The last few seasons have given the industry no shortage of explanations for slower sales. A cold spring, prolonged rain, heatwaves and wider economic pressures have all played their part, making it almost impossible to separate the impact of the weather from the impact of rising retail prices.
But I do think there’s an important question: Have we actually had a chance to test today's price points, or has the weather conveniently masked whether our pricing model itself is beginning to suppress demand?
The industry has understandably focused on recovering genuine cost inflation. Statutory wage increases, rates, energy, transport, packaging and compliance have all become more expensive, and suppliers have had little choice but to reflect those costs in their selling prices. Those increases rarely represent additional profit but instead a greater financial commitment to produce exactly the same product in an even more fickle market, leaving suppliers carrying significantly more risk than they did only a few years ago.
Then I think the real point of consideration is that percentage mark-ups don't simply pass inflation through the supply chain, they multiply it.
A supplier may need another 10p simply to stand still, but by the time that increase has passed through percentage mark-ups and retail price points, the customer may be looking at another whole pound on the shelf- nobody’s selling anything at £14.37 like Asda have taken to doing. To use an average hanging basket as an example. Five or six years ago, a mixed plastic basket might have retailed at around £17.99. Today, the equivalent basket is more likely to be £22.99. On the face of it, that's a £5 increase to the customer.
Yet in 2019, haulage on a trolley of 40 planted up baskets was around £35, meaning less than £1 per basket, or roughly £2.50 of the retail ticket once marked up. Today, haulage is closer to £2 per basket and, once multiplied through the supply chain, contributes closer to £6.50 to the retail ticket. Almost ALL of the price change is just the increase in haulage cost multiplied up meaning suppliers are likely earning less, despite higher costs and lower volumes across their businesses.
That multiplier would matter far less if volumes remained unchanged. The concern is what happens when higher retail prices, particularly alongside wider economic pressures on household spending, begin to slow sell-through.
Slower sell-through creates an entirely new layer of costs that did not exist before. Retailers spend more labour watering, cleaning and presenting stock that would previously have sold more quickly. Suppliers absorb more waste, which is exacerbated by the fact that every unsold plant represents a much greater financial commitment than it once did, while lower volumes reduce the efficiencies that have always underpinned commercial growing. None of those costs were part of the original inflationary pressure, yet all of them will be sought to be recovered.
The following season, suppliers need another increase to recover higher waste, lower efficiency and additional labour. Retailers need another increase to recover higher maintenance costs and the overhead of selling lower volumes. Those increases are then subjected to exactly the same percentage mark-up, meaning the secondary costs are multiplied just as the original inflation was.
That is where the cycle becomes self-reinforcing. Inflation is multiplied into higher retail prices. Higher retail prices risk creating slower sell-through. Slower sell-through creates additional costs, and those costs are then multiplied all over again.
None of this suggests that retailers should earn lower margins or that suppliers should absorb genuine cost increases for the risk of their 10p driving retail price up a whole pound, and thus volumes going down. Both need profitable, sustainable businesses. It does, however, raise the question of whether a flat rate percentage mark-up is still the right mechanism during a prolonged period of inflation.
Perhaps the answer isn't a lower margin, but a different way of achieving it. A model based on a lower multiplier with a fixed cash markup, someone suggested something along the lines of 2.2 plus £2, would still allow lower-ticket products to make a stronger cash contribution. Customers buying a £3 or £4 plant from a garden centre have already chosen not to buy the cheaper supermarket equivalent, suggesting they are prepared to pay for quality, range, advice and experience. Those products have also been driven to such competitive supplier prices over the years that they arguably need to contribute more. At the other end of the scale, however, avoiding repeated percentage multiplication on higher-value products could help prevent unavoidable inflation from turning into disproportionate retail price increases that ultimately slow the very sales on which both suppliers and retailers depend.
If the weather has disguised anything over the last few seasons, it may not be demand itself. It may be the extent to which our pricing model has become part of the inflationary cycle, and that feels like a conversation worth having.
Contact hortweek@haymarket.com to comment
