Flower Power

To take on tough rivals, American Floral Services seizes the mantle of e-business evangelist to retail floristsWhat do you get when you combine fragrant purple stock, pink sweetheart roses, yellow daisy spray mums and white mont casino asters with the Internet? The answer is leadership in the $US15 billion-per-year floral industry, says Tom Butler, president and CEO of American Floral Services (AFS).

It's a fiercely competitive industry - made only more so by the Internet-where powerful rivals vie for the attention and dollars of retail florists. AFS's two strongest competitors in the flowers-by-wire business are FTD and Teleflora. Butler says that FTD, Teleflora and AFS each share about one-third of that market. FTD charges a monthly membership fee of $US199, has its own Mercury wire technology - an extensive network of participating florists distributed over a wide geographic area - and heavily promotes its well-known brand name. Teleflora charges a monthly membership fee of $US99, has about 25,000 member florists and advertises its brand name and products - particularly its popular holiday containers.

Most retail florists belong to two or all three of the big wire-service providers, because there are differences in areas covered and specialty products offered. But there is also considerable overlap and a resulting incentive for retailers to jettison one or more of the wire services to reduce their monthly membership fees. In addition, newer online players, like1-800-Flowers.com, present fresh challenges for both the wire services and retailers.

AFS's strategy calls for using the Internet to enlarge market share. It may sound daunting, but Butler and his team believe they have a historical advantage here: building customer loyalty has been the core of AFS's business since it was founded 30 years ago. Since then, AFS has provided a variety of services, from publications (Butler says the company is the largest publisher of educational materials for retail florists) to workshops on topics ranging from floral design and shop management to computer technology. This is all in addition to AFS's flowers-by-wire service, a network of 24,000 member florists in North America with 55,000 affiliates abroad. Wire orders, of course, are central to the company's revenue stream (AFS charges member florists $US79.95 per month, plus a 9-per cent-per-transaction fee). But wire orders have plateaued, Butler says. For the past five years, orders have remained relatively flat at approximately $US350 million per year.

Pollinating IT

AFS has sold technology tools to its customers since the early 1980s. Rosebud, its DOS-based accounting and shop-management program, was specifically tailored to the needs of retail florists - businesspeople who, AFS marketers felt, enjoyed the aesthetics of flowers more than computers but could benefit from using IT. AFS developed successive generations of that program based on Unix and then on Windows.

Making its software "drop-dead simple" for florists to use continues to be an essential factor, says Terry Byers, who joined AFS four years ago as chief technology officer and is now also senior vice president. Byers says that florists need ongoing education and support to increase their comfort and skill levels in using new technology - at the same time, they face the pressure of managing their business.

Since Byers came on board, AFS has significantly increased its commitment to providing that new technology. With annual revenues ranging from $US100 million to $US150 million, AFS has invested $US30 million since 1997 in IT infrastructure and software development. According to Byers, AFS rebuilt its system using networking equipment from Lucent Technologies, Cisco and 20 high-end HP Unix servers. Nine satellite offices access the central network via a frame-relay wide area network. System software includes an Oracle database, a Lawson enterprise resource planning package and a standardised desktop environment using Windows NT.

Once this new infrastructure was in place, AFS was in a position to provide an array of enhanced e-business services to its member retail florists in the United States and Canada. These services include an Internet-based network that enables florists to send and receive wire orders (EagleNet), e-mail and e-commerce enabled Web sites (Eflorist.com), and management and accounting software that helps florists run their shops (Eagle Floral Management System). AFS charges 50 cents for each EagleNet transaction and $US2.95 for each Eflorist.com transaction. The company bundles the enabling software in its Flower Power Kit and distributes it at no additional cost to its members.

AFS worked with IBM Global Services to build the Internet-based EagleNet wire network. Byers says that EagleNet costs about the same as monthly ISP access for the retail florist and it integrates easily with both the Eagle Floral Management System (FMS) and with Eflorist.com, which allows retail florists to have their own Web sites with their own logos, consumer reminders, promotional items, product catalogues and saved shopping baskets.

Butler predicts that by 2005 the Internet will be involved in 60 per cent to 70 per cent of the retail florist's business, and he believes that AFS is well positioned to be a key provider of the necessary technology that will fuel that growth. AFS plans to work intensively with the individual shop owners, educating them about the challenges and opportunities of the Internet. Now that AFS has standardised the desktop environment of its members, it will be easier to provide online technological updates as well as educational and promotional materials.

Bigger Plants to Harvest

AFS's long-term game plan goes beyond its traditional base of retail florists. The plan is to be a major player managing the information technology that would link the critical components of the floral industry, including growers, wholesalers, retailers, manufacturers, importers and exporters of floral products. "We want to bring them all together in a community to facilitate commerce," says Mark Nance, AFS's marketing chief. Adds Byers, "We want to transcend our normal business and build a network to link all aspects of the floral industry."

The floral industry has been slow to adopt information technology and even slower to realise the potential of the Internet, says Butler. But he believes the adoption rate will accelerate sharply over the next five years. Meanwhile, he works to form relationships with growers, wholesalers and retailers by holding a seat on the board of directors of the Society of American Florists and by participating in more than 200 industry trade shows each year.

While pursuing its long-term goal, AFS confronts not only its rivals in the wire services business, but also direct-to-consumer order gatherers who crowd the marketplace. FTD started FTD.com in 1994 as an Internet and telephone marketer of flowers and specialty gifts, and spun it off as a public company in 1999. Another strong presence on consumer Web sites like Amazon.com and Yahoo is 1-800-Flowers.com. Nance says these order gatherers siphon business away from traditional retail florists - and make them want to be Internet players too.

Web Sites A-blooming

Victor West is one of those traditional retail florists. The owner of Vanessa's Flowers in suburban Plymouth, Michigan, for the past eight years, West says he's using AFS's FMS software to run his store's accounting, billing and inventory systems, along with wire orders (as much as 30 per cent of his revenues). He has three employees and four PCs along with DSL Internet service. A member of the Big Three wire services, West says he may drop FTD because of its high fees.

West describes AFS as a quick learner, keeping up with the latest technology as well as with the particular needs of its members. He's particularly pleased with AFS's software that enables him to create his own Web site, which he says gives him the resources to compete with 1-800-Flowers.com and other direct Internet sellers. "With AFS.com I can have my own site and tailor it to my needs. You can do neat things with it like customise your database to keep track of customers and special occasions, and have the system send you e-mail reminders. I need more [technology] education, but AFS is very responsive," West says.

Other long-time customers echo West's support for AFS's customer-service-centric and IT-laden approach. "AFS's attitude toward the retail florist is ‘we help you improve, grow your business and be more successful. As you profit, we profit,'" says Bill Hitt, president of Flowers by Louis Hody in Nashville, Tennessee, one of the nation's largest, single flower shops that hits in excess of $US2 million per year in sales.

But not all florists are ready to plant the AFS flag - even while they pursue their own e-commerce campaigns.

Ted Winston, treasurer and co-owner of Winston Flowers, says the business started by his grandfather in the 1940s is among the nation's top 10 in flowers-by-wire orders. Winston's six Boston-area shops use FTD and Teleflora wire services.

Winston appreciates FTD's marketplace clout, but he's concerned about its growing competition with retail florists. When FTD receives orders directly from customers, it then distributes those orders among its member florists while charging fees for the transaction and order placement.

But FTD is only one player. "The consumer has so many choices now. He can go to Yahoo, type in flowers and Los Angeles, check out the Web sites of dozens of florists and then deal directly with the florist who's going to fill his order. And there's competition from other sources," says Winston. "Instead of selecting flowers, the consumer can express feelings with gift items from candy to wine to teddy bears."

Winston's Web site (www.winstonflowers.com), up and running since the beginning of this year and designed by the Internet Technologies Group in Boston, accounts for only about 5 per cent of his overall business. Winston believes it will generate incremental sales as more of his traditional customers go to the site instead of ordering by phone.

Winston's lukewarm embrace of the Internet suggests that AFS will meet some big hurdles in implementing its strategy.

Butler says he knows that AFS has a considerable distance to travel to become the floral industry's Internet company. But he believes that AFS has made significant progress, and he's committed to making the journey. ©

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