Strategy pays off for confectionery firm

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Related tags: Thorntons, Shopping mall, Retailing, Business

The dominance of the multiple retailers in the UK has had a
devastating effect on the specialist retail sector there, with the
massive buying power of the major chains allowing them to undercut
independent operators at the same time as offering a wider choice.

One sector of the food industry where specialist retailers are still buoyant, however, is confectionery, at least at the luxury end of the market, with upmarket chocolatiers​ likely to be found in many town centre shopping malls or High Streets.

It is ironic, then, that the fortunes of perhaps Britain's best known specialist confectionery manufacturer and retailer have been improved substantially by its decision to extend the range of products it sells through the mainstream retail sector.

Thorntons​ has been making and selling chocolate since 1911, but it was not until 2001 that the company decided to begin selling its products in other retail outlets in a bid to bolster a flagging performance from its own outlets.

Since that initial listing with the Sainsbury group, Thorntons has rapidly expanded its business, with a further rollout of products in Tesco stores in March 2002 and now a presence in all of the leading food retail groups in the UK.

"The rate of increase in sales of Thorntons branded products outside of Thorntons own shops over the next year or two is expected to accelerate further, such that it will rapidly become a significant contributor in our growth,"​ said Peter Burdon, chief executive.

But Burdon does not believe that increasing sales through rival retailers will have a detrimental effect on the company's own retail sales - quite the reverse, in fact. "We believe that by extending the availability of the premium confectionery favourites [through other retail chains], more customers will be drawn into Thorntons own shops and franchises to experience the broader specialist ranges available."

So far this gamble appears to be paying off, with Thorntons' first half sales rising up 4.4 per cent to £109.3 million with just modest growth from its own stores but an increasingly important contribution from other retail sales, which now account for more than 20 per cent of the company's overall volumes.

But managing a retail business and a manufacturing business at the same time is not easy, and the company is steadily reducing the number of stores it operates. Thorntons now has 589 outlets in the UK, including 27 cafes and 201 franchised stores, and while two more cafes are due to open before the summer, the company said that it expected its own retail estate to slowly reduce in number over the coming years.

Thorntons own stores have underperformed in recent months - admittedly as a result of the hot summer - and while the key Christmas period saw like-for-like sales increase by a respectable 4.6 per cent, sales at another key period, Valentine's Day, were flat. In contrast, Valentines Day sales through mainstream retailers were particularly strong, as were own label sales (mainly for the Marks & Spencer chain).

But shifting the focus to supplying other chains does have its pitfalls, with gross margin dropping from 55.8 per cent to 54.6 per cent as a result of the change. Products are sold to other retailers at wholesale prices rather than the higher retail price, inevitably reducing margins, although this is offset slightly by the lower operating costs.

Costs will increase this year, however, as the company invests in new IT systems to help it improve supply chain management and better serve its new retail customers.

So, a positive start for Thorntons' new strategy, and an indication that the aborted attempt to find a buyer for the company has not distracted it too much from developing its business.

But the big question now is what happens to the Thorntons retail arm. The group has not yet decided to withdraw entirely from the retail sector, but the success of the commercial business, and the acknowledgement that this will continue to play an increasingly important role in the future, must surely leave a question mark over the long-term sustainability of yet another specialist retailer.

Related topics: Ingredients

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