Hotel Chocolat

Strengths

Brand strength – Hotel Chocolat is arguably the best-known brand among the new breed of more upmarket chocolatiers that focus on high-quality products. The retailer’s mantra of “more cocoa, less sugar, for a healthier and more satisfying cocoa hit” has resonated well with British consumers.  

In-store theatre – Hotel Chocolat’s stores reflect its upmarket positioning and also offer in-store theatre such as tasting evenings and events, as well as in-store cafés. This is very much in tune with current demands for experiential shopping and the retailer is continuing to “step-up further the multi-sensory elements” across its estate. 

Management team – The retailer continues to be led by its highly regarded co-founders Angus Thirlwell and Peter Harris, who have put a distinctive corporate culture in place based on originality, authenticity and ethics. It bolstered management with the appointment of Lysa Hardy as its first chief marketing officer in late 2018 and has since strengthened the senior digital team as well.

Vertical integration – With group sales of over £225m, Hotel Chocolat has built considerable scale. It sources a large proportion of its offer from its own cocoa plantation in Saint Lucia, which gives it a greater control over its costs. It also gives it an edge in terms of the provenance of its product offer – an important consideration for chocolate purists.

Weaknesses

Seasonality – The chocolate market is very seasonal, with peaks in demand occurring around key dates such as Easter and Valentine’s Day. However, Hotel Chocolat is looking to reduce the seasonality of its business through new formats such as its cafés, restaurants and by offering tasting experiences. It is also fine-tuned its subscription service in FY2019, which provides a more regular income stream.  

London bias – While Hotel Chocolat has a good coverage across the UK, its store network is still fairly strongly biased towards London, with more than a quarter of its stores located in and around the capital in recent years.

Opportunities

Market share growth – Hotel Chocolat is well placed to increase its currently still modest share of the chocolate market – less than 2% share of the £6bn UK chocolate market according to market research group Canadean – as it benefits from the shift in demand towards higher-quality chocolate with less sugar and greater cocoa purity. Continuous product innovation should also help raise its share of the £20bn UK gifting market, while it is now also moving into the £8bn café market.

Online sales – With digital driving around 70% of sales in FY2020, Hotel Chocolat is ramping up investment in driving digital growth. It is insourcing all CRM and email activity to give greater control and improve personalisation, while it has also digitised  its successful VIP ME loyalty scheme, investing in apps and improving online navigation and conversion.

Catering – The group has moved into the catering sector through the launch of cafés and restaurants, which is an interesting way for Hotel Chocolat to increase its presence in the UK and at the same time reduce the seasonality of the business.

Economic outlook – The widespread uncertainty surrounding the UK economy as the cost-of-living rises in the aftermath of Brexit and in the wake of the coronavirus pandemic, could see consumers cut back on discretionary purchases while still treating themselves to small luxuries. In this context, Hotel Chocolat might benefit from the affordable luxury positioning of its brand.

Scaling back internationally - Hotel Chocolat had been taking a second crack at the potentially lucrative US market and had four stores up and running. It was also upgrading its US website, and enhancing fulfilment through its partnership with The Hut Group. Elsewhere, it had been taking more of a franchise approach to international development and formed a partnership for a multichannel move into Japan from the end of 2018. However, that has all changed more recently as the retailer has scaled back its US operations and closed its US stores before going on to shut down its US website as it turns its attention to the UK market. Meanwhile, its Japanese joint venture secured court approval to undergo restructuring. Scaling back its international operations could benefit the UK market.

New experiential store formats - In late 2022, boss Angus Thirwell revealed that the retailer has its sights on rolling out its new “format of the future” stores as shoppers returned to physical stores. Combining dining and retail, the new larger-format concept includes features such as a sit-in-cafe selling ice cream and hot drinks, creating a more immersive brand experience. 

Threats

Wholesale risks – Hotel Chocolat supplies a number of retailers, such as John Lewis,  Ocado and Amazon, on a wholesale basis, but should be mindful of the mistakes made by mid-market player Thorntons – which devalued and overextended its brand by supplying supermarkets.

Health concerns – Chocolatiers are always at risk of consumers cutting back on chocolate over health concerns, but Hotel Chocolat is keen to stress that it is the sugar that is added to chocolate that is harmful and has positioned itself as offering ‘healthy luxury’.