31 Jan 2018
Sales Bloom as Fresh Flowers Become Regular Mainland Purchases
The mainland floriculture sector was hit hard by the frugality measures introduced in 2012. Six years later, though, business is booming, with purchases by individual consumers more than making up for lost corporate and state orders.
As the disposable income of many mainlanders continues to increase, the flower sector has been one of the many beneficiaries of the enhanced largesse of Chinese consumers. As a clear indication of this, the overall value of the sector has grown rapidly over recent years, with the total value of the 2017 spend expected to have been around RMB200 billion (US$30 billion).
In the online sector, the growth has been even more dynamic. According to a study by AliResearch, between 2014 and 2015, sales of fresh flowers, green plants and other horticultural items grew by more than 93% across all of the retail platforms operated by its parent company Alibaba, the Hangzhou-based e-commerce giant.
Apart from such mainstream operators as Alibaba, the online flower sector has also spawned a number of specialist players, including Shanghai-based FlowerPlus and Beijing's Huadian Shijian, both of which have secured funding in excess of RMB100 million. Much of the growth in online sales can be attributed to the popularity of WeChat and other social-media channels, which are said to have helped revolutionise the way fresh flowers are purchased.
Perhaps unsurprisingly, the surge in the value of the sector has not been lost on many of the overseas players active in the fresh-flowers market. Until recent years, on average, less than 10% of the exhibitors participating in mainland floriculture / horticulture expos were based outside of China. Now, however, overseas exhibitors' account for about 60% of the floorspace of all such trade events.
Six years ago, the sector went through a fundamental change. Following the central government's 2012 move to promote frugality through its Eight-Point Regulation, there was a dramatic drop in the level of flowers purchased by businesses and official bodies. Thankfully, however, increased spending on the part of individual consumers has now more than made up this shortfall. In another shift, mainlanders are buying fresh flowers on an everyday basis, rather than restricting such purchases to the festive seasons – most notably Mid-Autumn Festival, National Day and Chinese New Year – as was the previous practice.
According to Wang Chunbo, the head of China Great Wall International Exhibition's Floriculture and Horticulture Division, the first two years following the implementation of the Eight-Point Regulation were the toughest, with many fresh-flower companies obliged to rethink their operating models. From 2014 onwards, however, the first fruits of this restructuring began to become apparent.
Reflecting on this dramatic turnabout, he said: "The years 2015 to 2017 were something of a golden period for the flower business, with those companies that met market demand making a huge amount of money. The ones that succeeded were those that switched their focus from government bodies and large corporations to individual consumers, offering personalised products and more compact arrangements."
Today, the most in-demand horticultural items are green plants for offices and small potted plants, typically bought as gifts or to brighten up homes. Wang ascribes part of this change as down to the emergence of a new generation of consumers, with those born in the post-80s period, who typically favour convenience and personalisation, now the primary purchasers of office greenery.
The rise of e-commerce and WeChat stores has also had a direct effect on the product range on offer. With many larger flowers and plants too bulky and cumbersome to be easily delivered, many online flower businesses now primarily offer smaller, more easily packageable products.
Despite soaring sales in the sector, a number of obstacles are seen as blocking its future growth. In particular, several quality issues, with regard to both products and services, need to be addressed.
With this in mind, the next two to three years are expected to see something of a shakedown in the sector, with market leaders emerging and many of the more marginal businesses exiting the industry. It is anticipated that those businesses that have sufficient capital to invest in the latest technological innovations will thrive, while those with little overall understanding of the peculiarities of the sector will fall by the wayside.
Another factor that will have a clear impact on the future of the sector is the quality of domestically-reared flowers and plants. While China's expertise in the horticulture sector has increased hugely over the past 30 years, the country still lags well behind many of the world's leading flower-production nations, most notably Germany and the Netherlands. For domestic producers, closing this quality gap is seen as essential if the country is to become anything like self-sufficient in terms of high-end blooms.
Turning more specifically to the online sector, horticultural e-commerce sites have proved an irresistible lure for investors over recent years. Given the potential profits on offer, this should come as little surprise. According to China's Fresh Flower E-Commerce Market Research Report 2017Q1, a study conducted by iiMedia Research, a Hong Kong headquartered third-party data-mining specialist, China's e-commerce fresh flowers market was worth RMB16.88 billion in 2016, a figure expected to exceed RMB60 billion by the end of next year.
Testifying to this growth in online sales, FlowerPlus has served seven million customers since it opened its virtual doors for business two years ago and now handles more than two million orders a month. For the whole of 2016, the company had a turnover of RMB300 million, while, in 2017, it had a turnover of RMB400 million in just the first six months of the year.
In terms of sourcing, FlowerPlus, as with many other e-commerce operators in the sector, obtains much of its stock on a daily basis from Yunnan, the southwestern China province famous for its horticulture. Typically, this sees operators striking particular deals with individual flower farmers and cultivation sites. Logistics and delivery, meanwhile, are typically handled via whole-journey cold-chain transportation.
According to Xu Jia, FlowerPlus' Head of Public Relations, the company currently owns and manages a 5.3 sq km flower field, which it reserves for growing relatively rare varieties, as well as a 50,000 sq m cut-flower processing facility. It also has co-operation agreements in place with a number of flower farmers.
Once sourced, flowers are then dispatched to one of the company's seven storage centres, with facilities already in place in most of China's major cities, including Beijing, Shanghai and Shenzhen. Here the flowers are processed before being sent on to one of the 186 mainland cities currently served by the company.
In addition to sourcing from Yunnan, many fresh-flower e-commerce operators also import from overseas. This sees buyers dispatched across the world to source particular species and to strike deals with their cultivators. At present, the top five imported varieties are Dutch tulips and hyacinths, African sugarbushes and Columbian roses and lilies.
All of these varieties are chosen in line with the preferences of female office workers, a demographic that accounts for 90% of all online orders. Typically, e-commerce platforms try to tie such customers into a limited period subscription offer. In the case of FlowerPlus, for instance, customers can opt to receive four fresh-flower deliveries over the course of four weeks for RMB169.
Despite the convenience of such a service, some customers still prefer to choose their own blooms on site. Typical of this kind of consumer is a "Miss Xie", a Beijing office worker, who says: "When possible, I always prefer to visit florists and choose my own flowers rather than ordering a ready-made bouquet and hoping for the best."
At present, there are signs that several florists are also looking to embrace the online-to-offline (O2O) approach, which allows consumers to order online then collect in person at a nominated retail outlet. This combines both the convenience of online ordering and the quality control offered by in-store browsing.
In terms of the future – and the likelihood of increased competition within the sector – Xu said FlowerPlus has three particular priorities. In terms of sourcing, it is looking to enhance the technology used in its own production sites and those managed by its partner businesses. With regards to production and processing, it is again hoping to up the role played by technology, largely by automating many of its labour-intensive procedures. Finally, it is looking to upgrade its cold-chain delivery services, while also refining its other service protocols. These three strategies are all in line with its overall goal of offering a wider range of choice to a wider range of consumers.
Li Nan, Special Correspondent, Beijing