Rival Businesses Become Partners as Gas Prices Surge
High gasoline prices are making life especially tough for delivery-driven businesses, but the floral gift industry is finding that a little more cooperation can be part of the solution.
The floral industry has long pooled delivery efforts in major metropolitan areas to contain expenses. But recent fuel price increases have made this kind of cooperation even more of a business imperative.
"This crisis should make us all work smarter," Art Conforti of Beneva Flowers in Sarasota, Florida told the Society of American Florists when it polled its members about how they were coping with gas spikes.
That increasingly means cooperating. "Shops that are on the borderline of your delivery area do not have to necessarily be viewed as a competitor,” said Conforti. “If we reciprocate, the numbers work out. Efficiency improves, as does your service."
Such a system has been in place for two decades among some 40 florists in the Kansas City metro area, where florists swap flower orders at a central warehouse, with each company dropping off some and picking up those that are headed to customers closer to them.
“It saves me gas, it saves me putting miles on the van, and it saves me from paying a delivery driver, “ says Scott Herron, the fifth generation owner-operator of Luther Florists of Kansas City.
“If I had him drive 30 minutes away, he’d probably burn eight bucks worth of gas – four bucks each way – and then I’d have to pay him $12 an hour. Instead I can pool it and pay $3.00-3.50 for each one you [have delivered by others] and I think you get paid $2 for each one you deliver.”
More recently, companies working in the same zones are choosing to alternate days when they make deliveries for the pool — essentially sharing delivery duties in their zone, Herron said.
It’s a trend happening around the country, says Jennifer Stroman, Directorof Consumer Marketing at the Society of American Florists.
A 22-company delivery pool helped reduce drives from 100 miles to 18-20 miles in the Oklahoma City area, Larry Cheever of Cheever’s Flower and Gifts told The Oklahoman newspaper.
Nearly 50 percent of florists nowadays also are calling ahead to make sure customers are home to receive their gifts, according to a nationwide survey of 600 florists, Stroman said.
Other measures include re-designing delivery routes, offering incentives for customer pick-ups and asking drivers to fill up whenever they see cheap gas.
Those that can afford it are buying more fuel-efficient vehicles or installing GPS software, she added.
These measures have kept delivery price increases to a minimum, averaging just $1.92 over the last 12 months, a key factor in staunching sales volume declines, according to 72 percent of florists polled by the trade organization.
Keeping Down Costs is Critical
That’s critical for maintaining top-line growth, which is the biggest challenge currently facing direct to consumer business, according to Joseph Pitto, vice-president of communications for 1800FLOWERS the Carle Place, New York-based firm.
“Clearly in an economy like we have today the consumer is challenged and raising your prices to consumers is certainly not a way to stimulate further orders, so we have not done that,” Pitto explains.
His firm has been able to keep prices down by containing internal costs that allows the company to absorb the higher fuel expenses. Of course it helps having the heft of being one of the world’s largest floral delivery firms, with nearly $1 billion in annual revenues.
“Because of our scale and size we are able to negotiate much better rates, so we have reduced our costs for shipping fairly significantly, which has helped mitigate some of the fuel surcharges that all of us direct e-commerce marketers have been hit with over the last six to eight months,” says Pitto, who is also director of investor relations.
Most of the company’s floral gifts are handled by a network of independent florists but the firm still directly ships about $70 million worth of flowers.
The firm’s sheer size also allows it to find other internal costs it can trim. It has consolidated warehouses in the Mid-West. It has also consolidated a number of contracts, getting better terms for everything from sourcing materials to the printing costs for 125 million catalogues every year.
Many industry observers expect online retailers in general will benefit from customers cutting back on trips to the mall. But Pitto says he does not expect the floral gift business to benefit much because it was one of the first industries to switch over to the Internet, after books and CDs.
“We have heard that argument in the past….but quite frankly in the current economy I don’t think people are simply curtailing trips to the mall they are curtailing spending entirely,” says Pitto.
For the time being, though, the firm is still profitable.
“Top-line growth is more challenging as it is for everybody in the industry but we are still growing the bottom line because we are able to reduce our expenses,” he said.