The following sample essay focuses on Thorntons PLC, the UK’s largest manufacturer and retailer of specialty chocolates. Read the introduction, body and conclusion of the essay, scroll down.
Thorntons PLC is the UK’s largest manufacturer and retailer of specialist chocolates. The company had followed a strategy of in-house manufacture and retailing largely through the company’s own shops and to a lesser extent through franchising. This case also describes the company’s attempts at Diversification into the US and European markets.
Thorntons outline four strategic priorities1 for the business:
These priorities were designed to achieve two objectives. Firstly, to stabilize company’s performance by delivering positive like-for-like sales and returning to profit growth. Secondly, to put in place the organizational infrastructure provides a firm and robust platform for future growth.
– High rate of Interest in French economy and devaluation of sterling made huge loses.
– Downturn of profits due to seasonal demand only on some special events.
– Seasonal events like Christmas, Valentines Day, Mothers Day, and New Year accounted for a further 25 per cent of sales.
– Installation of EPOS (Electronic-point-of-sale) tills in the shops.
– E-commerce/mail orders systems
– New tills system.
– Due to Hot weather conditions, the demand of chocolate goes down.
Thorntons began to develop sales outside the UK and company decided the US market could offer the best vehicle for expansion. Thorntons believed that there was scope in the UK for further expansion and also the venture into US showing little prospects of profit.
But these prospects of Thorntons unfortunately closed.
– There was an attempt by Thorntons to enter the European market which proved losses for the company. In French market, customer needs, tastes and preferences are different from UK needs, tastes and preferences. There was a market differences between these two countries. The sales and tastes were divided by Thorntons in two: First, UK sales are divided as 80 per cent chocolate and 17 per cent toffee. Second, the French market divided equally between chocolate (with the French consumer preferring bitter chocolate)2, Ice-cream and sugared confectionery. But this divergence of taste brought Thorntons into loses as caused by high French interest rates, downturn in the French economy and the deflation of sterling.
– Thorntons has divided their sales into UK and French and differences in tastes and preferences. They adopted a short term strategy which indicates less ‘economies of scale’ as in components of Thorntons. Thorntons suffering loses due to various negative factors such as- Seasonal demand and low production of chocolates. As Thorntons has 1 per cent of daily confectionery market and 6 per cent of confectionery gift market3. So the sales are depends on seasonal events.
– Difficult to maintain standards in franchisees as customers feel uneasy while shopping for chocolates.
– Hot weather leading to loses for Thorntons.
– Differences in working culture makes hard for the company to operate.
Thorntons primarily compete in the boxed chocolate market where their continental brand has a 6 per cent share and other players such as Cadbury’s roses; the leading brand has 15 per cent4. As a retailer dedicated to specialist confectionery, the company has no super markets such as ASDA, Sainsbury, and M & S to whom Thorntons is a supplier. Product quality is based on unique product recipes and the use of high quality material (the company’s truffle curtains Moet ET Chandon!)5. The chocolate industry is n maturity stage of the life cycle. Within this view Thorntons’ in-house manufacturing and retailing strategy appears to have a number of benefits in meeting competitive forces. However, Competitive rivalry is not very high because Thorntons’ main product is made up of hand-finished which distinguish it from its competitors.
Thorntons is the largest UK manufacturer of premium chocolate, a product that involves chocolate enrobing rather than the moulding process required by more mass market chocolates. Where the costs were comparatively higher, they often included discretionary aspects that resulted in enhanced product characteristics for those where there was no concern for the retention of knowledge. Competitors can sell chocolates not only in retails and franchisees but also on E-commerce/mail order and Internet. Thorntons’ shops are developed to achieve Differentiation. Product quality is based on unique product recipes and the use of high quality material. Overall, the threat of entrants is not high but moderate as production cost is high and also Entrants needs experience.
Consumers rather than buying solid or boxed chocolates there are many other substitutes available in the chocolate market such as, Cadbury drinking chocolate, Rice milk, Juices, Cakes, Ice creams, bar chocolates. The Threats of substitutes is very high as varieties of substitutes are available in the market.
There is a concentration of buyers particularly the volume purchases from the buyers are low. Mostly the purchases is depends upon seasonal events i.e. Christmas, Valentines Day, Easter. Thorntons has large number of suppliers6 such as M & S, ASDA and other supermarket stores where Thorntons supply chocolates. Thorntons continually develops the manufacturing aspects of the business, people are often surprised by the amount of hand-finishing involved in the manufacture of Thorntons products. There is not a big threat of backward integration by the buyer. Thorntons supply the best tasting chocolate and confectionery at cheap prices.
Thorntons was able to make use of competitive supply market. The company was faced with numerous potential suppliers. Thorntons was reluctant to enter situations where suppliers might achieve power in the relationship or where the leakage of what was regarded as core product knowledge could occur. That is why Thorntons has 70 per cent7 in-house manufacturing and in the area of liquid chocolate, the company was able to follow a buying-in strategy due to the availability of a number of suppliers. Therefore, the power of suppliers is negative.
Though Thorntons’ strategy of vertical integration provides a number of differentiating characteristics, but at the same time avoiding the consequences of market power and value appropriates in product and supply market.
Overall, the company’s in-house strategy is consistent with the competitive technology and supply context in which the company operates. The specific nature of the manufacturing technology greatly reduces the opportunity for outsourcing from a competitive supply market. The supply alternative is essential to purchase product from other manufacturing companies, a strategy that would erode differentiation.