Flower retailing, largely dependent on discretionary spending, faces a tough outlook, but is fighting back with more offerings and easier access. By JASON BAKER of IBISWorld.
By Jason Baker
The $472 million flower retailing industry is facing increasing competition from supermarkets, greengrocers and online flower sellers. But the industry will continue to grow with discretionary spending and operators starting to offer a wider array of gift products such as wine, chocolates and soft toys.
Recent Industry Performance
IBISWorld estimates the industry has grown 3.1% on average annually over the past five years.
In 2003-04 revenue increased as income tax cuts, family tax benefits and maternity payments also helped to boost consumer spending. The following year industry growth was crimped by an increase in internet connections and higher online sales.
Since then revenue has continued to grow in line with increased disposable income and increased demand for high quality arrangements enabling some price gains, although it has been affected by growing competition from supermarkets and internet florists.
Industry employment levels are expected to decline over the five years to 2006-07.
The level of skills and knowledge required of staff in the industry has been rising, along with the increasingly competitive flowers market.
The industry is highly fragmented, with most enterprises only owning one establishment (shop front). However, most participants benefit from membership of Interflora, giving them greater marketing power due to affiliation with the trusted brand and home delivery sales generated by Interflora advertising.
The number of both industry enterprises and establishments is expected to decline.
IBISWorld forecast that this industry will grow at an average rate of 2.1% a year over the five years to 2011-12.
Per capita expenditure on flowers is likely to increase, albeit slowly, the result of increased per capita incomes, increased product promotion and changing lifestyles, which will see a reduction in home-grown flowers.
However florists will continue to lose market share to operators outside the industry and revenue will grow at a moderate rate.
The product profile of the industry will continue to gradually change as operators offer a wider array of gift products. Changing fashion expectations and the increasing sophistication of consumers will also influence the industry’s product profile.
Further developments in internet technology and e-commerce will also serve to gradually change the profile of the industry as operators increasingly embrace this new business medium.
The key sensitivities affecting the performance of the fower retailing industry include:
Age group: IBISWorld estimates that the 50-plus age group spend more on flowers than younger age groups, given consumers in the cohort have a great preference for using flowers for home decoration. Therefore the ageing population will have a positive effect on the industry.
Consumer sentiment index: The consumer sentiment index is positively related to the proportion of disposable income spent on goods and services, including cut flowers.
Level of annual rainfall: High rainfall improves supply of flowers, contributing to lower prices and a better quality range of blooms. In turn, this contributes to higher demand for cut flowers.
Real household disposable income: This variable is a key determinant of demand, expenditure on flowers tending to be highly discretionary and income-elastic.
Key success factors for operators in the industry
- Ability to effectively communicate and negotiate. An ability to work well with suppliers, to understand how they work, and to be able to plan ahead.
- Superior financial management and debt management. Cash flow management skills.
- Attractive product presentation. Good shop front presentation that will encourage customers to purchase.
- Membership of joint marketing/distribution operations. It is advisable to belong to an international order agent, such as Interflora, as they can generate additional business.
- Proximity to key markets. Location – the store requires a high level of passing traffic. It may also be beneficial to be located near hospitals, where purchasing of get-well gifts will be concentrated.
- Having marketing expertise. Marketing skills, and a strong base of local contacts.
- Having a good reputation. Reputation for quality, as word-of-mouth recommendations play a very important role and this relates to the quality of the product, the cost and the service provided.
- Qualified work force. Skilled and qualified staff.
IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au