For the last two years, Thorntons has been gradually stepping up sales of its boxed chocolates and other confectionery products through the mainstream food retail sector, and this proved to be a godsend in the first half of fiscal 2005.
The company reported total sales growth of 9.5 per cent to £119.7 million, with sales through other retail outlets reaching £13.4 million, an increase of 270 per cent on the previous year. In contrast, sales through the company's own stores were down 0.3 per cent to £85.4 million (but up 0.4 per cent on a like-for-like basis, taking into account the closure of 11 outlets).
Franchise sales were up by 9.3 per cent to £8.6 million, but this was due to the addition of 20 more outlets. On a like-for-like basis, sales were 4.1 per cent lower.
The company's first half performance was, as always, influenced by the performance over Christmas, and like so many other retailers the company suffered as a result of sluggish consumer spending. Sales in the four weeks to Christmas were down 0.5 per cent on the previous year, but could have been worse still if not for a pick-up in sales towards the end of the four-week period.
Yet despite the fact that the wider retail business showed by far the biggest growth, the company is determined to prioritise its traditional High Street business. "We believe that focusing on the wider retail sector in the pursuit of short-term growth would destroy shareholder value," chief executive Peter Burdon told FoodandDrinkEurope.com.
"We estimate that sales through the other retail outlets - all the major UK supermarkets and other High Street operators such as Woolworths and WH Smith - will reach around £20 million this year, and we are comfortable with that. We are not going to see the same stellar growth rates in future years, and this is good additional business for us, as we focus on rectifying the problems elsewhere - but it is unlikely to ever be more than that."
Burdon said that Thornton's kept a relatively tight grip on its brand in the mainstream retail sector, refusing to get drawn into promotions or price cutting. "Our products sell for pretty much the same in Tesco's stores as they do in our own, which is vital if we are to maintain our premium image (and give our retail partners the good margins that they enjoy). We sell only around 30 SKUs, and the boxed chocolate ranges Premier and Classical are exclusive to the retail sector - we have deliberately chosen to keep our own boxed chocolate ranges such as Continental and Eden exclusively to our own stores, as a means of avoiding too much brand cannibalisation."
Making a steady profit through this new business will be vital to Thornton's future growth. "We have some major improvements still to make in our manufacturing business," said Burdon. "Ares such as planning and production efficiency need to be improved, and we also have to look at slimming down the range of products we make. Above all, though, we must improve our packaging, which I feel has not moved with the times and looks somewhat outdated. The increased profits from efficiency gains will of necessity be ploughed back into these other areas.
"The retail estate is pretty much as big as it can get, though we could still perhaps do some rejigging to ensure that outlets are not too large for the conurbations in which they are located. We are trialling some new formats, in addition to the 29 out-of town café outlets that we operate, but it is still too early to say whether any of these will be rolled out nationwide. The key thing, especially in light of the ongoing tough trading conditions in the High Street, is to keep costs down to a minimum," Burdon said.
Despite Burdon's suggestion that the strong retail sales were driven by Thornton's premium image, the company could still do much to improve in this area. "The performance of the Thornton's Direct online service in particular was disappointing, and we clearly have more work to do. Firstly, we need to move the product selection more upmarket, to focus on premium, indulgent products, and we need to be more innovative in what we make.
"But we also need to communicate the site's existence more effectively - there is no point in improving the product offering if people simply do not know that the site exists. I would argue that investment in advertising and marketing will have to improve going forward across the whole of the company. For example, outside our core Continental and Classics range, we also have Eden, Dessert Gallery and Origins, but people simply don't know about them, so we will have to start spending more on advertising," said Burdon.