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Floral Wholesaling in Southern California : An

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Floral Wholesaling in Southern California : An Historic, archived document Do not assume content reflects current scientific knowledge, policies, or practices. 14 oG Floral Wholesaling Marketing Research Report No. 406 * UNITED STATES DEPARTMENT OF AGRICULTURE Agricultural Marketing Service Marketing Economics Research Division SEP I Washington, D.C. iron* PREFACE Greenhouse and nursery products are an important source of income for farmers in many areas. The U. S. Department of Agriculture has estimated that in 1959 farmers' total cash receipts from these products were $660 million. The present study is part of a "broad program of research aimed at improving marketing efficiency and expanding markets for farm products. The floral industry in southern California is in a unique position among the many agricultural and manufacturing industries in the area because it is among the last of the agricultural production industries, with high yield per acre and per unit of labor, to remain in a highly urban environment. This economic study of the southern California industry was undertaken be- cause (l) little was known about this colorful industry that provides a highly productive nonfood, nonfiber use for land and employment for many people; (2) the industry's products, especially some cut flowers, seem to be losing favor among consumers in competition with other products for consumers' dollars; (3) changes are taking place within the industry, but more rapid changes are needed to make the industry more responsive to changes in population, incomes, and consumer tastes; and (K) individuals and associations in the industry need such a study to assist in making important forward-looking decisions. A better understanding of the wholesaling organizations, practices, and trends, as de- veloped in this report, should aid this decision-making process. This report was prepared by the University of California at Los Angeles under contract with the U. S. Department of Agriculture. Most of the data in the report are for 1956, "but they are still applicable. The market organi- zation and marketing practices for floral products in southern California have not changed materially. Since this is believed to be the most comprehensive study ever made of the marketing of floral products it was considered desirable to publish the findings in considerable detail. ACKNOWLEDGMENTS Dr. Harry Kohl, Associate Professor of Floriculture and Ornamental Horti- culture, and Dr. Roy J. Smith, Professor of Agricultural Economics, University of California, Los Angeles, read early drafts and made pertinent suggestions for improving the analysis and presentation. Dr. D. B. DeLoach, Professor of Agricultural Economics and Agricultural Economist in the Experiment Station and Giannini Foundation, University of California, Los Angeles, assisted in planning and developing the study and contributed much to this report through his constructive comments and suggestions. June i960 HBB . CONTENTS Highlights Introduction 3 Purpose and scope of study 3 Procedures 3 Limitations of the data ij. Definition of terms 5 Classification of wholesalers 6 Classification by commodities handled 6 Classification by functions performed 6 Classification by location of business 6 Changing conditions in the southern California floral industry 9 Population and industrialization . 9 Income 9 Sales 9 The changing supply situation 11 Production 11 Imports 1^- The changing demand situation Ik Retail sales in southern California 15 Out-of-area sales l8 Government regulations affecting wholesaling 20 City regulations 20 County regulations 20 State regulations 21 Out-of-State regulations 22 The Los Angeles flower market 22 Purposes 23 Location 23 Facilities 23 Organization 25 Southern California Flower Growers, Inc 26 American Floral Exchange 26 Southern California Floral Association • 27 Size of wholesaling firms 30 Gross sales 30 Number of employees 30 Sales per labor unit 31 Continued-- . CONTENTS- -Continued Page Business characteristics related to size of firm 3I4- Long-range growth of wholesalers . 3I4- Seasonality of commodity sales 35 Length of time in lousiness . 37 Type of "business organization 38 Sources of supply and sales outlets 39 Sources and outlets by type of wholesaler kl Wholesaling methods and practices k-2 Location of sale » k2 Methods of sale > kk Methods of settlement ^+7 Pricing practices of wholesalers k-9 Price stability k-9 Price variations „ 51 Price risks 52 Wholesaling services . 52 Standardizing 52 Handling 5^ Transporting 55 Storing 56 Special services for "buyers 59 Communications between wholesalers and the trade 62 Wholesaling margins and costs 63 Gross margins 6k- Net margins 65 Operating expenses 66 Efficiency of floral wholesaling 67 Floral wholesaling in transition 69 Changes among sellers 69 Changes among "buyers 71 Changes in the market 73 Conclusions and recommendations 77 Literature cited 78 . FLORAL WHOLESALING IN SOUTHERN CALIFORNIA-- An Economic Analysis by Edward L. Rada l/ HIGHLIGHTS 1. The wholesale value of floral crops in southern California- -chiefly cut flowers, greens, and small potted plants- -amounted to $18 million in 1956 and was increasing at the rate of about 8 percent per year. Of this total, 88 percent was produced locally and 12 percent was imported; 68 percent was sold locally and 32 percent was sold out of the area. Sales out of the area were increasing more rapidly than local sales. About 75 percent of local sales to consumers were made through retail florists (mainly cut flowers ); 20 percent through other retailers (mainly potted plants); and about 5 percent directly by growers. 2. It was estimated that 350 wholesalers of floral products were in business in southern California in 195& and that 250 of these were cut-flower wholesalers. More- than 200 were growers who sold their own commodities at wholesale, chiefly on the Los Angeles flower market. In dollar value, more than 50 percent of all floral commodities were sold on this central market. A small number of large wholesalers- -mainly corporations and those offering more than limited commodity lines or limited wholesaling services—accounted for more than 75 percent of total sales in southern California. 3. Floral wholesaling in southern California was in transition. Several external forces were inducing changes in traditional methods of floral whole- saling: Growth and shifts in population and income distribution and use, competition of residential and industrial users with growers for land, and improved transportation and communication facilities. Internally, the main factors stimulating change were the increased technological efficiency and capacity within floral production firms, the shifting of production to areas more distant from the central market, the increased size of a declining number of retail florists, and fewer retail florists buying on the Los Angeles flower market h. Adjustments among wholesalers to the new conditions facing the indus- try were: (a) A decline in the number of cut-flower grower -wholesalers and in their share of total sales, (b ) rapid growth in number and size of commodity specialists selling foliage plants and the larger, more durable cut flowers such as gladiolus, carnations, stock, and chrysanthemums, (c) a greater increase in the number of buying specialists than of selling specialists, and (d) an increase in standing and telephone orders, with fewer traditional over-the- counter sales l/ Dr. Rada is Associate Professor of Family and Consumer Economics, Department of Home Economics, University of California, Los Angeles. - 1 5. The Los Angeles flower market -was the principal market for wholesaling floral products in southern California, especially for cut flowers and greens. The Southern California Floral Association regulated the use of market facili- ties and the eligibility of buyers with the authority and cooperation of the American Floral Exchange and the Southern California Flower Growers, Inc. The market wholesalers have adapted their operations to the needs and wishes of retail florists whose purchases on the market were diminishing in relative im- portance. Both groups, and individual members of both groups, tended to favor the maintenance of the status quo. 6. Trading on the Los Angeles market was limited to certain hours on 3 days a week. This market regulation and others tended to benefit the smaller, limited-line grower-wholesalers, commission wholesalers, and retail florists who favored the per son- to- per son, over-the-counter transactions. Enforcement of the market regulations, however, helped to (a) create a dual market--an early-morning, top-quality market on which routemen and shippers made their purchases and standing orders were reserved for retail florists, and a late- morning market patronized chiefly by nearby retailers buying on inspection and seeking price bargains; (b ) foster an imperfect, disorganized price-making market in which the more regular participants had an economic advantage; (c) perpetuate marketing practices that slowed down the flow of merchandise and encouraged excessive handling; (d) encourage the underutilization of labor, space, and other resources on the market; and (e) stimulate the entry and growth of wholesalers, chiefly cut-flower and potted-plant shippers off the Los Angeles market. 7- Wholesaling margins were estimated to be 25 percent of gross sales (ranging from l6 to 33 percent) as a weighted average for all wholesalers. The size of the margin was directly related to the type and number of wholesal- ing services performed. The profit
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