As Angus Thirlwell, chief executive and co-founder of Hotel Chocolat, readily admits, chocolate is not an obvious internet product. As he says: “The bulk of chocolate sales are impulse buys and buying online means delayed gratification. Chocolate is also a low ticket item so it is difficult to justify marketing support”.
Thirlwell and co-founder Peter Harris had started in business together back in 1987 with the Mint Marketing Company selling branded mints to corporate customers. Requests for more variety led to the launch of an online chocolate business, Choc Express, in 1993, one of the UK’s earliest etailers. “Chocolate companies tend not to be digital,” says Thirlwell, “but we were 100% digital with a low marketing budget – but we were very aware that one of the UK’s biggest markets is gifts, which is three times the size of the chocolate market.”
So, while a key strategy for Choc Express was to sell expensive gift boxes of chocolates, it also needed a higher profile and greater brand awareness – hence its first high street shop in 2004 and a change of name to Hotel Chocolat. Turnover last year was £105m and today there are more than 100 shops – a growing number with an integral café – a hotel, cocoa plantation and the first steps at overseas expansion.
“The store model works well for us,” says Thirlwell. “They’re very important in bringing new customers to the brand. We create a great ambience and provide perpetual sampling so that everyone coming into a shop is offered a chocolate.”
How stores affect online trade
Choice of store locations has been driven by extensive analysis of the online customer base. Typically when a store opens there is a downturn in the online orders from that area in year one, but as the shop enhances brand awareness this changes. “After that year one dip we find by years two and three that online sales from that catchment area build up again and we’ll eventually do 10 times the online business in that area that we did before we opened the shop, as well as growing sales in the shop – it allows us to grow both channels.”
A recent development has been a new shop+café format – hot chocolate is extremely popular, it seems, even in summer – and the format is enabling expansion into smaller towns. “I was in our shop in Carlisle yesterday,” adds Thirlwell, “and a few years ago I would never have imagined that we’d open a store there, but we have and it is proving very successful.”
As well as hot drinks around 50 shops are now selling ice cream or rather “the ice cream of the gods” as it is branded, from the chocolate tree’s botanical name, Theobroma cacao – θεός (theos) meaning god and βρῶμα (broma) meaning food. The company is already looking at local delivery possibilities to allow ice cream to be sold online as well.
While building a retail network has been a key component of Hotel Chocolat’s brand strategy, it has also invested in a cocoa plantation and hotel. “We realised very early on that we had to understand cocoa,” says Angus Thirlwell, “so we decided to buy an old cocoa estate and learn how to be cocoa growers. Consumers of premium foods like to buy from experts and we are obsessed with cocoa – it’s what excites us and we want to share that excitement”.
Growing their own
It’s a passion for product familiar to cheese makers or lovers of single estate olive oils and led Thirlwell and Harris to buy the Rabot cocoa estate in St Lucia in 2006, soon followed by developing the Boucan restaurant and hotel nearby. The cocoa estate has also led to the development of a range of innovative cocoa-related products, such as cocoa vodka and gin, cocoa beer and a range of cocoa-based beauty products. It also supports the company’s “Engaged Ethics” approach, guaranteeing cocoa growers a fair price for their products and encouraging sustainability.
It is these types of gift items which Thirlwell believes may prove most popular as the company looks to expand overseas. “We’re just beginning our overseas journey,” he says. “We’re nowhere near the end of our UK expansion but we’re in an exploratory phase with overseas.” A three year trial of Hotel Chocolat outlets in Denmark has proved successful and in July the company transferred these to international retail franchisor, Retail Brands, which plans to open many more stores across Scandinavia in the next few years.
Hotel Chocolat, a Top50 retailer in IRUK Top500 research, already has several thousand overseas customers who have discovered the brand often in tourist visits to the UK and continue buying online when they return home. “We believe we can deliver chocolate from the UK,” says Thirlwell, “but we will have to very careful about the months and regions we deliver to [chocolate is obviously a very temperature-sensitive product] – but our cocoa vodka, biscuits and beauty products will all travel well.”
The company is also developing a range of more seasonal products – such as the ice cream – and at certain times of year its website boasts a “summer gifts” selection including such delights as “chocs-to-chill” which taste best eaten straight from the fridge.
But above all, Hotel Chocolat’s success is built on its brand image: an image of expertise, luxury gifts, innovative products, and ethical trading. As Thirlwell says: “Brand image is key and our brand values will never be diluted”.
This interview first appeared in the IRUK Top500 Strategy & Innovation report, produced in association with Barclaycard and now available to download. Click here to explore the IRUK and IREU Top500 series of reports.
Image courtesy of Hotel Chocolat