Floral marketplaces: Does the future look rosy?
The retail industry across the Middle East has undergone a sea of change, with online purchases becoming a central part of the shopping journey. E-commerce is increasingly being disrupted by startups aiming to digitise almost every aspect of this journey.
The floral sector has therefore not been left immune from the digital boom. E-commerce adoption in the sector is happening, but at a slower pace. Abdulaziz Al Loughani, CEO of Floward, attributes this to the fact that the sector still remains by and large a fragmented sector.
“It is a brick-and-mortar industry at heart; traditional mom-and-pop shops still dominate," says Loughani. "We are slowly seeing the pickup of e-commerce penetration happen as part of the world and we are definitely causing that disruption to happen."
Amid the uncertainty triggered by the Covid-19 crisis, the company ramped up its expansion plans. Now, it is operational in Oman, Saudi Arabia, UAE, Kuwait, Bahrain, Qatar and the UK.
“Back in March 2020, we were in the middle of our expansion, in addition, we saw that e-commerce penetration in this part of the world and other parts were almost doubling. We felt that we really wanted to be ready for more, which led us to be more present physically, in terms of fulfillment centres in a wider geographic footprint," he adds.
Earlier this week, Floward announced it had raised a $27.5 million Series B round, looking to further fuel its expansion and bolster its growth.
The company offers a full-fledged e-commerce solution, procuring cut flowers from different parts of the world, which are then shipped to Floward's fulfillment centre. According to Loughani, Floward was founded with the aim to bridge the trust gap between the brand and customer.
"[We] found that people are actually not loyal to many brands when it comes to flowers, yet they are more loyal to the florist, to the quality of flowers, to how they are delivered, that’s why we chose to play pure e-commerce,” says Loughani. “Most of our competitors operate in the market as aggregators. But, in our case, we are looking to fill a huge gap and establish our own brand, and acquire all of the customer experience as much as possible."
Saudi as a sought-after destination
The GCC market is worth around $1.5 billion according to Loughani, with much of the growth coming from the Saudi market.
“Saudi Arabia constitutes 50 per cent of the GCC's gross domestic product (GDP). We believe that the digital transformation happening in Saudi led by the government will eventually have a triple, if not quadruple impact on the rest of the neighbouring countries in the region,” he surmises.
Saudi Arabia is also home to the largest producer of flowers in the Middle East, Astra farms. Last week, Dubai-based B2B floral marketplace Floranow, acquired the distribution business of Saudi Arabia's Astra Farms, with the aim to digitise its flower distribution business.
As per the deal, the company’s entire yield output will be sold online by the end of next month according to Charif Mzayek, CEO of Floranow.
“Saudi Arabia is the biggest market in the region, and if you really want to scale your business, you need to have a presence there,” says Mzayek.
By expanding to Saudi, Floranow looks to address the inefficiencies in the floral sector supply chain by leveraging technology.
"The first challenge we are facing in KSA is logistics. Luckily, we were able to deal with that in a short period of time, we worked with partners at Astra, and redesigned the entire logistics network in a way that ensures a 24-hour delivery framework from farm to consumer,” he explains.
E-commerce marketplaces enable increased visibility into the whole supply chain as well as giving retailers the opportunity to access a broader array of products from all over the world. In the case of floral marketplaces, digitising the sector's supply chain will also increase customer awareness about the different types of flowers to enable them to make better, more informed choices.
"In our region, flowers are sold in general based on their colour. We want to ensure that everyone on the platform bases their own buying decision on specifications such as stem length, head size, etc. Clients started seeing the value of making a purchase decision based on certain specifications, variety and type rather than buying with a more general type of reference," says Mzayek.
Running a floral marketplace involves different unit economics than the ones usually associated with other marketplaces where food, grocery, and medicine or home appliances are sold. The fact that flowers are highly perishable products entails a very specific type of knowledge and experience in handling and transportation and deliveries.
“When we started the company, we came very quickly to the conclusion that we needed to build our last-mile delivery capacity,” says Mzayek, arguing that the floral space offers opportunities for growth to third-party delivery companies if they perfect the last-mile delivery experience for flowers.
However, for Hamed Eslamian, founder of UAE-based premium flower delivery platform Black and Blanc, last-mile delivery poses a significant challenge to his business.
"We are really facing a big challenge in terms of getting the products to our customers at the right time," says Eslamian. “Since Covid-19, we have had at least 20 to 30 companies coming to us, new delivery companies and asking to work with us, and we have onboard all of them. However, it is still very challenging for us to be able to get to the customer at the right time. Everything is done online at this point in time, even though there are many different delivery companies available right now."
Where will growth come from?
The key drivers of growth in this sector can fall under three categories; gifting, flowers for personal use and occasions.
"Gifting is growing, and I believe this [segment] will be the main driver of growth in the sector," explains Mzayek.
In light of the fact that most of the wedding parties as well as family gatherings came to a grinding halt due to pandemic, Mzayek highlights that much of the growth in the sector last year was driven by the gifting side of the business. However, he asserts that the sector will not be able to achieve higher growth rates unless people start purchasing flowers for personal use.
"If we look at the sector, the growth is going to come from the ability of the sector to increase the share of flowers that are being bought for customer's own use,” he says.
Mirroring a similar outlook, Floward's Loughani explains that the self-consumption segment offers huge growth potential.
"Most of our business consumption in the flower vertical is related to gifting. Whereas in more developed markets, more than 50-60 per cent of the market is actually the self-consumption market as buying flowers for [the] living room, for example, and paying subscriptions to replenish flowers on a weekly basis," he says.