. Pol soon realized that wouldn't work. "You have to cut flowers when they're in bloom, not just when they're ordered," he says. And shipping the millions of stems in bouquets directly to customers would be ridiculously expensive.
Pol convinced his new bosses that the best tactic was to keep the present distribution chain but use the Net to streamline it. Instead of sending all their flowers to Dutch auction houses, growers would post pictures on a Web site, and buyers could bid from their offices. Only after flowers had been sold would they move through the Netherlands. "Amsterdam is a central place in Europe to distribute flowers, but the buying and selling doesn't have to be done here," Pol argues.
NO THANKS. That's the theory. But so far, interest is scant. Even though about half of Dutch buyers already use Pol's software to manage their operations, few have signed up for online auctions. Arranging credit at various auctions--necessary for selling online--has proven time-consuming and costly. And many say the clubby atmosphere of Aalsmeer provides them with more security than an open-Internet system could. "It's a good idea, but I'm not sure I would get paid," says Arjan van Veen, a buyer at midsize company A. De Boer. Pol today spends most of his time in banks working out ways to offer buyers a single line of credit, foreign exchange, and insurance. Meanwhile, the auction houses say they will go online only if enough buyers demand it. So far, they have refused to buy Pol's software.
Growers aren't much more eager. Pol has signed up only one who is willing to sell directly online to wholesalers. Similarly, small florists still prefer the traditional system. Peter Stockman, who owns a shop in Aalsmeer, says few of his countrymen buy flowers online, preferring to choose bouquets in person. And he still buys through a wholesaler who purchases blooms at the auction. "I want to go and see and feel the produce," Stockman says.
In his office, a dismayed Pol laments: "You see what I am up against." Until such attitudes change, it seems Europe's flower industry won't see online trading blossom anytime soon.
Echikson covers the Internet from Brussels.
Edited by George Foy