Establishing a Flower Retail Business - Term Paper Example

Executive Summary This report is a business plan for establishing a flower retail business. The business is d Bloom Florals and will be located at San Francisco in California. The business will be established as a partnership firm with three partners. The report gives a detailed overview of the industry and market structure. Based on the opportunities and challenges in the market, marketing strategy is being charted out for Bloom Florals. A detailed outlook of the projected cash flow from December 31, 2011 to November 31, 2012 is also included in the report. Business Description The proposed business plan is a flower retail outlet. Flower business is one of the most flourishing industries in US. Flower is something that is required for every occasion. Though there are certain months of extremely high demand, there is still a consistency in the demand for flowers. Some of the top flower buying occasion is Christmas, Mother’s Day, Valentine’s Day, Easter and Thanksgiving. Though there are special occasions for flower purchases, 30% of the yearly sales happen during the rest of the days. Therefore, flower business is expected to be one of the most promising business opportunities in US. “The U.S. floral industry includes fresh cut flowers, cut cultivated greens, potted flowering plants, foliage plants and bedding/garden plants, making floriculture the third largest U.S. agricultural crop.” (About Flowers, 2011) The business is named as Bloom Florals. Bloom Florals will be established as a partnership business with three partners. Bloom Florals is intended to focus on all the floral needs of a customer all throughout the year. Though the initial scale of operation will not permit to meet the high value orders like a big event, this will definitely be a future profit center for the business. E-Business will be a major focus area for Bloom Florals. The firm is focusing on generating a considerable amount of profits through orders received online. Therefore, Bloom Flowers will have an aesthetically designed online portal which will enable customers to place their best orders at the right time. Ease of Transaction, Accuracy in Delivery and Passion in Servicing will be the three core values of Bloom Florals. The business will be initially focused only on California. But over a period of time the firm will gradually expand the market to more states and cities. This report will present a detailed business plan for setting up Bloom Florals outlet in California. Industry and Market Analysis Industry Outlook: United States is one of the largest flower industries in the world. US flower retail outlets have collectively made total sales of $35.2 billion in the year 2010 compared to $32.5 billion in 2009. That is around 8% growth rate. An 8% growth rate is a good figure considering the size and nature of flower industry. Also to be considered the fact that there was 4% decline in sales in 2009 from that of 2008. The present pace of the market is expected to show good increase in the growth rate in future. The flower industry in US has many traditional and small flower retailers. These unorganized sectors are now feeling the pinch of the stiff competition from the big retail outlets, supermarkets and online businesses. As per the 2007 US Economic Census, there are around 19,609 flower retail outlets in the country. (SAF, 2011) “The industry will continue to struggle under growing price pressures, which will keep profits low and push underperforming florists out of the industry altogether.” (IBIS World, 2010)Therefore, improving operational to increase profits should be the focus of every new entrant in the business. The popular product categories that are served by flower retailers are arranged cut flowers, indoor potted plants, unarranged cut flowers, giftware, outdoor nursery plants and others. (IBISWorld, 2010) Refer Appendix 1 for the detailed share of each product’s contribution to the industry. Arranged cut flowers contribute to more than half of the sales of the industry. The least contributor to the sales is outdoor nursery plants. Unarranged cut flowers, indoor potted plants, giftware and others contribute almost equally to the total sales of the industry. Challenges and Opportunities: The major challenge that the industry face is that the demand is far more than the domestic production of flowers. More than half of the flowers sold in US are imported from other flower producing countries. “Imports account for approximately 67% (two-thirds) of the wholesale dollar volume of the cut flowers available for sale in the U.S.” (Super Floral Retailing, 2011) Refer to appendix 2 for the percentage of flowers imported to US from various countries. The need for larger imports keeps the cost structure very high for flower retailers. Apart from this there is also severe price war in the market due to the large number of retailers. Therefore, the retailers cannot increase the price beyond a certain limit. This results in a pressure on the profit margins. California accounts for 75% of the domestic flower production in US. Therefore, retailers at California have comparative advantage over the flower retailers of other states. The recent economic downturn has been a setback for the flower industry too. But then the worse situation is never in picture. A growth rate of 8% from that of the 4% decline in the previous year is a proof for the same. A recent survey conducted among the flower retailers by Society of American Florists show a positive outlook for the industry. Majority of the respondents either said the business is ok or good. There are comparatively less retailers who opined that business is bad or poor. They project a better outlook for the industry in the future. (SAF, 2011) See Appendix 3 for a detailed overview. Major Players: As mentioned earlier there are close to 20,000 flower retailers in US. These figures are inclusive of the organized as well as the unorganized sectors of the industry. These retailers are spread over the entire states of US. Bloom Florals is planning to establish business in California. Some of the major florists in California are Balboa Florists, Bishop and Harper, Amadeus Flowers, Arcade Flowers, Rosebowl Florist and Wine Shop, Floreal, Prima Flora USA, St Francis Hotel Florist, Rose Express and V and V Flowers. (Americas-Florists.com, 2011) Though these are the major flower retailers in the San Francisco they are not the only competitors for Bloom Florals. Online portals that just act as a medium for sending flowers are a big competition for Bloom Flowers. Some of the most popular online portals in US are Proflowers.com, Direct2florist.com, 800florals.com, Americasflowershops.com, FTD.com, 1stinflowers.com, Fnp.com, Royers.com, USAflorist.com, etc. are some of the major online portals. Uncontrollable Variable: A number of uncontrollable variables affect the flower industry at large. Some of the common uncontrollable variable that affects the flower business are climate, economy, shipment delays, high cost of shipment, etc. (Bragg et. al., 2003) Climate is a major uncontrollable factor for flower business. Proper climate is very much essential for all kinds of flowers. An unexpected change in climate is expected to result in shortage of supply in the market and thereby higher prices. The climatic conditions and variations in countries like Columbia, Ecuador and Netherlands will have significant impact on the US flower market. The change in economic condition is another uncontrollable factor that affects the business. A bad economy will result in an increase in the unemployment rate. An increased rate of unemployment will lead to huge spending cuts by individuals. This will affect the sales of the flower retailers at large. Slower economy will also result in spending cuts by corporate customers. Another factor that affects the flower business is a possible delay in shipment. Flower is a perishable product and will lose its freshness easily. Therefore, a delay in shipment can result in the flower becoming mere useless. Being a perishable product, it needs to be shipped in cold storages and other facilities that will keep it fresh. Such kind of facilities are expensive than a normal shipment. As a result of this the shipment cost is higher and will lead to lower margins for the retailers. The increased number of retailers also puts a pressure on the maximum retail prices for the products. This factor is literally uncontrollable in the flower industry. Competitive Analysis Primary & Secondary Competition: The list of some of the major players of the industry has already been discussed. The primary competitors of Bloom Florals are the major online portals and the retail outlets in the region. They pose the major competition for Bloom Florals in California. Some of the primary competitors of Bloom Florals are Proflowers.com, Direct2florist.com, 800florals.com, Americasflowershops.com, FTD.com, 1stinflowers.com, Fnp.com, Royers.com, USAflorist.com, Balboa Florists, Bishop and Harper, Amadeus Flowers, Arcade Flowers, Rosebowl Florist and Wine Shop, Floreal, Prima Flora USA, St Francis Hotel Florist, Rose Express and V and V Flowers. There is in fact no strong secondary competition for Fresh Flower retailers. The need for flowers cannot be replaced by any other products. But still synthetic flowers pose threat to an extent. The synthetic flower retailers in the city will be a secondary competition for Bloom Florals. Some households will prefer to keep less costly synthetic flowers in their flower vase in the office room instead of replacing costly fresh flowers every day. Another secondary competition for Bloom Florals will be the gift shops in the region. In most cases a person send flowers along with gifts for special occasion. But sometimes gifts are preferred over flowers when due to cost constraints a person has to choose any of them. Therefore, gift shops in the region are a secondary competition for Bloom Florals. Competitive Advantages: Both the primary and secondary competitors have their own competitive advantages. Primary competitors are at a better position because they are already a well-established player in the market. Online portals are the ones who enjoy the most advantage. The main advantages of primary competitors are as follows: 1. Better distribution network: The primary competitors have a well-established distribution networks built over years. They will have clear logistics system. 2. Awareness among the people: The prospective customers will have better awareness about the local flower retailers. Therefore, the first preference of most customers will be existing retail outlets in the region. 3. Ease of ordering: The leading online portals have developed a brand name over years. Most of them are very prompt in their services. Therefore, they enjoy a first mover advantage in the US flower industry. The advantages of secondary competitors are as follows: 1. Low cost: The price of a synthetic flower is lower than that of a real fresh flower. In certain cases the synthetic flowers are costly as well based on the material. But even then it is less costly as there is no need of changing the flowers daily as is the case of fresh flowers. 2. Non Perishable: The synthetic flowers are non-perishable and hence have a longer life than a fresh flower. Because of this some customers prefer synthetic flowers over fresh flowers. 3. Choice of Gifts: As mentioned earlier gifts pose a secondary threat to Bloom Florals. Gifts are available at different varieties in the market. Sometimes, the immense choice of the gifts will force customers to ignore flowers. Marketing Strategy Marketing strategy is one of the critical decisions to be taken by Bloom Florals. As the market is flooded with a number of players, marketing and distribution play a very important role. Price: It is better to price the product at the market price. Because of large number of players, customers easily shift to another vendor in case of an unfavorable deal. Thus price is a very sensitive factor in flower business. Prices are not fixed and it varies as per the change in demand and supply. Therefore, Bloom Florals should price their flowers at market rates. Promotion: It is not viable for Bloom Florals to spend huge amount on advertising. Flower retailers usually don’t advertise by using big hoardings or bill boards. The first step towards product promotion is to design a very appealing website. The website should be appealing and easy to use. It should help the customers to place the orders easily without going through various steps. The next activity to do is to create a Facebook page for Bloom Flowers. The partner who is in charge of marketing should give special attention for managing the Facebook pages. In the current market, sharing details through Facebook page is the most effective way to publicize the product/service. Bloom Florals should also hire a marketing consultancy for helping with search engine optimization. Search engine optimization is a very critical factor in online business. It should be optimized in such a way that the website of Bloom Florals is shown in the first page of search result itself. Distribution: Distribution is a critical marketing factor for success in flower retail business. Flower business is mostly about timely distribution of flowers to the required places. The industry figures show that around 15% of retailer’s annual sales arise from the orders placed through the retailer’s online portal. The orders are placed by a customer from some part of the world for flowers to be delivered in California. A customer can place order for a delivery in San Jose. The proposed outlet of Bloom Florals is at Los Angeles. This is where the challenge of distribution arises. The solution for this is to treat the competitors as partners. Bloom Florals should partner with one or more of the florists in San Jose. Based on the order by the customer online, the flowers will be delivered by the florists in San Jose on a commission basis. The delivery should be made in Bloom Florals’ brand name. Such kinds of agreement are usually mutually binding and even Bloom Florals will distribute the products on behalf of other brands. Therefore, Bloom Florals should partner with one or more of flower retailers in all major cities of California. Product/Service: Bloom Florals sell the same products as that of any florists in the market. But compared to the other flower retailers, Bloom Florals will distinguish itself by keeping extreme focus on freshness of the flowers and promptness of delivery. These are two important factors that a customers is concerned of while ordering for flowers. Operational Issues Bloom Florals will face severe operational issues especially on the distribution and online portal side. As seen in the previous section, effective partnering with flower retailers of other regions is a solution for the operational issue related to distribution. Partnering with other retailers will help to reduce cost of operation to a great extent. For example, imagine a customer has placed an order for Rose to be delivered at San Jose. The price of the order in Bloom Florals Portal is $20. Take for instance the cost of the flower is $14. Now, Bloom Florals have outlet only in Los Angeles. Therefore, Bloom Florals will inform the partner at San Jose to deliver the ordered flower to the required address. The partner retailer will be paid the cost of the flower plus a share of the profit margin. This happens vice versa too. The advantage of this method is that there is no need for transporting and storing the flowers in the store. The only issue here is about selecting a right partner. The partner should show efficiency in delivery and deliver fresh flowers as is from Bloom Florals store. Else, the brand value of the firm can be affected. Another operational issue with the system is establishing and maintaining an efficient website. The cost of maintaining a portal is usually higher. Daily sourcing of required flowers is also an important issue. As the flowers are not mostly kept for more than one day, stocks are to be brought in daily. Thus transportation cost forms a major part of the cost of flowers. Human Resource Requirements Bloom Florals does not require a large number of employees. The areas where Bloom Florals require employees are marketing, flower designing, distribution and logistics, and accounts and finance. The number and skills of employees required for each function are explained below. Bloom Florals will start the operation with six employees in total. The respective role of each employee is enumerated below. Marketing: There should be one person who is in charge of the marketing function. Prior work experience in the industry is not necessary for this post. But a very good knowledge about the industry and the products will be an added advantage. The most important skills required is the ability to innovate new ways of marketing flowers. The marketing personnel will be in charge of maintaining liaison with the corporate customers. One of the partners will be the marketing in charge. Flower Arranging: This is the most skilled job in Bloom Florals. The appealing power of the products will depend on the flower arranging skills. For starting with, only one employee is required for this post. Based on the increase in sales more people can be employed. Prior experience in flower arranging is a must for this post. Distribution and Logistics: The distribution and logistics department should have three employees in total. The main qualification for this post is that they should be experienced drivers. Timely delivery of flowers is critical success factor and this can be assured only if the distributors are qualified drivers. Accounts and Finance: One person should be employed as the accounts and finance in charge. He/she will be in charge of all the accounts related matters of the firm. One of the partners has prior experience in accounting and various accounting software. Therefore, he will be in charge of the accounts and finance department. Financial Projections An accurate figure of the business cannot be provided regarding the financial projections. But based on the market conditions and demand for flowers the following can be summarized. Salary: As per the United States Bureau of labor Statistics the median annual wages for floral designers is $29,330 as of 2008. Considering the cost of living and adjusting the inflation the floral designer’s salary is taken as $35,000 for Bloom Florals which makes to $2,917 per month. (US Department of Labor, 2011) The salary of 3 delivery boys is considered as $1,800 per month. The marketing and accounts executive positions are handled by two of the partners themselves. The monthly salary is taken as $3,000 per month for each. Therefore, the normal monthly salary is $12,517 (3000+3000+1800+1800+1800+2917). Gasoline and Electricity: Flower inventories are to be sourced on every day from the wholesale dealer. Also in most cases, orders have to be delivered to specified addresses. Therefore, gasoline price is an important expense item for Bloom Flowers. An estimated $400 is taken as gasoline expense. Electricity is taken as a fixed $150 on every month as there is not significant consumption of electricity at the store. Others: Other expenses are taken as $100 per month. This includes website maintenance and other day to day sundry expenses of the firm. The vehicles that should be purchased are 2 scooters of $3,000. One delivery van of $20,000 is also used. Office equipment’s include two desktop computers, one printer, display coolers and office furniture. All the three partners will bring in $15,000 each making the partner’s capital to $45,000. Apart from that a bank loan will be availed for $50,000. The interest rate is taken as 8% per annum and the loan term is 10 years. The interest and repayment amount is calculated as per this. As per the Society of American Florists, the average annual sales per establishment are $320,000. This amount is taken as a benchmark for calculating the approximate annual sales. Tax is roughly taken at $100 per month. See Appendix 4 for the detailed cash flow for 12 months. References About Flowers. “About the U.S. Flower Industry.” About Flowers. 2011. Web. 24 November 2011. SAF. “Statistics: Floriculture Industry Overview.” Society of American Florists. 2011. Web. 24 November 2011. IBIS World. “Florists in the US: Market Research Report.” IBIS World,. 2010. Web. 24 November 2011. Super Floral Retailing. “ U.S. Flower supply: not a rosy picture.” Super Floral Retailing. 2011. Web. 24 November 2011. Americas Florists.com. “Florist USA Florists, Flowers shops in the USA, Americas Florists, American Florist Directory.” Americas Florists. 2011. Web. 24 November 2011. Lynn Bragg, Marcia Miller, and Stephen Koplan. “Industry and Trade Summary: Cut Flowers.” US International Trade Commission. 2003. Web. 24 November 2011. Bureau of Labor Statistics. “ Floral Designers.” United States Department of Labor. 2011. Web. 24 November 2011. Appendices Appendix 1 Products & Services   Product/Services Arranged cut flowers Indoor potted plants Unarranged cut flowers Giftware Other Outdoor nursery plants (Source: IBIS World) Appendix 2 (Source: Super Flower Retailing) Appendix 3 (Source: Society of American Florists) Appendix 4 Bloom Florals Cash Flow Statement for Month ended:           12/31/2011 1/31/2012 2/29/2012 Cash Flow from operations:         Inflow: Sale of flowers   $ 15,000.00 $ 15,000.00 $ 15,000.00   Sale of greeting cards   $ 5,000.00 $ 5,000.00 $ 5,000.00   Giftware   $ 3,750.00 $ 3,750.00 $ 3,750.00   Others   $ 1,250.00 $ 1,250.00 $ 1,250.00 Outflow: Inventory purchases   $ (10,000.00) $ (10,000.00) $ (10,000.00)   Gasoline   $ (400.00) $ (400.00) $ (400.00)   Electricity   $ (150.00) $ (150.00) $ (150.00)   Wages   $ (12,517.00) $ (12,517.00) $ (12,517.00)   Interest   $ (333.00) $ (332.00) $ (330.00)   Rent   $ (800.00) $ (800.00) $ (800.00)   Other administrative expenses $ (100.00) $ (100.00) $ (100.00)   Income taxes   $ (100.00) $ (100.00) $ (100.00)   Net Cash Flow from operations $ 600.00 $ 601.00 $ 603.00 Cash Flow from Investing:         Outflow: Purchase of vehicles   $ (26,000.00)       Purchase of office equipment’s $ (1,200.00)       Net Cash Flow from investing $ (27,200.00) $ - $ - Cash Flow from financing:         Inflow: Partners capital   $ 45,000.00       Cash flow from Bank loan $ 50,000.00     Outflow: Repayment of bank loan $ (273.00) $ (275.00) $ (277.00)   Net Cash Flow from financing $ 94,727.00 $ (275.00) $ (277.00)         Net Increase/decrease in cash and cash equivalents $ 68,127.00 $ 326.00 $ 326.00 Cash/cash equivalents: Beginning of the month $ - $ 68,127.00 $ 68,453.00 Cash/cash equivalents: End of the month $ 68,127.00 $ 68,453.00 $ 68,779.00                       3/31/2012 4/30/2012 5/31/2012 Cash Flow from operations:         Inflow: Sale of flowers   $ 15,000.00 $ 15,000.00 $ 15,000.00   Sale of greeting cards   $ 5,000.00 $ 5,000.00 $ 5,000.00   Giftware   $ 3,750.00 $ 3,750.00 $ 3,750.00   Others   $ 1,250.00 $ 1,250.00 $ 1,250.00 Outflow: Inventory purchases   $ (10,000.00) $ (10,000.00) $ (10,000.00)   Gasoline   $ (400.00) $ (400.00) $ (400.00)   Electricity   $ (150.00) $ (150.00) $ (150.00)   Wages   $ (12,517.00) $ (12,517.00) $ (12,517.00)   Interest   $ (328.00) $ (326.00) $ (324.00)   Rent   $ (800.00) $ (800.00) $ (800.00)   Other administrative expenses $ (100.00) $ (100.00) $ (100.00)   Income taxes   $ (100.00) $ (100.00) $ (100.00)   Net Cash Flow from operations $ 605.00 $ 607.00 $ 609.00 Cash Flow from Investing:         Outflow: Purchase of vehicles           Purchase of office equipment’s         Net Cash Flow from investing $ - $ - $ - Cash Flow from financing:         Inflow: Partners capital           Cash flow from Bank loan       Outflow: Repayment of bank loan $ (279.00) $ (281.00) $ (283.00)   Net Cash Flow from financing $ (279.00) $ (281.00) $ (283.00)           Net Increase/decrease in cash and cash equivalents $ 326.00 $ 326.00 $ 326.00 Cash/cash equivalents: Beginning of the month $ 68,779.00 $ 69,105.00 $ 69,431.00 Cash/cash equivalents: End of the month $ 69,105.00 $ 69,431.00 $ 69,757.00                       6/30/2012 7/31/2012 8/31/2012 Cash Flow from operations:         Inflow: Sale of flowers   $ 15,000.00 $ 15,000.00 $ 15,000.00   Sale of greeting cards   $ 5,000.00 $ 5,000.00 $ 5,000.00   Giftware   $ 3,750.00 $ 3,750.00 $ 3,750.00   Others   $ 1,250.00 $ 1,250.00 $ 1,250.00 Outflow: Inventory purchases   $ (10,000.00) $ (10,000.00) $ (10,000.00)   Gasoline   $ (400.00) $ (400.00) $ (400.00)   Electricity   $ (150.00) $ (150.00) $ (150.00)   Wages   $ (12,517.00) $ (12,517.00) $ (12,517.00)   Interest   $ (322.00) $ (320.00) $ (318.00)   Rent   $ (800.00) $ (800.00) $ (800.00)   Other administrative expenses $ (100.00) $ (100.00) $ (100.00)   Income taxes   $ (100.00) $ (100.00) $ (100.00)   Net Cash Flow from operations $ 611.00 $ 613.00 $ 615.00 Cash Flow from Investing:         Outflow: Purchase of vehicles           Purchase of office equipment’s         Net Cash Flow from investing $ - $ - $ - Cash Flow from financing:         Inflow: Partners capital           Cash flow from Bank loan       Outflow: Repayment of bank loan $ (285.00) $ (287.00) $ (289.00)   Net Cash Flow from financing $ (285.00) $ (287.00) $ (289.00)           Net Increase/decrease in cash and cash equivalents $ 326.00 $ 326.00 $ 326.00 Cash/cash equivalents: Beginning of the month $ 69,757.00 $ 70,083.00 $ 70,409.00 Cash/cash equivalents: End of the month $ 70,083.00 $ 70,409.00 $ 70,735.00                       9/30/2012 10/31/2012 11/30/2012 Cash Flow from operations:         Inflow: Sale of flowers   $ 15,000.00 $ 15,000.00 $ 15,000.00   Sale of greeting cards   $ 5,000.00 $ 5,000.00 $ 5,000.00   Giftware   $ 3,750.00 $ 3,750.00 $ 3,750.00   Others   $ 1,250.00 $ 1,250.00 $ 1,250.00 Outflow: Inventory purchases   $ (10,000.00) $ (10,000.00) $ (10,000.00)   Gasoline   $ (400.00) $ (400.00) $ (400.00)   Electricity   $ (150.00) $ (150.00) $ (150.00)   Wages   $ (12,517.00) $ (12,517.00) $ (12,517.00)   Interest   $ (316.00) $ (314.00) $ (312.00)   Rent   $ (800.00) $ (800.00) $ (800.00)   Other administrative expenses $ (100.00) $ (100.00) $ (100.00)   Income taxes   $ (100.00) $ (100.00) $ (100.00)   Net Cash Flow from operations $ 617.00 $ 619.00 $ 621.00 Cash Flow from Investing:         Outflow: Purchase of vehicles           Purchase of office equipment’s         Net Cash Flow from investing $ - $ - $ - Cash Flow from financing:         Inflow: Partners capital           Cash flow from Bank loan       Outflow: Repayment of bank loan $ (291.00) $ (293.00) $ (295.00)   Net Cash Flow from financing $ (291.00) $ (293.00) $ (295.00)           Net Increase/decrease in cash and cash equivalents $ 326.00 $ 326.00 $ 326.00 Cash/cash equivalents: Beginning of the month $ 70,735.00 $ 71,061.00 $ 71,387.00 Cash/cash equivalents: End of the month $ 71,061.00 $ 71,387.00 $ 71,713.00               Read More