As Hotel Chocolat reports double digit growth in both full-year sales and profits, we take a look at the strategies that are keeping this retailer, ranked Top50 in IRUK Top500 research, ahead of the market.
Chocolate lock-ins, gifts by text and international expansion are just some of the ways Hotel Chocolat is keeping it fresh with its customers. Today it reported revenue of £116.3m in the year to July 1 2018 – up by 11% compared to the previous year. Online sales grew by 14% during the year. Pre-tax profits of £12.7m were 13% ahead.
Angus Thirlwell, co-founder and chief executive of Hotel Chocolat, said improved productivity and greater scale had helped it mitigate the effect of inflation on its raw material costs, following the fall in value of sterling [after the EU referendum in 2016].
“The encouraging performance of our UK channels means we remain confident of further growth, with an exciting range of new product innovations for this autumn, including our Chocolat Cream Liqueuer and the Velvetiser in-home Hot Chocolat system,” he said.
“We are increasingly confident that international expansion presents a growth opportunity and will be adopting a cautious ’test, learn grow’ approach to our new partnership in Scandinavia and our new ventures in the US and Japan where we intend to open our first stores this winter.”
’Born digital’
Hotel Chocolat says as a result of the brand being ’born digital’, digital is always at the centre of its strategies. Online sales grew by 14% during the year, and since the year end it has worked to make the online experience smoother, through technologies including a Gift Finder, a Whoosh Instant Gifts By Text service that enables customers to send a gift quickly to their recipient’s smartphone, a method that enables the receiver to control delivery, swap an item if need be, and thank the sender.
Strategy of store ’experience’
Hotel Chocolat stores are very much a means to engage with its customers: the retailer said in today’s results that the 30 Shop + Cafe format stores that it now operates give “customers more reasons to visit”. The retailer, which opened 15 new UK and Republic of Ireland stores during the financial year that went on to contribute a collective 6% to group sales, says that its stores are a “contemporary version of accessible luxury”. Thirlwell said: “We innovate and work hard to make our stores exciting, relevant, friendly, experiential and fully multichannel. The immediate gratification of self-purchase is a powerful element of our physical space, augmented by carefully selected gifts for a wide spectrum of occasions and budgets.” Events including chocolate lock-ins – held in 40 stores, “perpetual sampling” and its two Schools of Chocolate also generate engagement. The retailer says that “experiences are becoming increasingly popular as a new luxury and consumers are seeking to go beyond the purely transactional, but only with brands they love.” It adds: “We see experiences playing a steadily stronger role in our physical spaces as well develop our skills and learning and the market develops.”
The retailer says that its average store lease lasts for five years, and that its stores should remain profitable even if sales fall and costs rise in the future. But it is focused on developing new products and building customer loyalty (see below) in order to boost sales, while reducing costs through better buying, working smarter and process innovation.
International expansion
Hotel Chocolat is now trading in Scandinavia, through a franchise, in Japan, through a joint venture led by former QVC Japan chief executive Chris Horobin. It will open a store on New York’s Lexington Avenue this winter, with the involvement of non-executive director Greg Hodder, whose UK experience includes Charles Tyrwhitt shirts. Hotel Chocolat has taken a ’test, learn, grow’ approach to selling internationally, building from small volumes at the beginning, and maintaining its UK “affordable luxury” position.
Customer loyalty
This month Hotel Chocolat launched a VIP ME rewards card to strengthen its relationship with in-store shoppers. In today’s full-year statement, non-executive chairman Andrew Gerrie said that “despite challenges and uncertainties in the wider economy, the strength of the brand drives great customer loyalty and we are well positioned for the future, with a strong pipeline of opportunities.”
Hotel Chocolat paused recruitment to its Tasting Club while it revamped it – and saw member numbers decline by 14% as a result. But the retailer says that the Tasting Club is the “bedrock” of its customer relationships, with members “the most engaged of all our customers”. It has now launched an in-home hot chocolat making system that it says will be “a major plank” of future subscription plans.
The retailer sees that the way to its customers’ and investors’ hearts alike is through their stomachs: it raised £6.5m through a chocolate bond scheme, in 2010 and 2014, that has now been repaid in full.
Wholesale
The main barrier to purchasing from Hotel Chocolat is lack of access, according to the retailer’s market research. It is now working with partners including Amazon, Ocado and QVC on “carefully selected wholesale relationships”. So far performance has been “very encouraging” and tests with two more partners will launch in time for Christmas. “Each partner is selected on a careful balance of attributes and customer demographics, then matched with a specific capsule collection from our product range,” the retailer said.
Factory investment
A £1.4m project to boost its handling of molten chocolate by 190%, now completed, was part of its continuing investment in its factory over the year. This investment, it said, had improved gross profit margins by 50 base percentage points, year-on-year. It now plans to add a fourth chocolate making line to its factory by 2021.
InternetRetailing interviewed Angus Thirlwell for the just-published IRUK Top500 Strategy and Innovation Dimension Performance Report. You can read the interview and explore the report here.
Image courtesy of Hotel Chocolat
