Thorntons has undergone something of a transformation since Mike Davies took the helm three years ago. Thanks to a strategy re-think and a new emphasis on customer-led innovation, Thorntons has steadily seen sales and profits grow. Although recent results have been dented by the economic downturn and the loss of key retail customers, Davies insists that the future is sweet for the UK chocolate maker. Dean Best reports.
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“You’ve got to keep surprising and delighting customers,” proclaims Mike Davies, chief executive of Thorntons, as he reels off a raft of new products set to come from the UK chocolate manufacturer in the run-up to Christmas.
Innovation, Davies maintains, as he lists products “inspired” by recipes from Paris and Milan, as well as cloudberry and quince flavoured chocolate among the new products soon to be launched, is vital to “keep customers coming back again to see what’s new this week”.
“If you’re going to listen to the customer and put the customer first, you’ve got to innovate. You’ve got to put product into new areas that they are interested in,” Davies tells just-food. “Innovation is one of the cornerstones of our strategy that we put together to get Thorntons back on its feet three years ago.”
Davies, a stalwart of the food industry with 30 years of experience at companies including chocolate giants Nestle and Mars, joined Thorntons in September 2006 just days after the company posted a slump in annual profits and announced the departure of its former chief executive.
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By GlobalDataSome industry watchers said Thorntons did not offer a wide enough product range and, under the stewardship of Davies and chairman John von Spreckelsen (who had joined Thorntons in June that year), the company set about launching more products, opening new stores and increasing its online business.
Davies says he and ex-Somerfield boss von Spreckelsen “turned the company’s strategy on its head”.
“When the chairman and myself joined the business, we said ‘Look, this all about putting the customer first. The shops are there to sell what the customer wanted to buy, not what the factory could make’,” Davies says.
For the first two years under Davies and von Spreckelsen, Thorntons went from strength to strength, sweetening investors with rising profits, rising sales throughout the UK’s largest retailers and steady growth from its own namesake outlets.
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Needless to say, when the financial crisis hit last autumn, just as Thorntons was preparing for its key Christmas selling period, the company was affected. In February this year, Thorntons reported falling half-year profits, while sales from its own stores declined as consumer confidence slumped on UK high streets.
Davies acknowledges that Thorntons had a “difficult trading period just before Christmas” but insists the business is “back on track”. He says: “If you take a longer term perspective and see what we have achieved over the last two to three years, we’ve been able to deliver some pretty consistent growth throughout that time, with the exception of the quarter before Christmas last year.”
The challenging trading conditions around Christmas has meant that Thorntons’ plans to roll out a new store concept have been put on hold. Thorntons launched five trial stores late last year, although, with the benefit of hindsight, the group now realises a launch slap bang in the middle of a recession was probably not the best idea.
Thorntons is keen to reduce its financial dependence on the three months around Christmas, which fall in the first half of its fiscal year and account for 40% of the company’s sales. In recent years, the dependence on the festive period has been a factor in Thorntons reporting losses in the second half of its financial year (the six months from January to June). However, Davies insists an indication of the group’s progress is evident in the fact that its second-half losses have narrowed year-on-year.
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“One of our long-term goals is to reduce our dependency on Christmas from a financial point of view,” Davies says. “If you look at the results we’ve achieved in the second half of the financial year, we have actually delivered 6.1% [net sales] growth and we’ve again reduced the losses that historically Thonrtons has made in the second half. If you go back to the 2006 results, we lost about GBP7m in the second half; we lost GBP5m in 2007, just over GBP3m in 2008 and we’ve reduced that to half a million this year. We’ve been making really, steady continuous progress every year in terms of reducing those losses.”
When Thorntons posted its annual results at the start of this month, the company beat expectations despite a 4% fall in profits. Signs that Thorntons had managed to ride out the worst of the downturn included the fact that it managed to grow its sales among UK retailers despite the collapse of key customer Woolworths plc. Moreover, revenues from its franchise division were up, despite the bankruptcy of Birthdays, the card retailer and a key franchise partner.
Thorntons “commercial” sales – revenue it makes from sales in other UK retailers – now account for over a quarter of its turnover and, despite the downturn, climbed by almost 15% in its last fiscal year. Proudly, Davies reveals that, in the last 12 months, Thorntons has grown to become market leader in a key category – inlay boxed chocolates.
“We’ve been making very good inroads against private label. Last year, when we announced results, I was very pleased to say that we had become market leader in the branded area. This year, I’m delighted to say we have overtaken total private label as well,” Davies says. “We are now the largest inlay box chocolate supplier in UK grocery.”
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Thorntons’ relationship with the UK’s largest grocers has, Davies insists, been “constructive” amid the downturn and the concomitant consumer chase for value. The Thorntons boss said that, in the last 15 months, the company has relaunched key grocery lines, a tactic that, despite the company’s refusal to participate in promotional activity, had kept its commercial sales bubbling away.
“One of the characteristic of our business is that we do not support promotional activity in the multiples and because we have got a great-tasting product, consumers love it. The retailers are actually making a higher margin out of our products, so they are very supportive of our business,” Davies says.
And Thorntons’ franchise business, despite the loss of Birthdays, remains robust. Davies says that, by Christmas, the company should have replaced 75 of the 94 stores lost when Birthdays collapsed.
Davies added: “We’ve continued to innovate – it’s important to us. We’ve reduced the debt and we delivered results ahead of market expectations so we’re pretty pleased.”
Davies has good reason to be pleased. With a clear strategy, a strong brand and swathe of NPD ready to roll out, Thorntons will be hoping for a sugar-coated next 12 months.
