What are the biggest challenges you face each day? For wholesalers, answering this question might feel like choosing your least favorite child. Or, as the common saying in Iceland goes, “If you don’t like the weather, just wait five minutes.” In other words, the obstacles confronting wholesalers today are numerous and change constantly. One steady challenge for wholesalers is managing their supply chain. Who are the right partners? How do I manage risk? What’s the most efficient way to secure product and still have enough time to turn around and sell it? For many, vertical integration has been the solution.
Introduction: Becoming Your Own Supplier
For those unfamiliar with the concept, vertical integration is a business strategy where a company gains ownership or control over multiple stages of its production or supply chain. For years, Netflix operated as a DVD rental service; customers ordered online, and the DVDs were sent in paper sleeves. They acted as a distributor, paying for media rights to distribute movies and TV shows that appealed to consumers. Over time, they realized they could produce their own content. This shift gave them independence from Hollywood and network TV, allowing them to create content that best suited viewers at home and release it on their schedule. They no longer needed to negotiate with studios for distribution rights; instead, they negotiated directly with creative talent to produce exclusive content, giving them an edge over other streamers.
In other words, the distributor takes control of manufacturing the product it offers to its customers. We have seen this in our industry, where wholesalers with growing on-site operations can control quality and supply, offering their customers exclusive products they can’t get elsewhere. We’ve also observed retailers starting and running their own wholesalers, enabling them to work directly with farms to secure the products they want to sell to the final consumer. Like Netflix, they haven’t eliminated other suppliers; instead, they’ve expanded their offerings with products they can better control.
Controlling Distribution
Like a river, vertical integration can move both upstream and downstream. Let’s focus on Apple. Since its inception, Apple has made computers, iPods, and more recently, iPhones and tablets. Initially, they relied on third-party distributors to sell their products in stores. Steve Jobs sought greater control over product distribution, leading to the opening of the first two Apple stores in 2001. They trained employees to be experts on Apple products and designed modern stores to improve customer experience. Today, you can find Apple stores in most major cities, and they often serve as the main attraction in the malls where they are located.
Recently, some grower and importer groups have begun purchasing wholesale florists. Like Apple, these growers have greater control over their products’ distribution, marketing, and sales channels. Controlling distribution doesn’t have to be limiting; you can still find Apple products in many third-party stores. Most growers in our industry continue to sell their products to wholesalers outside of their vertically integrated chains.
Grabbing Logistics by the Horns
Vertical integration goes beyond production and distribution. Amazon is probably the most well-known example of vertical integration through logistics. They began by building fulfillment centers because third-party distributors couldn’t keep up with their demands. Then, they created a delivery network that allowed them to deliver products directly to customers. As they expanded, they started offering delivery services to third-party sellers, effectively becoming the distributor for their competitors. Today, Shipping With Amazon has grown so much that it now directly competes with UPS and FedEx.
As the flower industry evolves, we’ve seen both importers and wholesalers develop their own delivery services. Working with an importer that provides delivery encourages the wholesaler to do more business with that importer. The importer benefits from maintaining relationships across various channels for each customer. It becomes harder for another importer to step in and take some business away when they are closely connected.
Some wholesalers are also beginning to enter the logistics sector. Owning a delivery service allows them greater control over cut-off times and delivery schedules. Additionally, they can subcontract their trucks to competitors to help reduce their operational costs.
Challenges and Obstacles
There are many advantages to vertical integration at all levels of business, but it’s important to also consider the drawbacks and challenges, just like with any business strategy. Acquiring another company above or below you in the supply chain can involve significant costs. Additionally, there are time expenses related to onboarding the new team and integrating them into your company culture. Before and after the integration, it’s crucial to review all processes to ensure they are as efficient as possible. When an importer purchases a farm, they must confirm that the box size matches their freight consolidation needs and that the growing methods and quality standards meet their requirements.
Buying a wholesaler presents similar challenges. You will need to ensure the proper management structure is in place. Often, the building will require a substantial investment to modernize it. The truck fleet will also need updating. A wholesaler that partners with a farm may have to sacrifice some flexibility. It will need to balance offering products from the partner farm with those from other growers to maintain a diverse portfolio that customers depend on. There will also be compromises in decision-making. As an independent entity, you can adapt to new processes and strategies quickly. You have more control over who you sell to and when.
Finally, there’s the challenge of learning a new aspect of business. Starting a delivery service seems great in theory, but it is complex, even for an expert to manage, let alone someone new to that part of the business. You risk spreading yourself too thin and losing sight of your goals, values, and customer base, which initially made you successful.
Vertical Integration in Floral: Deeper Dive
This isn’t meant to discourage anyone from exploring vertical integration. If anything, pointing out the challenges only makes the success stories even more impressive. The Elite Flower Group is a prime example. Over the past ten years, they have absorbed several farm partners and some wholesale partners. They’ve also created their own logistics company, providing delivery services and freight consolidation to their customers and partners further along the supply chain.
I am also a proud member of another organization that has leveraged vertical integration: The Queen’s Flowers group. We have partnerships with nearly 50 farms in Colombia and Ecuador. Each farm in our group is expected to meet our standards for quality, consistency, and productivity. This is one of our greatest strengths: having over 40 farms use the same techniques to grow and the same software to report forecasts, which makes it easier to anticipate seasonal fluctuations.
You might ask, what’s in it for the farms? We have corporate offices in Chia, Medellín, and Quito that provide services for each farm. Hiring, acquiring materials, delivering to the airport, and many other functions are all handled by the central offices. This lets each farm focus on its most important task: growing flowers!
Another key advantage is the control we have over the entire logistics process. Our fleet of trucks picks up from each farm and delivers to our own coolers at the airport. There, we have our own services company that consolidates all deliveries onto the chartered flights with our airline partners. We build airplane pallets with our boxes, which are standardized across each farm. This ensures we can maximize each flight and precisely plan cargo loads. When the planes land in Miami, we have another services company that pulls them off the tarmac and delivers them to our buildings. Each of our cooler buildings is bonded, allowing us to clear customs inspections within our facilities. Again, our team is responsible for breaking down the pallets and placing them in racks. Finally, we have three teams responsible for different tasks: pulling orders, loading trucks, and distributing to our delivery partners all around Miami.
Having complete control over the logistics from farm to delivery allows us to maintain the cold chain in ways others simply can’t. Our teams are familiar with our box size, which means each truck is optimized for efficiency. Finally, these processes enable us to operate at a scale that would not be possible without the oversight provided by vertical integration. Our third main advantage is the large volume of flowers we can bring to market week after week and year after year. To paraphrase my dear friend Lenny Walker, this allows us to “feed the monster.”
Whether you’re a wholesaler looking to expand, or a grower considering closer customer ties, vertical integration offers an increasingly attractive path forward. The question is—where can you add value by taking control?
Daniel Varela
The Queen’s Flowers
