Selling its popular confectionery products through other retail channels and diversifying into other product segments has helped UK-based Thorntons to increase its sales over the last 12 months, despite the impact of the hot weather and tough economic conditions.
Turnover for the year to 28 June was 2 per cent higher at £167.1 million (€238m), helped by increased sales of Thorntons' products through the mainstream retail channels and a slight rise in like-for-like sales through the company's own stores.
But operating profits were 9.6 per cent lower than in 2002 at £9.4 million, mainly as a result of increased costs and lower-than-expected growth in own-store sales. Pre-tax profits were down 9.9 per cent to £6.4 million.
Peter Burdon, Thorntons' chief executive, claimed that the decline in profits was just a "temporary setback" and stressed that the underlying performance was solid. Licensing income from Thorntons' products sold in other retail outlets was up strongly, from £0.2 million to £0.5 million, he said, adding that over 30 per cent of all company sales by volume now go through outlets other than Thorntons' own retail estate.
Like all confectionery companies, Thorntons' sales are traditionally slow during the summer months, but the exceptionally hot weather this year has taken a heavier-than-usual toll on the company's performance. The weather coincided with both Easter and Fathers Day in the UK, traditionally strong selling seasons for chocolate, and revenues were well down as a result.
But Thorntons has taken action to try and offset this perennial problem, diversifying into other products such as ice cream and drinks which do sell well during the summer. Sales of these products can be up to 30 per cent of turnover during the summer months, the company said, and these ranges are likely to be extended in the future to try and reduce Thorntons' "seasonal vulnerability".
The other major change in the way the group does its business is its transition from confectionery retailer to manufacturer. "The reality we face is that the market share of confectionery sales held by supermarkets is now just over 50 per cent and this will continue to grow," said Burdon. "However, it is equally important to recognise that the high street is certainly not dying, but it is changing. Therefore our own stores and franchises will still continue to play an important role in our future.
"Over the last decade in particular there has been a marked increase in the number of food service outlets on the high street - restaurants, bars and cafes. This in itself provides an opportunity for Thorntons in the development and rollout of our café format. We believe strongly that specialist retailing will still thrive with the right offer. Then our stores will be able to generate solid profitable growth and act, in effect, as nearly 600 profitable advertising sites for branded product sold though other channels. This in turn will lead to new customers being tempted to come back to those same stores."
Thorntons' strength is in its brand, well known and respected by many UK consumers, and leveraging this brand strength by moving into other areas is the key to success in the future. An initial agreement with Tesco to sell Thorntons-branded products ended in March but proved highly successful, and agreements with other retailers have since been reached, extending the brand to a wider range of impulse products.
In fact, sales of Thorntons branded products through other retailers increased by 93.8 per cent to £3.1 million, driven largely by the sale of six bars sold on an exclusive basis through Tesco stores.
There is also innovation within the confectionery sector - the Eden range of boxed chocolates launched in February has been a great success, with sales reaching £1.5 million without cannibalising sales of other ranges. Plans are now in place for 2004 to launch a number of new gift and impulse products in existing categories as well as for new segments of the sweet food market, Thorntons said.
The Café Thorntons concept - five outlets designed in particular to appeal to women in their 30s and 40s - is also performing in line with expectations, but the high cost of investment means that the extension of this format will be "modest and opportunistic over the next two to three years until all the costs have been covered.
Thorntons has also scrapped plans for a major export drive - with the possible exception of selling to the US and Commonwealth countries - on the grounds that it is too risky, preferring instead to concentrate on driving sales in the UK.
This will be achieved not only by extension of the Thorntons brands and the roll out of Café Thorntons, but also by 'Delivering Chocolate Heaven' - enhancing the shopping experience in its own outlets not by refitting them but by improving staff training, better merchandising and increasing investment in tastings.