Here’s something you may not know about Valentine’s Day: many florists hate it. Americans will spend $18.9 billion on flowers, candy and more for the holiday — but the spike in demand typically does not translate into big profits for small flower shops.
The lackluster margins are caused by two main culprits: one external and one internal. Online ordering services such as FTD and 1-800-Flowers, which take large commissions for routing orders to businesses, have chipped away at the margins of the floral business as a whole in recent years. The pain of those commissions is particularly acute on high-volume days where vendors typically sell out and do not benefit from additional business.
But the spike in traffic during Valentine’s Day also applies pressure to a weak spot in the small service businesses’ model: inelasticity. Florists typically rely on their own staff to design, assemble and deliver the flowers, and need to hire freelancers to meet a spike in demand. That leads to higher costs, decreases in efficiency and eventually, lower profits, says Farbod Shoraka, chief executive of BloomNation, one of a handful of new flower ordering startups that want to rethink the models built by tele-commerce predecessors.
“A small business goes from delivering 10 to 15 bouquets a day to having to deliver well over 500,” said Shoraka. “There’s so much they have to scale up in a single day that it becomes very difficult for a single florist to successfully execute without dramatically cutting into their margins.”
Shoraka and his co-founders believe that a marketplace where shoppers book from local florists rather than a central brand offers a meaningful alternative to the more centralized approaches taken by legacy companies. By providing florists with software in the back-end to better understand the capabilities and availability of its providers, Shoraka believes the company can reduce commissions and more efficiently match a business’s capabilities to consumer demand.
A shift away from the Amazon approach
Americans spend a little over $25 billion on flowers each year, putting the floral industry somewhere between the taxi market and the weddings industry in size. The flower business, like many local industries, has remained somewhat isolated from the impact of the web until recent years when consumers started to turn to web ordering services (mostly created by existing tele-commerce companies) en masse.
The floral industry presents a bit of a conundrum for the technology industry. Flowers are perishable, so a traditional ecommerce model, where goods are shipped from a central location, will not work for every customer. At the same time, we often order flowers to locations outside of where we live, so a company cannot simply build density in one market and then move onto the next — a tactic used by GrubHub, Seamless and other local commerce firms.
Companies such as FTD and 1-800-Flowers developed a hybrid model similar to Amazon: they fulfill orders both from massive warehouses, operated internally, as well as a large networks of florists, who effectively serve as fulfillment centers. But throughout the entire process, the consumer is interacting with the ecommerce brand — not the small business.
Think of these models as a part-time franchise, of sorts. The florist produces a standardized product designed by 1-800-Flowers and delivers the product to the customer as an agent of the company. That standardization and centralization of control solves a critical problem for consumers: it helps establish trust with the consumer by ensuring consistency throughout the experience.
But as I’ve argued before, brand standardization — where consumers interact with single brand, even if its fulfilled by a local business — is an imperfect solution to that problem. Consumers are forced to buy a limited set of products which often fail to account for the variations in tastes between markets. And often the florists used to fulfill orders do not have an incentive to exceed the bare minimum.
“Every single florist we spoke to hated these services because they did not have a way to connect with the customer. They felt like order fillers, just like McDonald’s workers,” said Shoraka. “You don’t start a flower shop to be a lucrative business; you want to be creative.”
BloomNation thinks it can avoid the pitfalls of its more centralized competitors with a marketplace where consumers buy from local florists. But solving the trust problem requires more than reviews. A marketplace needs to be able to ensure that a purchase made in its marketplace will be delivered as promised. It needs to make sure that an order for a bouquet of lilies placed at 3pm can be delivered by the end of the day to an address 20 minutes away — all without asking the florist.
What’s opened the door for companies such as BloomNation is the concept of a full-stack marketplace, where a seller on a marketplace uses its software to not only sell goods, but to run their businesses as well. The data generated from the software — the flowers in stock, the workload of designers, the availability of couriers — allows a company such as BloomNation to efficiently and effectively accept orders on behalf of a small business and ensure it will be fulfilled.
Will BloomNation help florists start turning a profit again on Valentine’s Day again? Shoraka thinks so. I’m less sure, but it definitely seems like a step in the right direction.
Steven Jacobs is Street Fight’s deputy editor.