How Thorntons melted away from the high streetby
Retail has seen a lot of losers disappear rapidly from the high street, but Thorntons’ gradual retreat was years in the making.
Over the last decade the chocolate retailer shrunk its store estate from 350 to 61 and seen declining revenues since 2014, with sizeable losses too. It’s now at point that it’s propped up by its Italian parent, Ferrero.
And last week Thorntons announced it would be closing the remaining 61 stores and putting more than 600 jobs at risk. While that’s another blow to the British high street and to those affected, Thorntons the brand is expected to live on and retain the other 1,500 people thanks to its manufacturing site and other sales distribution channels.
So, is this another victim of the coronavirus lockdown? Yes and no – clearly, it’s pretty much wiped out any store revenues for the past 12 months, but it’s likely just accelerated a path it had been on for some years.
It’s a brand that’s steeped in British history and been around for over 100 years.
So why has it disappeared from the high street? Well, of course, coronavirus has had an impact – the high street has been empty for a while but Thorntons’ presence was receding anyway.
Below you can see consistent revenues from 2009 to 2015 with a rapid fall from then onwards. 2015 is flattered by a long 60-month trading period as they changed their year-end when they were bought by Ferrero.
Thorntons: Revenue, gross profit and operating profit/loss (Source: Annual accounts)
In recent years, there have been large exceptional items for onerous store lease costs and similar hitting profits, but when you have exceptional items every year, they kind of run into regular costs and it’s part of high street retail.
Dwindling store numbers have had a significant impact on revenue. From more than 350 stores and 200 franchise counters in 2011 they reduced to 250 by 2016 and then to just 61 today – soon to be zero. A relatively fast reduction in real estate and outlets to sell through.
Not only has revenue fallen but gross profit % has fallen off a cliff too (see below). As the proportion of sales has shifted from own stores to supermarkets it’s hit their margin, hard.
Thorntons: Revenue per week and gross profit % (Source: Annual accounts)
Thorntons vs Hotel Chocolat
You can’t think of high street chocolate without thinking about Hotel Chocolat. Personally, I don’t recall ever setting foot into a Thorntons’ store, but I do go into Hotel Chocolat from time to time. It’s inviting from the outside and has a boutique feel about it. Although, as a nut allergy sufferer, it’s always a bit of a risk when they offer me a chocolate to taste!
Where Thorntons has struggled over recent years, Hotel Chocolat has thrived. Thorntons’ revenues have halved since 2015 whereas Hotel Chocolat’s revenues (less than 50% of Thorntons in 2015), actually surpassed Thorntons in 2019.
Thorntons v Hotel Chocolat: Revenues (Source: Annual accounts)
But revenues aren’t the only disparity between the two; Hotel Chocolat has a clear edge in gross profit % too, signalling the premium position they sit at in the market.
Thorntons is paying the price for becoming a multi-channel brand and selling through stores, franchises, online and more damagingly supermarkets and discount stores – it’s driven the price point and the brand value down, which is a vicious cycle that’s hard to break. Whereas the more artisan Hotel Chocolat is commanding a higher price point in the market demonstrated by the significantly higher gross margin.
Thorntons vs Hotel Chocolat: Gross profit % (Source: Annual accounts)
Clicks vs bricks
So if Thorntons is backing out of the high street, how good is their e-commerce offering?
We can’t know for sure but since the beginning of the crisis, sales through its website have allegedly increased by more than 70% compared to the previous year.
While they had just about 500k website visits in February 2021, Hotel Chocolat had over three times that. Not only does Hotel Chocolat have more visits but their visitors stay on their site twice as long as Thorntons’ do (at over 4 mins). To add insult to injury, Thorntons has a higher bounce rate and fewer pages are visited too.
The below shows the web traffic over the past six months – you can see the huge Nov/Dec increase in volume at Hotel Chocolat but a much more modest festive increase at Thorntons.
Thorntons vs Hotel Chocolat: Web traffic (Source: SimilarWeb)
They say size isn’t everything but when you have only 6k Instragram followers compared to Hotel Chocolat’s 215k it’s going to have an impact on your online-only demographic.
About half of both brands’ traffic is from search but where Hotel Chocolat are paying for about 38% of this on keywords, Thortons has a much lower spend in (absolute and proportion) at just 9%. Basically, their search (organic and paid) and social strategy is far less effective than Hotel Chocolat’s – they’re losing the online chocolate war in the UK.
Online should be vital to any retailers’ strategy but while many brands are rethinking their store strategy to complement their online presence Thorntons is shutting up all its own stores. As its more loyal fans are ageing, it will be tough to tap into a new generation of chocolate lovers and the chocolate retailer will need to invest significantly into its online presence and search strategy.
Thorntons was the leading premium chocolate brand in the UK. But a combination of changing high street habits, lack of focus on customer proposition, selling through supermarkets, lack of innovation and the three national lockdowns, has seen 100 years of Thorntons’ own stores dwindle out of existence.
Thorntons.co.uk has seen good growth which will remain a key focus for them in addition to a franchise high street presence and supermarket shelves. It’s a huge opportunity for Thorntons to move forward as a more agile brand but I think they still need a physical experiential presence to tap into a new generation of chocolate lovers who don’t share the romantic notion of Thorntons as a child.
Thorntons also needs to invest significantly in its online brand otherwise it will just become a commodity on supermarket shelves – and commodities are price compared rather than value compared.
While it’s not exactly good news, it does put Thorntons front of mind at one of the biggest chocolate events of the year – it will be interesting to see if that drives customer traffic to the site over Easter.
Investing isn’t enough. Businesses and brands need to invest in the right things to remain relevant with evolving customer demographics and preferences.
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Alastair is founder and Chief Dreamer at flinder. flinder provides accounting, consulting and rich real-time management information for growing businesses. As well as his work with fast-growth businesses and transforming finance functions, he writes for AccountingWeb in a monthly column, sits on the ACCA Practitioner's Panel Network and was...