Spring flowers may be about to bloom, but gloom is the prevailing mood among flower retailers in Australia, according to business information analysts, IBISWorld.
While flower retailers’ revenue has steadily climbed over the past five years, industry profit levels have wilted in response to heightened competition for the precious discretionary dollar.
According to IBISWorld, revenue has grown at around 3.6% per annum over the last five years, while profit levels have declined from 4.7% in 2004 to 3.1% last financial year. In 2009/10, industry revenue is expected to grow by 1.2%, while IBISWorld predicts average annual revenue growth of around 3.2% over the next five years will bring the industry’s total revenue to $981.7 by June 2015.
IBISWorld figures reveal only half of the cut flowers sold by retailers in Australia are sold through the flower retailing industry, as other retailers such as supermarkets, internet shopfronts and convenience stores have increasingly attracted a greater share of the market.
As a result, of the total $1.7 billion retail value of cut flowers (arranged and unarranged) this financial year, flower retailers will generate revenue of $837.1 million.
IBISWorld General Manager (Australia), Mr Robert Bryant said: “It’s apparent that the flower retailing industry is in a decline phase of its life cycle, with falling establishment numbers and a lack of new markets. However, many of the operators in the industry have become internet traders – a path which represents an opportunity for a few successful suppliers, but a threat to many others.”
Mass market vs corner shop
Retail florists are experiencing rapidly rising competitive pressure from larger outlets now carrying flowers, such as service stations, supermarkets and convenience stores.
“Since these retailers usually operate at a lower price point, they’ve been able to gain a significant share of the local cut flower market, although they haven’t replaced specialist florists,” said Mr Bryant.
By world standards, our per capita spend on cut flowers is extremely low – particularly compared with European nations – however, florists here account for an estimated 40% to 50% of the total retail flower market, compared to just 25% in the US, where supermarkets and mass merchandisers dominate the market.
And although Australian supermarkets are heading in the same direction, Mr Bryant noted that florists in busy suburban shopping strips and shopping centres, particularly those located in more affluent areas, or targeting niche markets – such as the commercial or wedding sectors - have been able to survive, and thrive.
“The economic slowdown certainly prolonged the trend of flower consumers defecting to mass merchandisers, but over the next five years we can expect some specialist retailers to win back share of total flower sales,” anticipated Mr Bryant.
He said some increase in demand from the corporate sector would fuel this trend for inner city florists, while well-located shops providing quality products and exceptional customer service, and with close links to upstream suppliers, could find themselves in a strong position to grow their business once consumer confidence rebounds.
Diversification
In a bid to inject some blooms into their balance sheet, many florists have also diversified into the broader gifts and homewares market.
“A headwind the industry faces is the rising popularity of products other than flowers for special occasions,” explained Mr Bryant.
“For instance, many consumers prefer to give wine than flowers to friends; and ’pamper packs’ (including soaps and perfumes) are gaining in popularity for Mother’s Day – one of the flower retailing sector’s key events. What’s more, there’s a growing trend towards giving money to charity rather than sending funeral flowers.
“In its attempt to capture some of the lucrative gifts market, florists have expanded their product range to include chocolates, balloons, soft toys, pot plants and other gift items, although the bulk of their revenue is still derived from arrangements, gift bouquets and wreaths.”
Techno trends
Technological innovations, particularly the growing reliance on the internet, have had major implications for the floral industry, with many operators establishing online shopping facilities.
On a larger scale, IBISWorld cites the formation of internet florist affiliations, such as Florists.com, which allow florists to operate on both a national and international scale, as opposed to the traditional regional arrangements of the past.
“Overall, internet technology is hindering shop-front florists, due to greater competition from non-store internet florists,” said Mr Bryant.
“Further future developments in internet technology and e-commerce will gradually change the profile of the industry, as operators increasingly embrace this new business medium,” he added.
Upstream technological advancements in the flower growing industry, including an increased use of genetic engineering, will also have an impact on the segment’s long-term future.
According to IBISWorld, genetic engineering will be used to improve the life expectancy, colour and size of cut flowers, while advancements in drying technologies, quality and the ability to dye colours to a required colour will all increase – bringing an opportunity to boost profit margins.
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