Thorntons Chief executive Jonathan Hart is so committed to his turnaround plan that he has printed its key points on his mouse mat.

Thorntons

Two years into a three-year plan to reinvigorate one of Britain’s most venerable retail brands, Thorntons chief executive Jonathan Hart is starting to see his turnaround plan bear fruit.

Thorntons’ chief executive Jonathan Hart’s strategy focuses on reducing its store portfolio and reliance on the high street while building its commercial arm

Thorntons’ chief executive Jonathan Hart’s strategy focuses on reducing its store portfolio and reliance on the high street while building its commercial arm

Hart’s strategy, unveiled in June 2011 just four months after his arrival, was to re-engineer Thorntons’ offer by closing stores and building its commercial arm supplying to other retailers where margins are slimmer but volumes are potentially greater.

His intention was to close 120 company-owned stores over three years with the goal of creating a profitable business of between 180 and 200 shops.

The affable Hart had experienced challenges during his career from the rigours of online competition at Dixons to the highly competitive coffee market at Caffè Nero. But he describes outlining his plan to Thorntons retail managers as one of the most emotionally charged moments of his working life.

“I had a feeling of trepidation because retail conferences are usually about lifting people three foot off the floor, not putting them on their knees,” says Hart, speaking to Retail Week in his office at Thorntons’ headquarters in Derbyshire. “I told the retail managers I planned to close broadly half of the stores and half of them would no longer be with the business, and they applauded.

“People came up to me afterwards and said ‘best conference ever’ because I’d been honest about the situation. There was a relieved feeling of ‘Hallelujah, we have strategy’.”

Thorntons had suffered tough times in the previous decade. It went through a state of flux when it moved away from being a family run business, while at the same time shoppers headed for out-of-town supermarkets and away from the high street to buy chocolates.

Hart was brought in amid a year in which the retailer recorded a 7.9% plummet in like-for-likes and it plunged into losses of £1m compared with profit of £6.1m the previous year.

Hart decided the ‘three Rs’ - rebalance, revitalise and restore - would form the basis of his strategy to reduce Thorntons’ dependency on the high street and build up its commercial arm to be the main channel.

“There were certainly doubters - I could have made a plan to reduce commercial volumes, for example. Also, the strategy before was not to sell the same products through different channels to keep exclusives in-store but in my view that does not work as customers want to buy our best products wherever Thorntons is sold,” he explains.

Bumps in the road

From next year, Thorntons will primarily be a manufacturer because commercial sales are expected to outweigh retail for the first time. “It’s a bit crazy for a retail boss to come in and also be a manufacturing boss but I enjoy it,” he says of the business that started life as a Sheffield sweet shop in 1911. The retailer now has 295 stores and Hart says the closure programme is on track.

In April, Thorntons raised its profit guidance following a “satisfactory” Easter and in the third quarter total sales climbed 4% to £60.6m.

In a note earlier this year, analyst Bethany Hocking of house broker Investec said: “In our view, the retail strategy is the right one to take and should in time result in a profitable, brand-enhancing store estate.” At the same time, Panmure Gordon analyst Philip Dorgan said: “We believe Thorntons can drive sales through a number of channels and that its profits will further benefit from a reduced cost base. We believe that historic levels of profitability are within reach.”

Hart adds: “We are by no means complete but people were still questioning the strategy six months ago. Now they’re asking ‘what’s next?’”

But if Thorntons’ fortunes have been sweeter in recent months, Hart’s tenure has not been without some sour experiences.

Just six months after laying out his strategy, the retailer issued a profit warning in December 2011 following weak trading and a promotional market. “It was a difficult moment but it evidenced the need for the strategy,” Hart says.

Six months later Hart was dealt a further blow when the chocolatier’s important franchise partner Clintons collapsed into administration. Although some franchisees have since been added, Hart admits the arm is no longer a large growth channel.

The difficulties were further compounded last Christmas. Thorntons’ website, a vital channel that relaunched in November several months after it was originally scheduled to, suffered “self-inflicted” problems and the retailer struggled to calculate whether it had the right levels of stock to fulfil potential orders.

“Since then, while it has not been a straight line trajectory of success, the business has been delivering to expectations after hitting some bumps in the road,” Hart says.

The chocolate factory

Thorntons’ Derbyshire factory employs 1,800 people during the peak season

Thorntons’ Derbyshire factory employs 1,800 people during the peak season

The strengths of the business can be seen at Thorntons’ factory, next to its head office. While the 320,000 sq ft premises might not have the glitz of Cadbury World - a visitor attraction on the chocolate giant’s iconic Bournville manufacturing site near Birmingham - observers nevertheless describe it as world-class.

One of Hart’s proudest achievements has been preserving jobs at Thorntons’ head office in Somercotes near Alfreton, Derbyshire, opened by the Queen in 1985. With an 1,800-strong workforce at high season, the retailer is one of the biggest employers locally and its culture has often shaped the area.

Technical services manager Nathan Worth says that the increasing mechanisation of chocolate production has transformed the manufacturing process into a lean combination of robotics and human hand decoration.

Staff using delicate piping techniques and artfully spinning caramel stand alongside Swiss-manufactured automated depositors filling moulds and robots placing chocolates in boxes. The company is keen not to sever its links with old processes though, and uses an adapted bacon slicer to cut nougat and a pork pie wrapper made in the 1950s to enshroud the finished nougat and chocolate ring. The factory is full of a blend of aromas from mint chocolate to Thorntons’ famous Special Toffee. “The recipe is secret but all the guys in the factory know it,” says Worth.

Chocolate is fed to each line from 20-tonne tanks that are continually filled to create 650,000 kg of product a week, rising to 850,000 kg in the run-up to Christmas. About 50 tonnes of toffee a week go through the factory while 9,000 litres of champagne a year pass through its doors.

New products are developed on-site by master chocolatier Keith Hurdman and senior development technologist Jayne Ranby-Ashton.

Staff are already busily manufacturing products for Christmas while next Easter’s lines first hit production last month -eight million Easter eggs are made at the factory each year.

Supermarket supply

Thorntons

Thorntons

But if images of Oompa-Loompas and golden tickets are conjured, Worth is quick to dispel them. “We do not have a Willy Wonka waterfall of chocolate here unless we have had a big problem and just lost £300,000 of chocolate,”
he jokes.

Hart says: “It’s an excellent facility and I love being on the factory floor. People in the area really want Thorntons to succeed.”

As Hart’s plan to rebalance the business begins to take shape, opportunities to grow appear to be opening up.

The main focus will remain on increasing supply to other retailers. Thorntons supplies everyone from Tesco to the pound shops and will continue to broaden the mix. Hocking argues the view that Thorntons is devaluing and damaging its brand by retailing its products at low prices through other retailers is misplaced.

“We fundamentally disagree with this opinion, and believe that a well-managed, profitable store network and sales of more commoditised product through supermarkets can perform very well in tandem,” she says.

“Own-stores allow a company to trial new products and allow customers to experience a brand - for example, through Thorntons’ personalisation offerings. In some ways one could even go as far as to view the retail estate as a marketing cost to the brand,” Hocking observes.

Hart says that supplying supermarkets also allows Thorntons to broaden its licensing appeal - caramel shortcakes and ice cream are particularly strong sellers - and the potential for further product development is significant.

He also argues that Thorntons’ positioning means it can thrive in tough times. He says the retailer has always been a working-class brand. Its product was created as a treat for the miners and factory workers in the region, and its position remains the same despite a difficult economic climate. An imminent rebrand of its entire product range will play on vintage themes.

New channels

The retailer also has opportunities in multichannel. With its online Christmas nightmare firmly behind it, Thorntons is adding more personalisation to its web offer.

For instance, it will begin to allow customers to select products to go into hampers, adding to its personalised offer that includes Alphabet Truffles and products bearing messages. The retailer is also piloting kiosks in store, allowing shoppers to purchase the hampers, which are too large to stock in many stores.

The retailer also plays on in-store theatre, not least in three ‘maverick’ shops where staff smash toffee and dip chocolate in front of customers to highlight Thorntons’ specialism.

Thorntons is also exploring international opportunities to build on its manufacturing business in the Middle East, Australia and South Africa. “While the UK business remains our priority, we completed our review on international operations last year and recognised that international has the prospect of adding significantly to profitability over a three to five-year time frame,” says Hart.

If Thorntons is to pursue new growth channels, Hart will be keen to ensure the foundation layer in his chocolate box, UK profitability, is firmly in place and hitting the sweet spot first.

Rise of a rival

If Thorntons has experienced a difficult period, rival Hotel Chocolat has surfed the crest of a wave.

Comparisons are perhaps unfair - the former is a large mass-market retailer and FMCG business competing with Nestlé and Mars, while the latter started life as a pure-play etailer and has just 67 stores.

However, Hotel Chocolat founder Angus Thirlwell’s outfit has captured the imagination of middle-class shoppers with sleek stores, links to producers through its St Lucian plantation, innovative product ranges and clever brand development.

Hotel Chocolat, which won Speciality Retailer of the Year at the 2013 Oracle Retail Week Awards, has piqued the interest of a number of private equity firms and brought PwC on board to gauge interest in a stake sale.

With international expansion in its sights following the opening of its first European stores last year and a new restaurant to debut in London, Hotel Chocolat is preparing for its next phase of development.