Seeds of Change

It?s that all-important time of the year again for retail, and floral retailing is no exception. Traditionally, 30 percent of floral sales occur around the December holidays, according to industry data from the Alexandria, Va.-based Society of American Florists.

This year, the Washington, D.C.-based National Retail Federation predicts that improvements in key economic indicators ? retail sales, jobs and housing data ? will give way to increased holiday spending. And according to new research in a custom report compiled by London-based Euromonitor International for Produce Marketing Association (PMA), current estimates suggest overall U.S. floriculture sales could reach $38.5 billion by 2016. Gradually increasing disposable incomes and improved economic prospects support this optimistic trajectory. The potential has never been higher for industry players that can find and expand their place in floriculture.

While opportunities for growth appear in the floral forecast, Euromonitor?s findings nonetheless suggest that thriving may be a challenge. Consumer demand, combined with a handful of other critical factors examined in the study, will continue to shape the floral industry over the next few years. By gaining a better understanding of these critical factors, retailers and the entire floral industry can identify market norms and emerging conditions that could affect the supply chain, and thereby develop effective strategies to grow their floral businesses.

Recession?s Lingering Side Effects

Between 2008 and 2013, the U.S. annual disposable income per household was heavily influenced by the economic recession. Often considered nonessential purchases, flowers experienced a significant decline under strained consumer budgets. Floral sales were especially hit hard between 2008 and 2010.

The recession not only influenced topline sales, it also affected the overall floral industry landscape. A number of smaller players struggled to compete when the industry constricted, and were forced to close their businesses in the face of mounting debt and limited capital. At the same time, many mid- to large-size players started to consolidate. At the end of this period, the total number of producers, wholesalers and retailers was significantly smaller than in the five years prior.

Despite sluggish sales through 2011, higher growth has been seen in the past few years. The cut-floral market reached roughly $8 billion in 2013, and is set to grow by $700 million through 2016.

Yet even in the midst of an improving economy and a rise in consumer spending, many price-conscious behaviors persist among middle-class households. During the recession and ensuing years, many people adapted their spending to constrained budgets and made price consciousness a permanent consideration. This, combined with the U.S. Department of Agriculture?s recent projection that U.S. food price inflation will increase 2 percent to 3 percent in 2015, could continue to affect floral purchases as consumers pick food over flowers to meet grocery budgets. This rapidly changing consumer-spending environment will force the global floral industry to adapt its business practices, focusing on quality and efficiency.

e-Commerce and Evolving Distribution Channels

Where historically, florists represented the majority of cut-flower sales, an estimated 57 percent of these sales are now occurring in other channels. Supermarkets make up the bulk of these non-florist sales, with roughly 34 percent share of total cut-flower sales, a share expected to rise over the next few years. This shift is being driven in part by stronger direct relationships with producers that give leading supermarkets and mass merchandisers the ability to offer high-quality flowers at a lower cost and, in many cases, offer a wider variety. At the same time, these stores benefit from convenience-oriented positioning that?s increasingly important to a widening customer base that prefers to shop at one place for a range of different products.

Another critical change affecting demand is the rising importance of e-commerce, including the rapid growth of floral websites. There are a number of positive implications of this trend, among them increasing floral visibility among online consumers and making floral purchases convenient for potential shoppers in any location. While these dynamics can benefit the industry as whole, the growing importance of online floral sales is driving industry players to invest in e-commerce capabilities. Those companies able to invest in and leverage online sales to drive business will likely benefit from the substantial opportunities generated by an increasingly technology-dependent society.

Driving Consumer Demand

While the floriculture forecast appears promising, the industry?s future is subject to changing dynamics of the marketplace. It?s in the interest of all industry players to spur consumer demand, which requires individual businesses to understand the drivers behind consumer trends and adapt their marketing strategies accordingly.

The success of the industry can only be achieved by driving consumer demand through stronger collaboration among players and by reinforcing the need to adapt in a changing market landscape.

Supermarkets make up the bulk of non-florist sales, with roughly 34 percent share of total cut-flower sales, a share expected to rise over the next few years.