Thorntons franchises retail future by closing 120 own store outlets

By Ben Bouckley

- Last updated on GMT

Related tags: Chocolate

Thorntons franchises retail future by closing 120 own store outlets
Thorntons announced today that it plans to close at least 120 own stores, replacing many with franchised outlets, and will also seek savings of more than £2m a year by cutting supply chain costs.

The stores will close over the next three years – with another 60 out of a total of 370 under review – and the chocolate firm will also outsource storage and distribution to DHL, cutting supply chain and central costs by more than £2m a year from 2012/13.

The announcement follows a strategic review that the firm said would enable management to re-position the business over the next three years and achieve sustainable future growth, as it admitted that current trading was “challenging”​.

Simon Wright, founder of food consultancy OF+ Consulting (whose career includes stints at United Biscuits, Nestlé and Unilever) told “I’m glad to see them taking action that reflects a changed retail environment. Hotel Chocolat’s success has left Thorntons' offer looking a bit limited, although they’re good at what they do. But people’s tastes are moving on and becoming more sophisticated."

Premium shift overdue

Former Thorntons chair Peter Thornton told this publication in May that major supermarket listings in the noughties had dented product quality and perceptions thereof​, and also eroded margins in the company's shops.

But Wright emphasised that Thorntons sales were growing via supermarkets, and added: “Most businesses are used to volume/margin requirements, and you need certain volumes to keep factories busy, and can lower margins to achieve greater volumes. So this isn’t necessarily a bad thing.”

Reflecting on the Thorntons experience, Wright said: “If you go into a Thorntons store it’s very bright, with everything heavily merchandised, and you also notice that it’s very price conscious.”

Wright said that he helped successfully launch Green & Blacks at a 400% price premium compared with Cadbury Bournville 20 years ago, in the belief that consumers would be prepared to spend more on a higher quality product, and added that Thorntons move towards developing a more upmarket brand was long overdue.

He said that the broader market had changed, with chocolate becoming more like wine and issues such as provenance, dark chocolate and high cocoa content key to the growing success of premium products, with ‘value’ rather than price a key sales driver even for supermarket own-label products.

Peter Thornton also insisted that product quality had fallen, but Wright said that Thorntons head chocolatier (from October 2008), Keith Hurdman, was doing a "really good job"​ developing premium-end chocolates, as evidenced by Academy of Chocolate awards in 2011, “which don’t just go to any high street retailer”.

Decoupling strategy?

David Stoddart, research director at FinnCap predicted in mid-May that Thorntons would close around 200 outlets (principally own stores) over the next 10-20 years due to declining high street footfalls, while the firm had lost ground to 'premium' rivals Hotel Chocolat and Green & Blacks.

He added that the small size of such outlets made them relatively expensive to operate, and envisaged a “decoupling strategy”​ in the mid- to long-term that could result in more of a manufacturing/branding business with less of a retail presence.

Thorntons said today that it aimed to capitalise on its brand strength via a more focused retail estate focused on “all year round gifting”​, a renewed customer focus and growth via commercial (supermarket) franchise and online channels.

Ceo Jonathan Hart said: “Our goal is to refocus the business across all channels and seek to deliver industry competitive returns over the next three to five years.

Thorntons concluded in its review that it could support a maximum of 200 profitable own store outlets, with a “differentiated and less seasonal proposition”​.

“Our franchise estate will grow as own stores are closed ​[at a cost of £4.2m-£4.8m as leases expire] and replaced with a franchise in the majority of locations, thereby protecting contribution and customer goodwill,” ​it said.

In addition to franchises, the chocolate maker will also focuses on “driving good growth”​ via supermarket sales (which it predicted would be its main sales driver over the next three years) and its online presence via Thorntons Direct.

Thorntons also announced that marketing director Peter Wright will leave the company from July 1, with Hart assuming responsibility for the own store channel. The company will announce its Q4 trading update on July 13 and preliminary full-year results on September 7.

Related topics: Confectionery

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