Thorntons issued another profit warning last week as the UK chocolate maker and retailer announced that its chief executive would step down.
The company said that a poor trading performance over the past two months would mean full-year pre-tax profits will miss its previous guidance of GBP7.5m (US$11m).
Go deeper with GlobalData
In a statement to the London stock exchange, Thorntons said that, in light of the group’s troubles, chief executive Mike Davies would step aside in favour of a candidate with more retail experience.
“Mr. Davies has decided that a chief executive with specific retail expertise is required to lead the business,” the company said.
When Davies took the helm at Thorntons four years ago, the Derbyshire-based chocolate maker’s profits were in free-fall.
During his time at the company, Davies put the experience gained during his 30-year career at rival chocolate makers Nestle and Mars Inc. to good use.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataAs chief executive, he oversaw significant improvements in efficiency and productivity at a factory level.
Strategically, Davies’ aim was clear. He wanted to broaden Thorntons’ appeal and set about achieving this by focusing on innovation, building the Thorntons brand and finding new routes to market.
In answer to criticism that Thorntons failed to offer a satisfactorily-diverse product range, he encouraged a new emphasis on customer-led innovation at the group and had the company set about launching more products and opening new stores.
The company, which had traditionally relied on its upmarket boxed chocolate sales, reached out to a new generation of chocolate eater with the introduction of lower-priced bagged chocolates.
Davies also set out to reduce Thorntons’ dependence on the three months around Christmas – when the company generates around 40% of its sales. In line with his focus on innovation, Davies has sought to roll out products that appeal to summer tastes.
Davies fostered the development of the company’s growing online business and introduced Thorntons to the concept of increasing its reach to consumers by selling its chocolates through third parties. Under his stewardship, Thorntons gained listing at the country’s major retailers, including supermarket and convenience channels.
Initially, it seemed that this strategy was paying off.
For the first two years under Davies, Thorntons went from strength to strength – posting sweetening profits and rising sales throughout the UK’s largest retailers, while growth remained steady at the company’s own namesake outlets.
However, Thorntons has proven far from immune from the recent economic downturn.
Last month, the firm reported a rise in overall sales of 3.1% to GBP60.3m for the 14 weeks to 17 April. But sales in its own stores fell by 4.9% to GBP33.5m.
In last week’s trading update, Thorntons said that sales at its own stores continued to experience like-for-like declines and commercial sales were lower than expected towards the end of April and early May.
The company said that the performance of its wholesale business was hit by an increased level of discounting, which was necessary to move the backlog of stock caused by lower than anticipated volumes.
Supermarket sales now contribute more than one-third of the group’s total revenue, having risen by 38.5% over the first three quarters of the year.
However, increasing the level of sales through supermarket channels has come at a cost.
The company is now reliant on supermarket sales – but growth in this area appears to be denting the chocolate maker’s higher-margin sales at its independent stores.
By supplying its products to the UK’s notoriously hard-bargaining supermarkets, Thorntons effectively went into competition against itself. And, in order to secure and retain listings, like other manufacturers Thorntons has come under pressure to lower prices and increase promotional activity, particularly during the downturn.
As Thorntons has looked to attract shoppers by delivering products via supermarkets, the question of whether the group has devalued its premium brand positioning has arisen.
This premium positioning is particularly important to Thorntons because its retail empire means that the company has a much larger fixed cost base than a pure-play confectionery manufacturer.
Rental costs and other overheads associated with operating Thorntons’ 600 high street outlets, mainly based in high-rent shopping centres, add a significant layer of cost to the company.
Announcing Davies’ departure, Thorntons’ emphasised that it would be seeking a replacement in light of challenges that it identified as “principally the management of Thorntons’ retail estate”.
Commenting on his exit, Davies insisted that the retail business offered a significant opportunity for his successor to propel the business forward.
Indeed, there are undoubtedly some ‘quick fixes’ that can lift the operational performance of Thorntons’ retail unit – such as stripping out costs, streamlining business practices and renegotiating rental agreements.
However, whoever takes the helm at Thorntons will have to negotiate a strategic minefield as they look to address the issues facing a challenged business structure in a challenging retail environment.
