Will Ferns N Petals’ diversification into cafes and premium water pay off?

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Published: April 15, 2019 2:38:35 AM

For flowers and gifts retailer Ferns N Petals (FNP), cakes account for 30% of the sales.

Considering that flowers are highly perishable, FNP worked on the supply chain, sourcing and logistics to save costs and build volumes. Today, the company has an omnichannel business model.

For flowers and gifts retailer Ferns N Petals (FNP), cakes account for 30% of the sales. The company forayed into cakes with FNP Cakes N More outlets in April, 2017, to cater to gifting premium, designer cakes. After launching 50 such outlets, it has now upgraded six of them to cafés, hoping to earn incremental revenues. It is pertinent to note that FNP’s foray into the QSR segment, with Chatak Chaat back in 2005, was unsuccessful. The retail chain serving street food shut shop in three years.

The Delhi-based company also has a wedding planning business. As if that wasn’t all, FNP has also ventured into the premium drinking water category. FNP Water was launched in November last year to supply premium drinking water at its wedding venues. Its retail presence is currently restricted to FNP outlets; but will be expanded later. With multiple businesses, is the ‘gifting’ brand stretching its proposition too thin?

The company forayed into cakes with FNP Cakes N More outlets in April, 2017, to cater to gifting premium, designer cakes.

According to Harminder Sahni, founder & MD, Wazir Advisors, QSR and water are totally unrelated categories for the company. “It is alright as long as FNP drops concepts quickly if they don’t work. Most successful companies don’t fail in their core business; it is diversification that drags them down,” he warns.

Beyond flowers

FNP started as a premium florist chain and opened its first outlet in 1994. Considering that flowers are highly perishable, FNP worked on the supply chain, sourcing and logistics to save costs and build volumes. Today, the company has an omnichannel business model. “The offline presence aids brand recall and also brings in delivery capability, while online gets these shops a huge chunk of orders to become sustainable and viable from day one,” says Pawan Gadia, CEO, online and retail, FNP.

Fast delivery, while maintaining quality, is key to the business. “The hub-and-spoke model, which is popular in e-commerce, doesn’t work in the perishable category, especially since our focus is on same-day and one-hour delivery,” adds Gadia.

FNP aims to become a Rs 500-crore business by 2020. Ferns N Petals Pvt Ltd reported total revenue (excluding wedding business) of Rs 140.5 crore in FY 18, as against Rs 108.5 crore in FY 17, as per RoC data. The revenue from its wedding business was around Rs 100 crore in FY 18, the company claims.

Rahul Kapur, partner, Grant Thornton India, says that while margins are good in events and weddings (around 18-25%), QSR models require different skills. “The brand will have to spend big on advertising and promotions, to create a niche for itself in a category dominated by Chaayos, Barista and Café Coffee Day,” he adds.

FNP commands one-third of the organised flower market in India, but cakes is its most lucrative business. For every one flower shop, there are at least five cake shops in India. FNP has 260 flower shops in 105 cities and 50 Cakes N More outlets in 25 cites. “We are exploring the café model in some of the bigger outlets with 500 sq ft area. The rental of the shop contributes 15-20% of the topline. So if we increase the area by 100 sq ft, with a small increase in rental, we are able to increase the topline by at least Rs 1 lakh per month,” says Gadia.

However, the concept of cafés is likely to be restricted to metro and tier-I cities. The retail expansion in tier-II cities will be driven by smaller format stores of 250-300 sq ft with a focus on gifting, especially items like plants, printed cups and cushions.

Perils of expansion

Diversifying into categories like gifting, QSR and water will not be a bed of roses for FNP. With big horizontal players such as Amazon and Flipkart, and hyperlocal players such as Big Basket operating in the gifting space, the category is intensely competitive. It is no longer restricted to products alone, but has moved into services such as gifting vacations, weekend getaways, etc. FNP, too, launched Experiences this year to offer services such as dining and birthday party décor.

“While the foray into cakes, experiences and weddings will work well, as it keeps to the brand’s core, the QSR foray can bleed FNP substantially,” says N Chandramouli, CEO, TRA Research. Likewise, its entry into the water segment, that already has big brands such as PepsiCo, Coca-Cola and Parle, is riddled with risks. It entails a strong distribution network and high marketing budgets. Ravi Wazir, a food and restaurant industry consultant, does not think FNP’s wedding business and retail network are big enough to provide critical mass to justify spends.

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