Thorntons Performance Analysis and Recommendations on a New Strategic Direction

1.0. Introduction

Thorntons plc is one of the major producer and retailer of chocolate specialties in the United Kingdom. The company was established as a single chocolate retail shop in the year 1911, since then the organization has expanded to more than 430 retail shops in the UK that are either owned by the company or franchised (Jennings, 2005). In the early years of its operation, Thorntons reported a steady growth in its sales volume and profitability. This led to its listing in the London stock exchange at the end of the year 1980 (Jennings, 2005).  Despite the higher growth rate and overall profitability reported by the organization in the historical decades, recent development have seen the company register lower level of performance in relation to the performance level reported by  other players in the industry (Neil, 2014, December 23). The company’s attempt to expand to other European nations as well as change in their strategic decision yielded minimal results leading to the constant reduction in its growth rate. It was expected that enhanced profitability will be observed when the company was acquired by Ferrero in the year 2015. Nevertheless, Thorntons’ growth and profitability has remained on the declining trend making it vital that the management analyze the current business situation to identify the most suitable strategies that can be implemented to ensure that the company restore its glory of commanding lead in the UK confectionery industry. This forms the basis of the current report that focus on analyzing the current business situation of Thorntons followed with the evaluation of the marketing strategies that can be adopted by the company to  

2.0. Recent and current position of Thorntons plc

Since the year 1994, Thorntons plc has continued to register lower level of profitability and revenue in relation to the performance level reported by the company in the early years of 1980s. The adoption of the three year plan that ended in the year 2003 did not see any significant changes in the performance level of the company (Hassan, 2012). The plan focused on production of a wide range of products and expanding the business operations into the US and other European markets. As much as Thorntons had successfully operated in the UK market, its expansion into other markets within Europe did not yield any positive results. In fact it led to the closure of more than 15 shops in the other UK markets that were making huge loses (Hassan, 2012).  The wide range of products however contributed to the enhanced market share of 8% that the company registered after the completion of the three year strategic plan. Regardless of reporting an improved market share, Thorntons’ profitability reduced to the lowest level in 7 years (Neil, 2014). The company was still making loses despite their change of strategic approach, thus presenting the need for the implementation of a new strategy that will see the organization report and increase its overall performance.

Thorntons’ products are faced with seasonal demand and high perishability challenges. The company is only sure of making significant sales in various reasons and prepares for minimal sales in other periods of the year. Moreover, the organization has to incur additional costs to ensure that fresh products are always availed to the consumers. Despite the constant changes in the strategic approaches by Thorntons the above identified challenges still have negative effects on the profitability of the company (Askey, 2013).  The most recent strategy that focused on diversifying into other sectors of the confectionery market did not equally yield better results as anticipated. There was a slight increase in the profitability of the company in the first year; nevertheless, significant decline in overall performance was reported in the subsequent years following the intense competition from other organizations offering ice cream, cafes and biscuits in the same industry (Harrington, 2015). This left the company with another task of analyzing the business situation and implementing a strategy that will position it better than the other players within the UK confectionery industry.

It was expected that significant improvements will be reported following the acquisition of the company in the year 2015. New strategy of expanding the distribution scope was implemented after the acquisition to enhance the sales of the company. Apart from the franchise stores and Thorntons stores, the company’s products gained entry into the major supermarkets to enhance their accessibility to the target customers. This approach was expected to translate to enhanced profitability; nevertheless, the company still registered a reduction in its overall performance. The company’s pre-tax profit fell to 6.5 million while the sales volume went down to 128.2 million (Harrington, 2015). It is reported that most of the supermarkets opted to stock other similar products offered by Thornton’s competitors due to their preference by majority of the consumers (Neil, 2014). Thorntons therefore needs to focus on implementation of suitable strategies that will ensure the organization is better positioned in the industry.

2.1. A summary of the performance level of Thorntons in the recent years

Key performance indicators 2011 2012 2013 2014 2015
Sales £ 218.1 million £ 217.1 million £221.1 million £ 222.4 million £ 128.2 million
Profit before tax £ 4.3 million £ 0.9 million £ 5.6 million £ 7.5 million £ 6.5 million

Table 1: Thornton’s profits and sales reported in the past 5 years

2.2. Range of products that are currently offered by the organizations

Own brand products Cafes Biscuits Ice cream Gifts
Luxury chocolates, fudge, toffee and themed chocolate Hot drinks including coffee, chocolate and tea Also offers cakes with different flavors including chocolate Range of biscuits sold to large supermarkets Cones of ice cream and tubs made in a wide range of flavor including chocolate Personalized chocolate, toffee and fudge through use of flowers, icing, hampers or cards

Table 2: A summary of the range of products that are currently offered by Thomton’s plc

2.3. The current performance of Thorntons relative to its competitors as at the end of year 2016

  Mars Inc. Mondelez Nestle Thorntons hotel Chocolat Others
Market share 38% 24% 22% 7% 6% 3%
Sales 33 billion £ 29 billion £ 28.8 billion £ 128.2 million £ 165.4 million  
Profit before tax £ 23.4 billion £ 7.2 billion £ 9.2 billion  £ 6.5 million £ 6.6 million  

Table 3: comparison of the current performance of Thorntons with those of its competitors

From the analysis conducted, it is evident that Thorntons is performing poorly in relation to other players within the UK chocolate industry. Initially, the company was ranked at position 4 after the three major players in the industry (Mars, Mondelez and Nestle). However, recent development has seen hotel chocolat perform better than Thorntons in terms of its sales revenue and profitability. With the intense level of competition observed in the industry, Thorntons should changes its mode of operation to avoid losing its position further to other smaller organizations operating in the industry.

3.0. Theories and Framework Adopted In Market Environment Analysis

The marketing and internal business environment has significant influence on the overall performance of the organization. As Blackwell and Eppler (2014) points out, an understanding of both the organizational external and internal environment is important in assisting the management select and implement effective strategies that will enhance their performance in the industry. A number of theories and frameworks have been put forth that can be adopted for the analysis of the marketing and internal business environment. The current report will adopt the PEST analysis and Porters five forces to analyze Thorntons’ external business environment. According to Ho (2014) PEST model is adopted in the analysis of the organization’s macro-environment while the porters’ five forces framework is used for the analysis of the organization’s microenvironment. In essence, the PEST model enables one to understand the nature of the political, economic, socio-cultural and technological environments under which the organizations operates. On the other hand, porters five forces framework allows for the evaluation of the competition levels, bargaining power of suppliers and consumers as observed in the industry under which the organization operates. The two tools are important in the strategic analysis stage since they give a clear understanding of the position of the company in relation to its external business environment.

Understanding the internal resources and competency of the organization is also vital in the strategic analysis stage. According to Jarzabkowski and Kaplan (2015) prior to selecting on a strategy to implement, it is important that the competency of the organization as well as its nature of resources be evaluate to ascertain the capacity of the company to implement various strategies. SWOT analysis framework and resource audit are the major tools adopted in the current report to analyze Thorntons’ internal business environment. According to Blackwell and Eppler (2014) SWOT analysis is adopted to analyze the strengths of the organizations and the available opportunities that can be exploited by the organization. The tool also allows for the analysis of the company’s weakness and threats preventing it from fully exploiting the opportunities presented. The resource audit is important in the evaluation of the resources and capabilities of the company in conducting business activities. An effective strategic decision focus on exploiting the opportunities presented to the business while taking into considerations its weaknesses, strengths, threats, capabilities and resource availability (Blackwell & Eppler, 2014). A critical analysis of the internal business environment is therefore vital in the strategic analysis stage to ensure that the strategic choices are made based on the company’s internal environment.

4.0. Analysis of Thornton’s External and Internal Business Environment

4.1. External Business Environment

4.1.1. PEST Analysis

Thorntons operates in an environment characterized with a number of economic, political, social and technological factors that have either supported the growth of the company or affected its overall performance. The increased taxation on the basic commodities cocoa and sugar used by the organization in its manufacturing of its range of products have significant increased its production costs. The suppliers of the commodities have in certain cases been unreliable further increasing the production costs since the company has to stock the raw materials needed (Market publishers, 2017). As much as the political environment in the UK is relatively stable, the company has to spend additional amount of capital in the acquisition of the raw materials needed for the manufacturing of its products.

The increase in rates of unemployment has presented ready and relatively cheap labor to the company. Since Thorntons mainly depend on casual laborers, the increased level of unemployment in the UK ensures that the organization have ready access to the needed workforces during the seasons when it has huge workload (Hassan, 2012). The increased VAT and inflation rate have however presented a challenge to the company since it led to the increase in the raw material prices.

Thormtons has improved its technologies both in manufacturing and marketing of its products. The company has an electronic enabled link to its suppliers to ensure that raw materials are acquired on time. In addition, the company has adopted new technologies in its product preservation and packaging to improve their shelf-life as well as present ability (Market publishers, 2017). Thormtons is also currently involved in internet marketing to target different range of customers and to remain relevant within the competitive industry since internet is the most currently widely adopted marketing technique by most enterprises.

The social nature of Thormtons customers have led to the company reporting relatively higher sales in various season. Giving of gifts is a culture embraced by most communities in the region, thus enabling the company to report higher sales during the various festive seasons annually (Hassan, 2012). The shift to healthy living that is currently experienced in most societies will however, have negative implications on the organization’s performance, thus the need for the management to develop products that will take into consideration the health issues that are currently cropping in in the society.

Figure 1: Thornton’s PEST analysis

4.1.2. Porters Five Forces

Figure 2:  Thorntons’ competitive advantage analysis

The threat of new entrant to the UK chocolate industry is low. This is due to the high initial costs involved and the high level of experience needed to offer the chocolate range of specialties. The possibility of having new entrants in the near future is therefore minimal (Hassan, 2012). Thorntons is however faced with a challenge of having a wide range of substitutes to its products. The many players in the industry offer similar products that are either higher in quality or cheaper than those offered by the company (Research and Market, 2017). The fact that the buyers also have a higher bargaining power means that they can easily shift to the substitutes. The suppliers to the organization have minimal bargaining power since there are many suppliers to choose from. Nevertheless, the main raw material utilized by the company (cocoa) is available on specific seasons, thus the important of proper supplies management to ensure that the company always has access to the raw materials. Thormtons also has to deal with the intense completion observed in the industry. The higher number of players with more established brands and capabilities means that the company has to device effective strategic decisions that will ensure it remain competitive in an industry characterized with high levels of rivalry from the competitors.

4.2. Internal Environment Analysis

4.2.1. SWOT/TOWS Matrix

  Strengths Gifting marketing High quality products A single manufacturing site Skilled workforce Weaknesses High price Franchise weakness Mainly focused on UK market Seasonal sales  
Opportunities New products and services Increasing demand Acquisitions Global market SO strategies Thormtons has adopted the product diversification strategy to offer a wide range of products that will meet the increasing demand presented in the market. The organization is however yet to venture fully into other markets outside the UK after its failure in the American market WO strategies Thorntons need to re-evaluate its franchising procedure to acquire more franchise stores that will improve the distribution of its products to most parts of the global market.  Product diversification strategy also comes handy in assisting the organization exploit the new product and service opportunity while addressing its weakness of being able to only acquire seasonal sales
Threats Lower profitability Intense competition ST strategies Thorntons has reported constant reduction in profitability that has affected its position within the chocolate industry. The company needs to utilize its skillful workforce to implement effective customer relationship management strategies that will enhance the customer loyalty levels and consequently contribute to enhance profitability The company also needs to make changes WT strategies Expansion into other markets within and without Europe is an approach that should be adopted by Thorntons to prevent the organization from being vulnerable to the intense completion observed in the UK market Product diversification and their introduction in different markets will assist the organization overcome its weakness of over-relying on seasonal sales as well as survive the threat of intense competition in the industry

Table 4: Thorntons’ SWOT/TOWS Matrix

Thormtons has a number of strengths and opportunities that can be exploited to improve the overall performance of the organization. Expansion into other global markets, acquisitions of other companies and provision of wide range of products to meet the increasing demands are opportunities that should be exploited by the company.  Taking up these opportunities will ensure that the company overcome its weaknesses as well as survive the threats of intense competition that it is currently faces.

4.2.2. Resource audit: VRIO Framework

 

Figure 3: Thorntons’ Resource and Capabilities audit

The ability of an organization to gain a competitive advantage over other players is determined by the value of its resources and capabilities.  These resources and capabilities can only have significant positive contribution towards the company’s competitive advantage if they have significant value to the organization, are rare, cannot be easily copied by the other players in the in industry and the organizational structure support their utilization to achieve the desired value. From the VRIO framework above, Thorntons has a single manufacturing site that ensures assist in the consistent production of high quality products. The company’s distribution strategy does not only save on costs but also ensure that the Thorntons’ products are made accessible to a wide range of consumers (Research and Market, 2017). The gift marketing strategy and high quality products availed by the company are also likely to maintain the growth of the company since they are rare strategic approaches in the region. Qualities such as family recipe, effective R&D framework

5.0. Strategic Choices for the company

The current focus of Thorntons is to position its products above those of its competitors. Effective positioning will enable the organizations gain a higher competitive advantage within the industry that will translate to better performance in terms of sales volume and overall profitability. There are a number of strategic choices that available for the company that can lead to the attainment of the desired goal.

5.1. Competitive strategies: Porters’ Generic Strategies

Target market scope Advantage
Low cost Product service Uniqueness
Broad (entire industry) Cost leadership strategy   Differentiation strategy
Narrow (specific segment) Focus strategy (low cost)   Focus strategy (differentiation)

Table 5: Generic strategies that can be implemented by Thorntons

Based on the nature of the marketing environment under which Thorntons operates, the company can consider the adoption of cost leadership and differentiation strategies to assist it enhance the performance of its B to C business. Through the cost leadership strategy, the organization will focus on offering higher quality at a relatively lower price than that charged by the competitors within the industry. As Tanwar (2013) asserts, this approach is likely to be effective in attracting more customers thus enhancing the strength of the Thorntons brand. Nevertheless, the company needs to significantly reduce the production costs by saving on every stage along the production from the acquisition of relatively lower prices raw materials, to the utilization of cheap labor, and to the use of less-costly distribution approach to ensure that the cost leadership strategy achieves the benefits desired. 

Under the differentiation strategy, the company can be involved in the production of new products offering unique attributes that have not been availed by the other competitors in the market. According to Hrebiniak (2013) as much as additional costs are involved in the production of the new unique products, the organization is able to price them higher thus aiding in the attainment of higher revenue that will cater for the higher costs incurred. Nevertheless, this approach is likely to yield minimal benefits if the new products developed are immediately imitated by the other players in the industry.

5.2. Growth strategies: The Ansoff Matrix

                                        Markets
Existing New
                  Markets  Existing Market penetration Competitive pricing Enhance online marketing Introduce new distribution channels (more franchises and Ferrero’s distribution channels Product development Create new unique products for the existing markets
          New Market development Venture into other global markets (more specifically the Chinese market) Diversification Avail new products to the new markets developed

Table 6: Growth strategies that can be adopted by Thorntons

To enhance its current market position, Thorntons has a choice of implementing the market penetration and product development strategy. The market penetration strategy focuses on the use of the existing products to enhance the competiveness of the organization in the industry and to improve the company’s market share (Hussain et al., 2014). This approach will only be effective when coupled with effective pricing, promotional strategies that will create awareness on the existence of the product to the consumers as well as enhance its accessibility. The product development strategies will focus on the provision of new products with unique characteristics to the existing customers. This approach is effective in assisting the organization gain dominance in the industry through the provision of unique products that lack any substitute (Hussain et al., 2014). This approach also enables the company to effectively differentiate its products so as to enhance its competitiveness in the industry.

5.3. Relationship marketing strategy

Business to Business markets are characterized with customers requiring customized products at negotiated prices. Reputation of the company to these customers is more important than brand, thus the significance of developing a good working relationship with the organizations. 

Figure 4: Thorntons’ b2b clients’ loyalty ladder

The diagram above indicates the position of various groups of organizations that the company has to deal with in the B 2B market.  The diagram indicates their loyalty levels as well as the costs incurred by the company in servicing them. Partners are highly loyal to the company and offer higher returns, though their maintenance costs is higher. The commodity buyers are mainly interested in procuring the company’s products at lower levels and are thus not likely to move up the loyalty ladder. On the other hand, the under-performers are likely to become loyal customers is a strong relationship is believed, however, the company has to incur huge costs in their conversion (Hussain et al., 2014). The strategic choice available to Thorntons it its management of the B 2B market is either to focus on retaining the loyal customers are acquire new consumers through building of relationships. Nevertheless, the cost of acquiring a new client in most cases is higher than retaining one, thus the need for the company to adopt the customer retention approach.

6.0. Evaluation of the Choices and Recommendation

6.1. Evaluation

There are a number of strategic choices that can be implemented by Thorntons to enhance its position in both the b 2 b and b 2 c markets. However, as Tanwar (2013) points out, the suitability and feasibility of the strategies needs to be ascertained before selecting on the strategy to implement. Suitability refers to the ability of the strategy to meet the stated goal of the company. In this case, the selection of the most suitable strategy is based on its ability to position Thorntons’ products above its competitors and to enhance its competitiveness in the industry (Hussain et al., 2014). On the other hand, feasibility refers to the ability of the strategy to be implemented with ease depending on the resources and capabilities that are currently exhibited by the organization. A strategy must therefore be able to accomplish the organizational goal as well as be easily implemented using the available resources and capabilities of the company for it to be considered an effective strategic decision.

Thorntons have a choice of implementing a cost leadership strategy, differentiation strategy, and marketing penetration strategies to improve its position in the industry. In addition, the company can either retain its existing customers or acquire new clients in its management of the b 2 b market. According to Tanwar (2013) the cost leadership strategy is suitable in assisting the company position its products above those of its competitors. Through the provision of similar quality products at relatively lower price, Thorntons’ products are likely to increase the competitive advantage of the company. Nevertheless, as Jarzabkowski and Kaplan (2015) points out, this approach is only feasible when the company has adequate capital that can be utilized to support the low pricing strategy since the production costs is likely to remain the same. Ideally, the capital base of the organization should be higher than those of its competitors to ensure they do not engage in price wars that will bar the company from getting higher revenue. The cost leadership strategy is not feasible in the current Thorntons business states since the company has continually reported losses that have negatively affected its capital base.

Thorntons should therefore consider the implementation of the product differentiation and market penetration strategies to improve its position within the industry. The fact that the organization has a robust research and development framework as well as highly skilled workforce justifies their ability to engage in the development of new products with unique features. As much as the company may require higher initial costs in the development process, the availed unique and high quality products can be highly priced to recover the costs incurred. Since there is likely to be no substitute, the company is likely to attract more customers and achieve higher sales volume through the implementation of the product differentiation strategy.

It is recommended that the company enhances its distribution scope through the use of the Ferrero distribution chains to enhance the accessibility of the existing and new products to consequently enhance its market penetration.

To effectively manage its b2b business, Thorntons should focus on retaining the loyal customers as opposed to acquiring new customers that are yet to climb the loyalty ladder. As Blackwell and Eppler (2014) asserts the possibility of the clients belonging to the under-performers category to move up the loyalty ladder is minimal. Thus as much as the cost involved in servicing partners is higher, the company should focus on their retention since they guarantee higher returns on investment. Thorntons should constantly satisfy the needs of the most loyal customers and partners to enhance their loyalty level and to create high shifting barriers. The product differentiation, market penetration and customer retention strategies are the most suitable for Thorntons in the current situation.

6.2. Recommendations

It is recommended that the company carries out innovation and advancement in its technologies to come up with new products that will be unique in terms of their taste as well as the packaging design. Focus should also be to enhance the shelf-life of the product

The company should consider the use of the Ferrero distributing channels to improve its distribution scope and to enhance the accessibility of the existing and new products

Positive customer relationship should be developed between Thorntons and the most loyal clients through offering discounts and swift delivery of the products to ensure the clients’ needs are always satisfied and to develop a high shifting barrier that will guarantee enhanced loyalty levels from the clients.

7.0. Conclusion

The analysis of Thorntons’ internal and external business environment indicates that the company faces stiff competition from major players in the industry that have affected its current position and performance in the industry. However, there are certain opportunities that can be exploited by the organization to position its products above those of the other competitors that will consequently lead to enhanced performance. Product differentiation, market penetration and customer retention strategies should be implemented by the organization to enhance its competitiveness. The organization should differentiate its products by availing unique and high quality products capable of attracting more clients. The company should also enhance its distribution scope to enhance the accessibility of its products to the wide range of customers in different market. Thorntons should also ensure that the needs of its b2b clients are satisfactorily met to increase their loyalty to the company. Effective implementation of the identified strategies will ensure that the company positions its products above those of its competitors and gain a higher competitive advantage in the industry.

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