Four Dimensions of Florists Industry in the U.S.

According to the textbook and industry is evaluated in four dimensions: Products, customers, geography, and stages in the production-distribution pipeline. (de Kluyver, 2008) In this section, we will evaluate the florists industry in those four dimensions. 1. Products: In the florists industry, main products are cut flower arrangements, potted plants, and loose cut flowers. According to the hoovers online industry report, cut flower arrangements generate 55 percent of industry revenue. Potted plants has 15 percent, loose cut flowers has also 15 percent share in total of industry revenue. Some florists stores also sell artificial flowers, vases, and other kind of gift items. Carnations, lilies, and roses are the most demanded flowers in the industry. (Hoovers online) 2. Customers: Main customers are individuals and commercial institutions. Hotels, funeral homes, and hospitals are main customers as commercial institutions. Individual customers have high incomes and mostly highly educated. Customer demographics for florists industry show that consumers are older than the average US consumer. Carnations, roses, and chrysanthemums are top-selling flowers among American customers. Most of the commercial customers buy in high volumes and they buy repetitively. (Hoovers online) 3. Geography: Most of the florist companies are local single location stores. There are also few numbers of branch stores in the U.S. California is leading state in the number of florists companies with 3966 companies according to the hoovers online. Texas and New York follows California with 2859 and 2282 stores respectively.

4. Stages in the production-distribution pipeline: Growers of flowers, importers, and wholesalers provides flowers to the florists companies. Florists stores need to be supplied with cut flowers by wholesalers several times in a week. Flower caring activities, flower arrangements, order taking, service in local stores, and deliveries are main store operations in the industry. Florist companies generally use delivery vehicles, for example vans, to provide customers with good products. Some florists prefer to lease a small store to use the locational advantage in malls, train stations, or other main retail store. Online selling also is used in the industry. Many stores have web sites to send and receive orders. (Hoovers online)

Industry Structure and Five Forces of Competition One of the best tools for analyzing industry is Michael Porters five forces model. (de Kluyver, 2008) In this section we will analyze florists industry in terms of five forces of competition. 1. Threat of Entry Industry capacity increases with new entrants. Every new company desires to gain market share and increase competition in the industry. The cost of entry depends partly on the expected reaction from current competitors. If the industry growth is slow, potential entrants will probably face with high resistance from current companies. (Porter,1980) Barners report on the U.S. florist industry (2012) shows that number of establishments in florists industry has decreased from 17,295 to 16,267 between 2009 and 2012. In this case, the industry is

shrinking, and potential entrants probably will meet strong retaliation from existing competitors. There are not so much barriers to entry. An individual would start business from home in the industry. However, capital requirements in order to compete may create a barrier to entry. (Porter,1980) According to the entrepreneur.com startup costs for a florists business are between $10,000 and $50,000. (Wilson,2009) 2. Rivalry between Existing Competitors Slow industry growth diminishes the rivalry among existing competitors. (Porter,1980) Besides decrease in the number of retail floral shops, sales also decreased from $6.6 billion in 2002 to $6.3 billion in 2007. (Gale) Rivalry between existing competitor is relatively low in the florists industry. There is dominant company in the U.S. florists industry. 1-800-FLOWERS.COM, FTD, and Teleflora are main big companies that provide products to local floral stores, but are also competitors. The florists industry in the U.S. is highly fragmented. Only 10 percent of the industry revenues are generated by the top 50 companies. (Hoovers online) 3. Pressure from Substitute Products Substitute products have an important effect on all firms in the industry. Substitutes can change the profit rates by competing with current products of the industry. (Porter, 1980) In the florists industry, customers generally buy products as a gift. Flower sales increase on Valentines Day, on mothers day, on Christmas, and any other special days. People may

purchase other kinds of items as a gift. DVDs/CDs/books, wine, gift cards, food/candy are some of possible substitute products for flowers. According to a research, age and gender identity have an important role when buying gifts. Researches show that young people more likely prefer to buy gift cars and wine. Young people dont think that buying flowers is an attractive idea. Middle aged people also prefer to buy vine. Flowers are the least chosen gifts. When it comes to the gender, males are less interested in buying flowers as a gift than females. 77 percent of males prefer to buy gifts rather than flowers. Moreover, same study reveals that 70 percent of the floral purchases made by females. ( Yue et al. 2009) 4. Bargaining power of buyers Bargaining power of buyers costs companies to lose profit and sales. Powerful customers can force company to reduce the prices. If buyers can influence the prices by negations, they are powerful in the industry. (Porter,2008) Customers buying in large volumes have a bargaining power over the seller. For the florists industry, constitutional customers buy in large volumes. In this perspective, funeral homes, hospitals, and hotels are powerful customers. Customer demand mostly depends on income level. Products of florists are considered as a discretionary item by customer. When the food prices high and there is economic uncertainty, people may stop buying flowers. (Hoovers online)

The industrys products are not differentiated. Buyers can always find an equivalent product even in supermarket chains. Moreover, switching cost is very low. These factors give power to buyers. 5. Bargaining power of suppliers When suppliers have enough power, they can capture more value by setting high prices, shifting cost to companies, and limiting the service. Suppliers are powerful if they do not depend on the cash coming from the industry, if industry companies has high switching cost, if suppliers offer differentiated products, and if they have ability to integrate forward. (Porter, 2008) Main companies like Teleflora, 1-800-FLOWERS, FTD supply small local florists. While they are suppliers they also sell products. Also, online shopping gives opportunities to suppliers to sell their products directly. Suppliers have ability to integrate forward. Other than that, suppliers do not have so much bargaining power.

Porter, M. E. (1980). Industry structure and competitive strategy: Keys to profitability . Financial Analysts Journal, p.30-41. Porter, M. E. (2008). The five competitive forces that shape strategy. , Harvard Business Review. January 2008.p.23-41. Wilson, E. (2009) Florist, retrieved from

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Yue D., Rihn A., Behe B., Hall C. Consumer Preference for Flowers as Gifts: Age Segments, Substitutes, and Perceived Risk.2009