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Winners

Park Corporation Aoyama Flower Market

2009 9th Porter Prize Winner Flower Retailer
Specializes in “private and daily” flowers for ordinary consumers

Industry Background

The flowers sold most in Japan include chrysanthemums, lilies, roses, carnations, Kocho orchids and prairie gentians, accounting for more than 60 percent of the wholesale market in value terms. It shows that the flower market in Japan centers on corporate demand for gifts of Kocho orchids and other flowers, and for funerals. As for individual demand, carnations for Mother's Day stand out.

Flower distributors operating with many stores--though there are not many--target corporations as their major customers. Therefore, they always keep expensive Kocho orchids and large-flowered roses and lilies in stock to respond to the demand for gifts. And they usually set up shops inside hotels to prepare for the demand for weddings.

Small flower shops tend to have only one shop, or three at most. These shops are located in residential areas, making it convenient for individual customers to bring flowers home. Individuals buy flowers for special occasions, such as Mother's Day and birthdays, and for the family Buddhist altar found in most Japanese homes. Although demand for altar flowers is stable, it is not large enough to support a flower shop. Consequently, flower shops must find restaurants and offices in their neighborhood that will place orders for flower deliveries. Also, these shops usually offer flower arrangement lessons inside the shop to ensure a steady demand for flowers.

Executive Summary

Aoyama Flower Market has deployed 65 outlets in Tokyo and other metropolitan areas. It specializes in "Private & Daily" flowers and defines itself as a service provider that offers the concept "Living with Flowers Everyday" instead of just selling flowers. AFM succeeded in providing a variety of fresh flowers at low prices, while maintaining its sophisticated corporate image. It also created a new product category of reasonable prearranged bouquets that the customers can take home immediately. As a result, the company expanded the "Private & Daily" market dramatically. As the flower market shrinks because of the economic downturn, it still maintains high profitability and continues to show a steady growth.

Unique Value Proposition

Aoyama Flower Market's value proposition is to make flowers a "private and daily" item. It aims to realize its corporate slogan of "living with flowers everyday" as a lifestyle choice. Hence, its target customer is individuals, not corporate clients. This is a unique approach because none of the other flower retailers with many flower shops would ever consider ignoring corporate customers.

AFM's value proposition is "Living with Flowers Everyday," not selling flowers themselves. Aoyama Flower Market has created new strategic positioning for flower retailing, by making flowers a "private and daily" item. AFM has positioned the flower retailing business not as the selling of "flowers" but as the selling of an experience, in other words, "time and space with flowers," making it a service business.

"Living with Flowers Everyday" starts at a shop where the customers buy flowers and includes a trip back home and time and space they enjoy at home. In order to make the occasion of buying flowers a pleasant experience for the customers, AFM dedicates itself to having new varieties in stock, taking care of the display layout and fostering employees with a great deal of knowledge of the products.

In order to lengthen the lifespan of the flowers, AFM has developed a special jelly to prevent flowers from drying out on the way home. It also offers a complimentary packet of a freshness-preserving formula that will keep the flowers fresh longer, making it possible for customers to enjoy their flowers for a longer time.  
What is unique about AFM's product lineup is that it specializes in flowers suitable for individuals to choose for daily use. It also will not carry expensive, long-stemmed roses, which are required for making large arrangements for restaurants, hotels, and offices. Instead, AFM carries various kinds of short-stem roses, as well as other flowers.  AFM's does not carry potted Kocho orchids, which are the most popular arrangement given as gifts, nor does it carry chrysanthemums, which are traditionally placed on Buddhist altars.

Another strategy that distinguishes AFM from other distributors is that it provides prearranged bouquets for the customers to take home quickly. AFM offers pre-arranged (ready-to-go) bouquets ranging from 350 yen to 1,500 yen, which have been developed under different concepts, such as "for the kitchen," "for the living room," and "for the dining room."

When AFM started its business in 1989, it prices were about 50% lower than those charged by competitors. Now, the price gap has been narrowed, yet its prices are still 30% less expensive than its competitors'. At AFM, sales revenue per purchase is about 1,500 yen, which is one-third of the industry average.

To spread the concept "Living with Flowers Everyday" to customers who haven't bought flowers for themselves, AFM has opened shops mainly in busy areas such as in station precincts and at department store entrances. In stark contrast to this strategy, most flower distributors targeting individual customers have set up shops in residential areas, considering the convenience of taking products home and the lower cost of store-opening.

Unique Value Chain

Procurement
In order to respond to customer preferences and requirements which vary from store to store, each shop creator at AFM places an order for flowers to be bought at the Tokyo central flower market, the Ohta Market, selecting items from a long list developed by the headquarters in order to ensure the quality level and brand image. Unlike its competitors, which have centralized procurement at headquarters, AFM does not have a buyer at the headquarters. Each store develops its own weekly flower campaign. The team of shop creators and the product development personnel at headquarters introduce various flowers as the flower of the month, working in collaboration with farmers. Each shop, however, decides its own order volume. Regarding flowers for which demand is steady, like roses, AFM consigns production to its partner farmers.

Inbound logistics
AFM hires a transportation company specialized in the delivery of fine china to transport its flowers. This company treats the flowers very carefully, as they would fine china. This is how AFM ensures that the flowers it sells will not be damaged during the transportation process. AFM considers that the petals of these flowers for "every-day" use should not be damaged, because customers will be looking at them from a very close distance.

Store operation
AFM makes shops a place where customers can go to enjoy flowers. In order to make shopping a more pleasant experience, AFM prominently displays flowers instead of placing them in glass cases, enabling the customers to get close to the flowers and actually smell them. It displays the prices of all the flowers sold in the shop. It also makes available information about the flowers and the farmers by providing written explanations on the blackboards and by handing out free flyers at the shops. AFM has relocated the work stations normally found inside the shops of other retailers and put them at separate locations a short distance from the shop, completely out of sight.

Outbound logistics
AFM provides original paper bags so that the customers can enjoy the flowers while they take them home. At the shops in the station precincts, they pack a bouquet in a box so that it can be easily carried on the train.

Marketing and sales
AFM does not advertise itself through the mass media. Its high-profile shops in areas with a high level of pedestrian traffic are its main form of advertising.

Technology development
AFM is not involved in plant breeding or flower production, yet it aggressively searches for good flower farmers who cares about product quality and try new varieties in response to customer requests. It also invites farmers to meetings for "shop creators" twice a month.

Regarding bouquet design development, AFM conducts this process using a team comprising five shop creators, a brand creator, and a person in charge of product development at the headquarter. AFM has in-house shop designers, who design store façades, shelving, buckets, and vases. AFM spends 10% of its budget for new store openings on the development of shelving and displays. AFM also develops its own scissors, knives, knife cleaners.

Human resource management
AFM has created two separate career paths. One is for creators, and the other is for managers. Each shop has one shop creator and one shop manager. Shop creators decide on display design and product assortments, set prices, develop communication strategies, and take responsibility for customer services. Shop managers set annual sales targets, decide who to hire, develop work shifts, handle customer-relations management, and take responsibility for shop profitability. At the headquarters, there is a brand creator and a brand manager.
AFM provides plenty of opportunities to improve flower arrangement skills. It also provides various educational programs, such as training at other shops temporarily, monthly visits to flower farms, opportunity to stay at an apartment in Paris, where employees can stay for a minimal cost to learn from the flower shops there. Exams are conducted four times a year to determine an employee's knowledge about the product and store management. There is another system for evaluating managers. Part-timers with sufficient drive can sit the exam for becoming full-time employees. The exam accesses their capabilities in financial management, and business planning, as well as their presentation skills. Those part-timers who pass the exam will be given a "full-time employee pass," which gives them an advantage when full-time positions become available.

Firm infrastructure
AFM delegates full authority to each shop. Shop managers have the authority to set sales targets, procure flowers, decide who to hire, decide on the shop uniform.

With each shop having considerable discretion, shop managers can see the result of their decisions and action to maintain motivation and properly manage profits. They can see each shop's daily and weekly sales, cost ratio, and ratio of personnel expenses.

Employee commissions are pegged to the operational profit of each shop, which encourages them to minimize opportunity loss and the rate of wastage. Average waste rate of AFM is about 3%, which is much lower than that of its competitors. Shops that intensively manage loss ratio still have a loss ratio of around 10%.

Fit among Activities

Under the slogan "Living with Flowers Everyday," AFM focuses on providing customers with "Private & Daily" time and space. Therefore, it does not need to keep regular gift flowers, such as red roses, in stock. Instead, it procures flowers in season, which makes it possible to provide them at reasonable prices. Also, "Private & Daily" flowers are in steady demand, resulting in a low rate of disposal and enabling reasonably-priced products.

For "Private & Daily" flowers to establish themselves as basic items, it is necessary to open many shops in bustling areas where a high turnover of merchandise can be expected. As a result, it contributes to a low rate of disposal and lower prices. On top of that, deploying many shops helps to cut the costs of store-opening--yet another reason for moderately-priced products.

Since the demand for "Private & Daily" flowers depends on the customer stratum, each shop is given the authority to place orders. In addition, delegating power to decide such matters as employment and profit management enables the optimum ordering and floor structure, ending up with less wastage. It also gives an opportunity for personnel training, which continuously helps to improve business efficiency at each store (See the "Activity map of Aoyama Flower Market" at the end of this section for reference.)

Innovations

  • Positioned the flower retailing business as a service business that sells "time and space" with flowers, and supports a lifestyle of "living with flowers everyday."
  • Offers "life-style" bouquets.
  • Transferred decision-making authority to staff in the shops.
  • Opens shops in locations with a high level of pedestrian traffic.
  • Separates the shop managers' job from the artist by creating two positions: shop creator and shop manager.

Consistency of Strategy Over Time

Since AFM started in 1989, it has stuck to the core strategy of specializing in daily-use flowers for individual customers, even though its practice method has changed from reservation-based non-store sales to store retailing, eventually with many stores.

Trade-offs

  • Does not put air-conditioned glass cases in the shops. Lets customers have a closer look at the flowers and actually smell them.
  • Does not have work stations in the shops.
  • Does not give flower arrangement lessons at the shops.
  • Does not respond to the needs of corporate clients (large flower arrangements and potted Kocho orchids).
  • Does not sell traditional flowers for funerals (chrysanthemums).
  • Does not conduct wholesale business for hotels (bridal flowers and large flower arrangements for parties).
  • Does not sell dried flowers or preserved flowers.
  • Does not open stores in areas with low pedestrian traffic.
  • Does not open stores in areas where potential market size will not support a large enough number of shops (The new stores must offset the fixed cost of starting up operations in a new area, developing access to the local flower market, getting to know the local farmers, and developing a distribution system.)
  • The headquarters does not order flowers for the shops.
  • The headquarters does not hire shop personnel.
  • Does not aim to grow faster than it can cultivate personnel. (→If an experienced worker transfers to a new shop, the staff level of the old shop declines temporarily. Rushing too much in opening new shops before the existing stores get back on track leads to overall business deterioration and might put brand value at risk.)
  • Does not operate on a franchise basis. (→ Flower distributors keep different products from different producers throughout the year, so it takes at least one year to train new employees to learn about them. A rash and irresponsible decision to move on to FC operation could tarnish brand value.)
  • Does not pursue discounts in procurement. (→ Flower shops cannot operate without suppliers. AFM considers its supplier an outside partner with whom it can develop a long-time relationship and grow together.)
  • Does not sell dried flowers (→Selling dried flowers could lead to a low level of awareness of product management and thus to a high rate of disposal, because it gives the employees an idea that the flowers that have lost freshness can easily be turned into dried flowers.)
  • Does not sell preserved flowers

Profitability

Both return on invested capital and return on sales exceed industry average.

Return on invested capital (ROIC)   (Unit = percentage point)
Difference from industry averag
over 5 year period
Difference from industry average, by year
2004 2005 2006 2007 2008
41.2%P 25.0%P 58.3%P 51.6%P 35.6%P 23.2%P
Inter quartile range (IQR) = 16.3%P
Return on invested capital = Operating income / Average invested capital

Return on sales (ROS)   (Unit = percentage point)
Difference from industry average
over 5 year period
Difference from industry average, by year
2004 2005 2006 2007 2008
4.3%P 4.5%P 7.0%P 6.8%P 4.6%P 4.1%P
IQR = 2.8%P
Return on sales =Operating income / Net sales

Activity System Map

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