A Big Pile Of Chocolate

Thorntons has been eclipsed on the high street by a company more in tune with the zeitgeist.

All of sudden Thorntons, the once dominant high-street chocolate retailer, is in demand, by investors at least. Its stock is now seen as somewhat undervalued and worthy of a speculative punt. Its share price has soared nearly 60 per cent, even though the company is slashing its dividend and planning to close 120 of its string of 344 high-street stores in the next three years. Some people obviously thinking, that like the rest of the economy perhaps, its share price had been talked down too far.

Thorntons has just announced its half-year results and it hasn’t made much money. Christmas trading was not good. This wasn’t helped by its channel strategy: of selling discounted products through supermarkets in direct competition with its own retail outlets. The company now plans to cut back on retail activities and grow what it calls “commercial” sales, mostly sales to supermarkets, which make up about 40 per cent of today’s sales.

Chief executive Jonathan Hart says, “Commercial will soon be our largest channel in terms of volume and value, and we expect to see headroom on our covenants improve in 2012.”

This all smacks of desperation to me. Thorntons has been around since 1911, when it was founded in a shop in Sheffield. But as in any market where there is strong demand, you need to be wary of new entrants and make sure that you don’t allow them to take your lunch, or in this case, chocolate bar. You need to stay in tune with the times and stay different.

In 2003, Choc Express was rebranded as Hotel Chocolat and launched its first retail store in Watford town centre; it now has 56 stores – 12 in London. Since 1998, Angus Thirwell and Peter Harris, the founders of Hotel Chocolat, have been creatively innovating in this space, first with its Geneva Chocolates and then the Chocolate Tasting Club. With Hotel Chocolat there is a strong fair-trade dimension too, something that, in 2003, was becoming more important to consumers. To this day, Hotel Chocolat is the only company in the UK to grow cocoa on its own plantation.

Perhaps it was a coincidence, but Hotel Chocolat hit the high streets only three years after Juliette Binoche captivated a generation as the star of the film Chocolat, adapted from a book by Joanna Harris, that brought us sophisticated, magical and “sinfully delicious” chocolate that changed people’s lives. Well, Hotel Chocolat certainly changed the UK retail market for chocolate and Thorntons has not responded adequately to the challenge. Ten years on, Hotel Chocolat is doing rather well and Thorntons finds itself with nowhere else to go but to pile ‘em high and sell ‘em cheap(er at least), to the notoriously difficult supermarket “channel”.

Thorntons is no longer different enough, and it has been forced to capitulate where it counts – on the high street – and effectively relinquish price control to its major commercial clients as well. This is all because the company didn’t respond well enough to changing fashion, or to the spirit of the age.

Mark

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