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Learning from lockdown: how Hotel Chocolat has adapted as demand grew online as stores shut

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Hotel Chocolat says that what it learned when it was forced to close its shops and shift stock – and transactions – online for the Covid-19 lockdown, will inform its future strategy.

The retailer, ranked Top100 in RXUK Top500 research, took the decision to shift its inventory from its shops to its distribution centres when non-essential stores had to close two weeks before Easter. From there, it was able to grow sales both online and via third-party retailers. 

From here, it says, it now plans, for its current full-year and beyond, to double the capacity of its supply chain and make its multichannel services more flexible while fitting out a newly-enlarged distribution centre. 

The update came as Hotel Chocolat reported revenue of £136.3m in its latest full year, the 52 weeks to June 28. That’s 3% up on the same time last year. Sales growth of 14% in the first half of the year reversed to a 14% fall in sales in the second half as a result of the Covid-19 pandemic and lockdown. But digital sales grew strongly, helping to reduce the overall decline caused as the retailer had to close its shops – which usually make more than 70% of its second-half sales – for 12 weeks, including the peak chocolate-buying Easter period. 

Profits before tax and exceptional costs came in at £2.4m were slightly ahead of expectations, although down from £14.1m a year earlier. But the retailer posted a bottom-line loss of £7.5m after one-off costs of £9.97m. 

Angus Thirlwell, co-founder and chief executive of Hotel Chocolat, said: “The events of 2020 have challenged all of us, but also brought out the best in us, ethically, competitively and professionally, making us better equipped to face the future.

“The challenges of Covid-19 have pushed us to accelerate many of our existing plans and strategic initiatives, helping to; strengthen our financial position, improve our multichannel capability, deepen customer engagement and loyalty, and accelerate the rate of product innovation, whilst continuing to make good progress in our two new and sizeable markets of the USA and Japan. 

“Whilst uncertainty will continue for all of us in the coming year, our pipeline of potential growth opportunities has never been stronger. We are working hard to anticipate potential trading scenarios for the year ahead and are planning prudently to be ready to adapt quickly and effectively as the situation evolves. To achieve this, we have invested in our ability to increase production and expand our supply chain capacity as well as strengthen the leadership team to ensure a continued focus on product innovation, ecommerce, supply chain and sustainability.

“I am confident that the strategic progress we have achieved over the past year will build a stronger business in the medium-term with greater growth, profitability and brand appeal.”

Learning lessons from Covid-19

How customers’ buying habits are changing post-lockdown

In the first 12 weeks of the current financial year, 56% of sales have been from stores, and the balance from digital, while online sales are more than 150% up on the same time last year. “Our focus,” said Thirlwell, “is always on the customer’s relationships with the brand, maintaining an agnostic view on which channels should attract most investment.”

How the role of stores is changing

Hotel Chocolat says only its stores offer the kind of leisure experience to that multichannel customers enjoy. “A physical Hotel Chocolat satisfies customer desires that cannot be met online: warm and knowledgeable human interaction, the joy of immediate impulse purchase, a nourishing hot chocolat or ice cream of the gods, the leisure experience of stepping into our multi-sensory world, a chance to taste our latest creations an come back after-hours for a ticketed tasting event.”

That said, the retailer has closed five of its shops sited in ‘commuter’ locations because of reduced footfall. Its other shops are open and trading lower year-on-year. Impulse buys still happen, but are especially lower in London. The retailer has paused UK and US openings “pending likely adjustments to the property market” and is talking with its landlords to find “collaborative solutions to the ongoing disruption”. But it says in Japan, rents are already set as a percentage of sales, and that give the confidence to continue to invest and support our joint venture partner in opening new locations to increase the reach an awareness of the brand.” However the retailer’s Scandinavian franchise closed in July as a result of the impact of the pandemic on the brand.

Secrets of winning and retaining loyal customers

Hotel Chocolat says its VIP.ME customer loyalty programme is at the centre of its customer relationships, with member numbers having grown by 50% year-on-year. Members, it says, are more likely to shop across its channels and to spend more on each transaction. It puts the increased spend down to the quality of its customer loyalty benefits and to the change in shopping patterns post-Covid-19. 

It is now offering a choice of four ways for subscribers to buy from it, from a limited membership Inventing Room whose members can taste all potential new ideas and vote on which are launched, to a regular subscription to a named product that then costs less. Other options include a curated collection – where Hotel Chocolat chooses items based on what the customer likes – and a Rabot Coterie for ethically-minded customers who receive an annual box of cacao-themed products sourced from Hotel Chocolat’s Rabot cacao estate in Saint Lucia. 

Hotel Chocolat sells online and via 130 shops in the UK and abroad. It also has a UK restaurant and a cacao estate and hotel in Saint Lucia.

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