2.0 SWOT Analysis
Thorntons Plc conducted their key manufacturing and selling activities in house. The ability to monitor the process of the boxed chocolate selection provides them with greater control over the manufacturing process. This has enabled them to protect the recipe of their core products.
In addition, years of manufacturing in the chocolate industry has also helped to develop their manufacturing expertise. Review has also shown that Thorntons was the only possible manufacturer for 70% of its product lines. This will give them competitive advantage over other chocolate producers.
The use of quality ingredients assured the quality of the boxed chocolate selection. It has enabled them to differentiate themselves from other chocolate producers. The company owned retail outlets provided a good quality of service by providing personalized messages on icing during special occasions.
Thorntons chocolate’s freshness is a distinctive feature of their product. Using more cocoa butter instead of vegetable fat has also shown the quality in their products.
The company has maintained the customers’ experience by selling fresh and quality products.
2.1.3 Brand Name
Thorntons has become a well known brand to the consumers. Research survey has shown that consumers ranked Thorntons in the 5th place in their typical UK high street products. Their shops have also become part of the UK high street.
In 1925 a recipe for Special Toffee gave the business an outstanding product. Walter Willen created the original recipes for Thorntons Continental chocolate range, which became the largest selling specialist assortment of chocolates in UK.
Furthermore, since these products are still around until the present day, it shows Thorntons have expertise in chocolate making. New development of French dark chocolate and Belgian milk and white chocolate selection has also been added to the Continental range.
In addition, products were also expanded to include gifts for every occasion, which included chocolate scented t-shirts and New Easter eggs. With the continuous innovation of producing new products, Thorntons can overcome the problem of seasonal goods. It helps them to increase sales during peak and off peak season.
In 1998 the company had started to install EPOS in the shops. Electronic Point of Sales will allow them to increase efficiency and have more timely performance information. It will also help them to reduce losses in the future with up to date performance information.
2.1.6 Wide Distribution Channel
Thorntons have their own shops to sell their products. Besides that, they have collaborated with other retail outlets such as Marks and Spencer, Tesco and also other grocers in order to widen and strengthen their market distribution channel. Moreover, they also sell their chocolate to pubs and restaurants to broaden their market share.
2.2.1 Short Lifespan of Product
Thorntons’ chocolate does not have a long shelf life and is often unsuitable for sales in many retail outlets, corner shops, garages and some of the supermarkets.
2.2.2 Fluctuations of Demand
The company faces a lot of pressure and fluctuations of demand due to strong seasonal pattern. During festive season such as Christmas and Easter, business can increase tenfold within a few days. This will lead to the inefficiency of labor and production of chocolate.
2.2.3 Extra Cost of Labor
To meet seasonal demand packing staff requires the increased use of casual workers, which will lead to a fall in efficiency. Furthermore, seasonal demand also requires the use of temporary staff in retail outlets. Temporary staff often do not often have the quality and experience needed, which could lead to unsatisfied customers. In addition, the need for casual workers will also increase the cost of the company.
The chocolates are enrobed in chocolate rather than molded. Thus, their hand made appearance makes the packaging process less open to automation because the chocolates are not in uniform sizes.
2.2.5 Customers’ Expectation
Franchising did not provide the customer with the same experience as shopping in a Thorntons-owned shop and occasionally it could be difficult to maintain standards. As a result of this, Thorntons could end up losing customers because they cannot meet the customer’s expectation.
2.2.6 Drop in Perceived Value
Thorntons have made progress to develop the company’s commercial customers and have broadened the range of chocolate products to suit supermarket shelves. These newly developed products to suit the commercial customers were different compared to those sold at Thorntons own outlets. They differed by style and recipe and regular customers could not be sure if they were made by Thorntons. As a result of this, it may lead to a drop in the regular customers’ perceived value and Thorntons itself losing their identity. Thus, they may end up losing regular customers.
2.2.7 Lost Focus in Initial Objective
In 1998, Thorntons have introduced another 132 new and updated products and have widened the product range to place emphasis on count lines, which acted as a snack or impulse buy. This has attracted a wider range of customers but it also brought them into competition with products of such companies as Nestle and Cadburys. Here it shows that they have already lost focus, because they should not be competing with brands such as Nestle and Cadburys. Thorntons should have focused on their box chocolates and use their competitive advantage over others.
2.3.1 Use of Technology
Thorntons have also made use of the internet to let customer’s place their orders or make online purchases, retain existing customers and also attract new customers. Besides that, online purchases can allow them to receive information quickly and determine whether certain products are favorable or unfavorable to the consumers. Furthermore, online purchases can give them time to make the chocolates and let them know how much they need to produce for the online customers.
2.3.2 Penetration to European Market
Thorntons expanded their business thorough the acquisition of Gartner in Antwerp, which was their first European acquisition. After that, they used Gartner’s products trough Thorntons retail network well as selling its own confectioneries to the Belgium companies’ customers. Consequently, they acquired 2 French confectionery retailers, Candice-Martial SA and Societe Nouvelle de Confiserie. Thus, Thornton made use of the opportunities for growth through acquisitions in Europe.
2.3.3 Seasonal Sales
Thorntons chocolate are highly dependable on seasonal festivals. This way, when festive seasons arrive, the sales will boom and will increase the profits. The differentiated product range suits the various demand of customers during different festive seasons.
2.3.4 Export to Other Foreign Markets
Thorntons began to develop sales outside UK by exporting to Europe and Australia which had reached 300 thousand pounds. Export to these foreign markets will increase production and could achieve economies of scale.
2.4.1 Competition Against Established Companies
When Thorntons wanted to attract a wider range of customers, they entered into the middle range market. The expansion of the target market has lead them into competition against established companies such as Nestle and Cadburys. Since Nestle and Cadburys are already well known in this market segment, they have already created a high barrier for Thorntons to enter. Moreover, by entering the middle range market, Thorntons which is not used to automation and mass production will lose its competitive advantage if they are in the middle range market. In other words, Thorntons will not be able to use their existing resources and advantages to compete with Nestle and Cadburys.
2.4.2 External Factors
During Easter 2003, Thorntons sales was affected by the hottest summer in 30 years. In June 2003, it revealed that the companies own stores sale had increased by only 0.9%. This shows that the sales of Thorntons will be affected by external forces such as weather.
2.4.3 Other Substitutes
Thorntons competed with a wide range of products ranging from 5 to 10 pounds. Specialist retailers such as Body Shop and KnickerBox provided gifts in the same price range. Besides, postal gifts such as flowers and wine were also addressed to the same market. This way, instead of choosing from Thorntons, consumers will have more choices to choose from the market and in this particular price range.
3.0 Porter’s 5 forces Analysis on the Chocolate Industry in UK
The five forces framework helps identify the sources of competition in an industry or sector. (Johnson & Scholes 2002, pg 112)
3.1 Threat of Entry
There are many factors which will lead to the threat of entry. These factors are economies of scale, product differentiation, capital requirements, cost advantages of independent size, access to distribution channels and government regulations.
3.1.1 Product Differentiation
In this case, it is mentioned that the UK confectionery market is highly competitive with a great deal of product and packaging innovation. In addition, the chocolate market has many sub-sectors. This shows that the chocolate industry in UK has manufacturers who place great focus on product differentiation. When these chocolate manufacturers differentiate their products, it creates a wider choice for chocolate lovers and this will discourage new entries from new manufacturers.
3.1.2 Huge Capital Requirement/Economies of Scale
Furthermore, in order to compete among the existing competitors in the chocolate market, those new comers will need huge capital requirement. This is because great economies of scales have already been achieved by those existing ones.
In summary, the threat of entry to the chocolate industry in UK is very high. New potential chocolate manufacturers will need huge capital requirements in order to differentiate their product and to compete with the existing manufacturers which have already achieved a high economy of scale.
3.2 The Power of Supplier
3.2.1 Product Differentiation
In this case, the suppliers are the ones who supply raw ingredients for those chocolate manufacturers to make chocolates. They are more powerful when they supply differentiated products, which make switching among other suppliers difficult. In this industry, the main raw ingredients such as cocoa beans are not differentiated. Thus, the buyers have the choice to switch among other suppliers because cocoa beans are not differentiated. Therefore, the suppliers do not have as much power as the buyers.
In addition, when there are few substitutes among the suppliers, the supplier will be more powerful. In this case, there are a number of suppliers in the chocolate industry which will make switching among suppliers easier, making them less powerful. Examples of cocoa producers are Brazil, Ecuador, Indonesia and other countries. (Refer to appendix A) If one of the suppliers increases the price of raw ingredients, chocolate manufacturer like Thorntons can easily switch to other suppliers. This shows that the suppliers have less power in this case.
3.2.3 Suppliers Revenue
Suppliers have more power when the industry represents a small portion of suppliers’ revenue base. In the chocolate industry, the suppliers could not afford to lose the buyers as the purchases of the buyers represent a substantial portion of their revenue. This explains that the suppliers have less power in this industry.
3.2.4 Forward Integration
Suppliers are powerful when they have the capability to integrate forward. In this case, since most of the suppliers’ revenues are from the established chocolate manufacturers such as Cadburys, Nestle and Throntons, it is extremely difficult for the suppliers to acquire these established companies. Therefore, suppliers are not as powerful as the buyers.
3.3 The Power of Buyer
3.3.1 Product Differentiation
According to Porter, backward integration can allow the firm to enhance differentiation by gaining control over the production of key inputs to be able to differentiate its products better. (Porter 1998, pg 318) In this industry, Thorntons and other chocolate manufacturers are the buyers. Buyers have power when the product is not differentiated making it easier to switch. In this case, the raw materials used to produce chocolate are such as cocoa beans, eggs, cream butter, vegetable fat and sugar. All these raw materials are usually not differentiated for the production of chocolates.
3.3.2 Buyers’ Purchase
Moreover, buyers have more power when the buyers’ purchase represents a substantial portion of sellers’ revenue. In this case, well established companies like Nestle, Cadburys and Thorntons purchase large amount of raw ingredients from the suppliers to produce the many different types of chocolates. These purchases represent a substantial portion of the suppliers’ revenue.
3.3.3 Backward Integration
Furthermore, buyers will be more powerful when they have the capability to integrate backwards. In this case, Thorntons has the capability to make European acquisition such as Gartner and Candice-Martial SA and Societe Nouvelle for a total of 8.65 million pounds. This shows that Thorntons has the potential and ability to integrate backwards by taking over their supplier of raw chocolate ingredients.
There are many substitutes for the consumption of chocolates such as other confectioneries and snacks. As a gift, consumers can choose substitutes other than chocolates. For instance, in the 5 to 10 pounds price range, consumers can choose from Thorntons, Body Shop and Knickerbox. Also, during festive seasons such as Valentine’s Day and Mothers’ Day, consumers have a variety of choices to choose from like flowers, cards, CDs and soft toys. This clearly illustrates that chocolate indeed has a number of substitutes.
When an industry has a large number of competitors and they are of similar size and power; or has high fixed costs and also high barriers of exit, it means that the rivalry is strong.
3.5.1 Number of Competitors
In this case, there are many strong competitors in the UK chocolate industry such as Masterfoods, Cadbury, Nestle Kraft and Jacob Suchard. These big fours contribute more than half of the UK box chocolate market, which is 72% of total value of sales which account to approximately 503 million pounds. (Refer to appendix B)
Besides the big 4, they also faced competition from other small chocolate retailers and owned labels which account for 14% of total value of sales which is approximately 98 million pounds. Furthermore, smaller more specialist chocolate brands such as Elizabeth Shaw also compete with Thorntons. On the other hand, Marks and Spencer and Sainsbury Taste the Difference who have high quality images that support the sale of own-labeled box chocolates would intensify the rivalry in the industry.
3.5.2 High Fix Cost/High Exit Barrier
Furthermore, chocolate manufacturers incur high fixed cost. Any new entrants who wished to compete with those established brands in the industry will incur a high cost to purchase the machineries and facilities to produce chocolate. When they have invested such high capital in buying machineries, product differentiation and advertising, it will be very expensive for them to leave the industry. Hence, the rivalry of the chocolate industry is intense.
4.0 Strategy Implemented by Thorntons
Thorntons uses the product differentiation strategy. Johnson and Scholes (2002, pg 322) states that differentiation strategy seeks to provide products or services unique or different from those of competitors in terms of dimension widely valued by buyers. Many other manufacturers make greater use of vegetable fat which results in a shelf life of over a year. However, Thorntons uses more cocoa butter in their products in order to maintain the customers’ experience of the fresh product. This shows that their products are different from others.
Thorntons chocolates are enrobed in chocolate rather than moulded unlike other brands such as Nestle and Cadburys where they mass produce the chocolates. In other words, due to the hand made process, the chocolates represent luxury and high end if compared relatively to chocolates mass produced by Nestle and Cadburys.
The creation of Special Toffee, based upon cream butter and eggs in 1925 shows that Thorntons has been applying the differentiation strategy since its humble beginning. In addition, it has self manufactured Easter Eggs, which included names and messages that added to the range of freshly made and fresh tasting confectioneries. The innovation of adding names and personal messages through the sale of easter Eggs shows that Thornton indeed tried to differentiate their products in order to enhance the quality of their service. (Generic Strategies: Michael Porter 2006)
Walter Willen, the creator of Thorntons’ Continental chocolates became the largest selling specialist assortment of chocolates in the UK. Likewise, the continental range included a French dark chocolate and a Belgian milk and white chocolate selections. Also, in order to top the product range, a new classic traditional assortment and a Premier Selection of hand-finished chocolates were established. In other words, this shows that by differentiating the chocolates, Thorntons chocolates have became more welcomed and loved by the consumers.
At Thorntons, great importance is given on product development. For instance, Thorntons repackage and re launched the classic range, adding Swiss and Austrian selection to the core Continental range and introducing an awesome American range in order to differentiate the range of its chocolates. In addition, 27 new countlines were introduced providing a five fold increase in the available range.
By differentiating its products, Thorntons will broaden their target market which ranges from children to adults. Target market consists of a set of buyers sharing common needs or characteristics that the company decides to serve. (Kotler et al. 2003, pg 230) This can be seen by the introduction of the children’s themes including dinosaur eggs, fossils and Dalmatian spots. Furthermore, Thorntons introduced further 132 new and updated products which place emphasis on countlines to act as a snack or impulse buy. In other words, when product is differentiated, different segments of the market will then be targeted and thus increasing the popularity of Thorntons in the mind of young and old.
Thorntons continued differentiating their products by adding additional items to their core product such as chocolate scented T-shirts and underwears; and Easter eggs on sticks that could be hidden in the garden. Furthermore, they relaunched the best selling continental selection for Christmas 1999 and a chocolate champagne bottle designed for the millennium celebrations. Not only that, they have adult eggs and novelty eggs which contained a CD when purchased.
Product differentiation continues when Thorntons repositioned many of their products so that they could be associated with every occasion such as birthdays, success, exams or job changes and not only festive seasons. Additionally, the company directed towards younger women by introducing Eden, which combine exotically named flavors such as Forbidden Fruit, Grand Passion and All About Eve. With its chic packaging, it shows that packaging was also differentiated to attract this market segment.
All these years, Thorntons has tried its best to differentiate its chocolates and have achieved unbelievable results. For instance, Thorntons was the only possible manufacturer for 70% of its product line due to product differentiation. Therefore, we strongly recommend Thorntons to continue and focus on the product differentiation strategy.