Arena Flowers on building an operating platform for the new realities of ecommerce

Ethical florist and online gifting business Arena Flowers is something of a well-kept secret.

"When people find it, they love it - we genuinely have such evangelical support for [the brand] from our customers," says CEO John Hackett. "But people stumble onto it."

However, the company has just announced its acquisition of well-known D2C plant brand Patch Plants and has plans to grow further by merging with other like-minded brands, as well as by making its bespoke ecommerce and fulfilment platform, Hyperion, more widely available.

I spoke to Hackett about the Patch Plants acquisition and how Arena maintains its strong commitment to ethics and sustainability while scaling its ecommerce business, as well as how they're meeting the current challenges around marketing and selling direct to consumer.

Like many delivery-oriented and remote gifting businesses, Arena Flowers experienced a sharp increase in demand during the pandemic: Hackett describes the business' growth as "So hockey stick, it was just nuts". While the growth was ultimately sustainable, it was also "deeply uncomfortable" to undergo.

In a fortunate quirk of timing, the business had just relocated to a much larger processing facility, something that was traditional during the 10 to 12 weeks of peak demand encompassing Valentine's Day and Mother's Day, after which Arena's teams would normally move back to their home base in Milton Keynes.

Hackett describes how the advent of Brexit and big box ecommerce fulfilment made this model more challenging from around 2017 onwards, as fewer sites were available; however, in late 2019 Arena leased a temporary site in Droitwich, Worcestershire that was "too small, but we could make it work" - "And then, the pandemic happened, and we never left."

Arena used the extra space to implement social distancing measures among the staff who worked on-site, and contracted with a taxi company to chauffeur staff to and from work in a Covid-safe manner. They also hired some dark kitchen contractors to cater meals on-site.

"So, we were really nimble, really agile, and we were fortunate that we had this additional space," says Hackett.

Three years on, and after investing significant funds in getting their new site up to scratch, Arena Flowers has found that the Droitwich site was well-suited to their growth as a business. However, Hackett adds, "There's no surprise that ecommerce has slowed down as the high street has re-opened - so we had to look at different ways that we might provide a better operating platform, and a better operating volume, to protect economics during a fallow period."

It was at this time that Arena began to look into mergers and acquisitions (M&A), and were introduced to Patch Plants, who were "thinking about how they might take their next step." The two companies were connected through Ashcombe Advisers, and Hackett met Patch CEO and Founder Freddie Blackett in the summer of 2022.

"Much more important than the economic element of it was also - did we share the same values, have we got the same sort of ambitions for our business? Is this, culturally, an easy fit?" says Hackett.

The answer to this was a definite yes, and Hackett notes that the two businesses complement each other in a variety of practical ways. While Arena Flowers' peak sales are concentrated in the period spanning Valentine's Day and Mother's Day, Patch Plants' sales profile is more focused around Christmas, which is their major driver of business due to holiday gifting. Acquiring Patch also gives Arena a broader product range to talk about, providing more material for organic social media, as well as appealing to a more varied customer base.

Moreover, Patch Plants CEO Freddie Blackett is a brand marketer by trade, and so has marketing and branding expertise that is distinct from Hackett's operational and commercial expertise. "Our focus has been on building an incredible [operations] machine that can do all this stuff that I'm really, really proud of," says Hackett. "But [brand marketing] is just not a skill we have.

"Our skills are complementary; they've got some brilliant people in their team; the products are complementary; and it makes sense for them to benefit from our Hyperion model, and for us to benefit from their additional volume."

Arena Flowers has poured a great deal of time and investment into refining Hyperion, its proprietary fulfilment and technology platform for flowers, plants and gift delivery. Hackett describes how the company needed to build a platform that could handle the intricacies of bespoke gifting orders.

"You can print a card, it can have your face, a name, on the outside of the card, and a bespoke message on the inside; you want to present it properly inside the box, so it comes in an envelope, not in a documents enclosed wallet; then, ultimate combinations of products - whether you want to put that bottle of champagne with it, and that box of chocolates, and then change the size, or the colour of the bouquet - all of that personalisation can be done.

"To do that for a couple of thousand orders a day, is - I wouldn't say it's easy, but it's relatively straightforward," he says. "To do that for 150,000 orders in 12 hours for Mother's Day and have certitude about that is really, really tricky - unless you have a million square feet, and 5,000 people. If you want to do that in any way efficiently, you need a very, very responsive and agile platform."

Hyperion is a tech-based platform built by Arena, which is overlaid with a warehouse management system that provides visibility over what's in stock and where it's located. The operating platform is built alongside it, allowing Arena to scan products from one location to another, making sure that it's possible to track exactly where that order is at any point during fulfilment.

"I can look at the dashboard, and our [B2B] customers can look at the dashboard, and see, remotely, how many orders are at what part of the funnel, and where things are being held up," says Hackett. "Is it an expected hold-up, or is there a problem? That allows me to have complete visibility of where we're at."

Arena also invested in an automation system called Kern in order to improve its efficiency in sorting, addressing, and labelling orders without sacrificing accuracy. "The ability to specify 12 red roses with that particular bottle of champagne to be delivered on the 14th - I've got a whole bunch of cards that might have different messages, faces, and prints on them, but the detail of the fulfilment needs to be consistent," says Hackett.

"In 2019 we had 78 people just sorting cards into batches and bundles - and we knew that with volume growth for 2020, that would be knocking on 100," he says. Arena looked to personalised mail drops for a potential solution, looking at the technology that those organisations were using for segmentation, postcoding, and sorting tailored mail campaigns into specific batches.

Some of this technology is only employed during absolute peak demand periods - "because there just isn't sufficient volume to merit it. Sometimes it's still better to use more conventional sorting machines. But for those days of the year, we earned our investment back in 1.8 years," says Hackett. The volume growth from Covid-19 also helped to accelerate the ROI on the new automation system. "That was transformational for one part of our operation," Hackett concludes.

Arena Flowers has just begun experimenting with automation in a new area: customer service, where they are employing the "UK's first generative AI-powered florist", Daisy. Daisy was launched after my chat with Arena Flowers, joining the business just ahead of Valentine's Day as part of the Hyperion platform, to offer additional customer support. Daisy was developed in partnership with Trulience, which bills itself as the 'World's leading platform for building interactive digital humans' - she's a fully interactive avatar that can respond to both spoken and typed questions, thus improving accessibility.

"Accessibility is very important to us, and Daisy allows customers to speak or type any questions, and to choose whether to hear or read responses. The technology is designed to make information about our business available to everyone, even to customers who have difficulty reading or writing."

Arena Flowers has become the first UK flower business to add a generative AI-powered florist, Daisy, to its customer service roster. Daisy is responsible for helping to answer customer service queries in order to free up human agents to tackle more complex queries. Image: arenaflowers.com

Arena has plans to white label Hyperion and make it available as a technology platform to other companies in the gifting space that would benefit from its specialist capabilities. Arena Flowers also does a significant amount of B2B work, which might be anything from supplying flowers on behalf of another brand that wants to expand into gifting to a more all-in-one service that includes creating a brand, building social media, and fulfilling orders.

Hackett recalls that during 2020, Arena received a number of inquiries from other brands that wanted to launch an online presence, but the company didn't proactively offer this service as they were focused on meeting the demand from existing clients and customers. However, the company is now prepared to focus more on expansion, and Hackett anticipates that there will be more opportunities for M&A or providing platform support to businesses in the near future.

"We don't just want to sell flowers for Valentine's and Mother's Day - we want to sell flowers all year round," says Hackett. "So, finding partners who are genuinely capable of finding an audience that's distinct is important to us.

"Whether it's providing a service, or just through acquisition, there's going to be an opportunity for us to provide safe haven for brands that might otherwise be under pressure that they can't sustain on their own," he adds. "And there's no Messiah complex there - I just think there are lots of businesses out there who might have had massive growth, but didn't invest in their infrastructure and operating platform - and now it's a different environment. And it's much harder to see how those businesses will survive the next 12, 18 months."

It's a tough trading environment at the moment for D2C companies of all stripes, due to the combined effect of multiple factors like squeezed marketing budgets, a higher cost of customer acquisition, increased social advertising costs, and Apple's App Tracking Transparency (ATT) impairing the ability to measure targeted advertising. I ask how Arena is handling this, given that Patch Plants is a D2C business, and Arena also sells direct to consumer.

"There can't be a single D2C brand that hasn't been affected by those challenges," says Hackett. "Our business is effectively a dotcom; it's made up of lots of channels, but there are two elements to it - one is subscription, and one is the gifting element.

"Our subscriptions customer base is unbelievably loyal, and - of course I would say this, wouldn't I - but I genuinely believe we are the best-value flower subscription business in the market, because we don't run it as a profit-making operation. It is entirely an acquisition tool."

Customers can purchase a weekly, fortnightly or monthly flower subscription or gift a three, six or 12-month subscription to someone else, and through that service, people get to know the products and quality that Arena Flowers have to offer, and get used to having flowers in their home. "Then, when it comes to their desire to gift for any occasion, mark a special moment - we hope that we are their go-to."

"It has proved to be effective," Hackett adds. "I'm glad that's our [acquisition] tool, because if that was our single source of EBITDA, we'd be in trouble, because subscription is under all sorts of pressure - you can see it in any market. Since it's not that for us, it's just a dependable contribution, but much more an acquisition piece - that's continued to be a pretty rich vein in terms of protecting us from some of the worst excesses of PPC."

Arena has also invested quite a lot of money in its app, which was launched in March 2022, and has markedly lowered the cost of acquisition while improving loyalty, and also being a good source of first-party data. "An app is something we're pushing quite a lot of focus into at the moment," Hackett says.

Other marketing channels that have yielded good returns for Arena include direct mailshots, email marketing, and organic social media (the brand is well-known for its irreverent and funny Twitter account). "As it's become more expensive and harder to find good value in paid [media], we've used direct mailshotting and direct mail campaigns to really good effect," says Hackett. "GDPR makes targeting quite tricky, but you can still go postcode-specific, and be careful about that.

"We see this as a real mix - it's trying to fine-tune that combination of email marketing, targeted stuff through print media, and app, alongside paid and social. We've got to find ways of fine-tuning and dialling up certain elements of those at certain times of the year." Paid placements during peak times like Valentine's and Mother's Day, for example, are prohibitively expensive and thus not worth the investment as a method of customer acquisition, in Arena's view.

Arena Flowers is well-known for its commitment to ethics: the company prides itself on being the UK's top-rated ethical florist, and publishes an environmental and ethical trading policy; it also contributes to reforestation initiatives, offers tips on saving the bees, and is a seller of Fairtrade flowers. Arena also ensures that all of its employees are paid above a Real Living Wage.

I ask Hackett how the company maintains this commitment while scaling its business, especially given the sustainability challenges that come with selling online.

"Ethics is a really complex area - there's nothing simple about it," Hackett acknowledges. "You can find a perfect grower in a perfect location who does great work in gender balance, gender equality, fairtrade - everything you want them to do, and they farm responsibly. But then you've got to find an airline to lift it. At what point does it become impossible to accept any distant geographical supplier?

"The challenge of ethicality is one that I think is really nuanced."

Arena is clear that its partners need to have certain values in common with the company and not have any historic issues with, for example, worker abuse or an inability to provide a fair wage; the company also insists upon fair pay in order to be able to pay its own employees fairly, and ensures that its partners don't work with other organisations that are problematic.

As for environmental sustainability, Hackett's answer to how the company manages to track and mitigate its environmental footprint is simple: "Audits."

"You have to measure stuff," he goes on. "We measure every year, and then we seek to improve - and if you've got growth, it's probably quite difficult to prevent the quantum from getting larger, but if you can reduce your unit contributions, then you're doing a better job."

Again, there are a variety of factors to balance when considering the environmental impact of a flower delivery: for distribution, Arena partners with fin and DPD for more eco-friendly vehicles - DPD in particular was chosen because they measure their impact and have a continuous improvement initiative - but selecting growers can be more complicated. "We want to buy more UK growers - we're actively seeking partnerships with more UK growers - but there just aren't that many new growers, and horticulture has been struggling more than most with a lack of available labour since Brexit."

Countries like Belgium and the Netherlands have more automation in crop picking and a more mature market, and flowers can be transported to the UK via the Channel Tunnel with a relatively low environmental impact. However, countries like Kenya are more efficient in growing flowers due to the favourable climate - can this be traded off against the impact of shipping them to the UK?

"There is still a cost, a cost of CO2," says Hackett. "Which is why we plant trees [to offset the carbon impact] - but it doesn't stop it. So what we're trying to do is change our sourcing model over time, move to more sea freight."

Arena is content to focus on selling its products in the UK for the foreseeable future, and doesn't have any current plans to expand internationally. "We think there's lots of opportunity still in the UK," says Hackett. "Our big thing is 'who, then what' - we focus on customers first, and colleagues, then we focus on technology: those three things are our core."

Improving Arena's proposition is made easier by the fact that flowers are a category of product that customers are always keen to comment on - "and sometimes that's painful, that stings a bit, but even the stuff that stings is useful." The voice of the customer is included in Arena Flowers' weekly meetings, which feeds into what action the company takes. "I just think we've got enough that we still think we have to solve in the UK," Hackett concludes.

Post-Mother's Day and the end of the peak Q1 sales period, Arena plans to spend Q2 focused on integrating with Patch Plants, with the goal of having all operations being unified out of Droitwich by the end of the quarter - "so that Patch can take full advantage of Hyperion, and we can get the benefit of that volume, but also it means there's one place for us to come, and sit together, and define strategy.

"My vision for Hyperion is not satisfied, but it's close to where I expected it to be, but just having a fresh perspective on it is already illuminating," Hackett reflects. "[Overall] I think there's so much more we can do - I am genuinely excited about the opportunity to work with Freddie and the gang."