Thorntons Plc.

THREAT OF SUBSTITUTE

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.

BUYING POWER

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 suppliers 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.

POWER OF SUPPLIERS

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 cent 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.

CONCLUSION

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.

3.

STRENGHTS

• Long standing supply arrangements with M & S and other supermarkets for the company’s product with the range of chocolate products broadened to suit the supermarkets’ shelves.
• Thorntons’ confectionery was distinctive concerned the freshness of the product.
• Product development and shop relocation initiatives sought Thorntons to attract a wider range of customers.
• Product innovation by the company such as Ice cream range expanded and a children’s range introduced with varieties of product themes and also opened Café Thorntons.
• Installation of EPOS (Electronic-point-of-sale) in the shops.
• New varieties of chocolates for seasonal events like- Christmas Day, Valentines Day include the promotional activities such as chocolate-scented T-shirts.
• Thorntons’ product differentiation is another big advantage. Product differentiation is by hand-crafted chocolates.

WEAKNESSES

• Franchising did not provide the customers with same experience as shopping in company’s own shops and also sometimes it is difficult to maintain standards.
• Company’s existing shops were tired and increasingly off-pitch; as many of the shops were too small and in poor locations.

THORNTONS VALUE CHAIN

Retailing

The design and layout of the shops and franchised outlet was developed by an in-house team. Thorntons often started changing the outlook of the shop in every two weeks, with the changes and developed and evaluated in the company’s shops, prior to their high-street introduction. Most of the sales of Thorntons were made through the company’s own shops.

Outbound logistics

Thorntons started the in-house delivery service through a 48-hour order delivery cycle. The company expanded its network of outlets and that not only helped reduce the cost of production but also provide the ease of access to city centre sites and when there is night delivery.

Manufacturing

Thorntons has described itself as a “market-led, retail-driven business”, however, it is also substantially committed to the in-house manufacture of its products. The company has developed over time knowledge and routines that are particular to the Thorntons and provide the required product characteristics.

New Product Development

Thorntons does new product development on every occasion and also sustain the uniqueness of the product’s characteristics. New product lines aimed at individual self-indulgence are planned. Thorntons’ CEO, Peter Burdon developed a strategy that they not only concentrating on development of new product on the occasions but also on day-to-day basis.

Packaging and raw material

To maximize its effectiveness packaging was continually modified to provide a new appearance for products. Packaging was also a complex part of the product involving many parts of the company and packing operations. Packaging was designed in-house and bought-in. Thorntons purchased liquid chocolate from outside supplier, as the supplier achieved economies of scale beyond those that would be available to Thorntons, both in manufacture and through purchasing of raw materials.

4.

Stakeholders are those individuals or groups who depend on the organization to fulfill their own goals and on whom in turn the organization depends.

Thorntons adopted retail-led approach and providing both retail and franchisees for their chocolate. There were concerns about its loss in market share. The stakeholders of Thorntons are:-

• Customers
• Commercial customers
• Suppliers
• Employees
• Franchisees
• Shareholders
• Managers
• Competitors

STAKEHOLDER MAPPING

Power/Interest map was drawn up by the management to establish likely stakeholder reactions to the Thorntons operations. Referring to Stakeholder map it can be analyzed that the Stakeholder box B has high level of interest but low power. If Thorntons wants to make profit and increase structure then Thorntons must address their questions and, where possible, alleviate their fears. If such fears were overcome these people might become important allies in influencing the more powerful stakeholder in the box C and D. The Customers in box C have high power and low interest and these stakeholders could affect the strategy of Thorntons. Thorntons has to develop the tools, for example packaging guidelines, and the training programs to make sure that all aspects of our product, packaging, selling skills and other elements of the customer proposition are aligned with these brand values. The relationship with the stakeholder in box C is the most difficult to manage since, whilst they were considered to be relatively passive.

The acceptability of the proposed strategy to the current players in box D is a key consideration. Stakeholders in box D are the key players and the company clearly needed to have open discussions with stakeholders as they have high level of interest and high power and includes CEO and high position managers, involve in the strategy formulation, profitability growth, operations and other major departments that affects the company’s strategy and performance. Thorntons’ management group introduced in-house strategy to maintain differentiation in the product.

OBJECTIVES OF THORNTONS FROM 2001 – 2005

• Further expansion to increase the total of wholly-owned shops to 507 to 2001 with 200 Franchised outlets.
• To create totally new customer proposition, comparing a new store environment and developed over 2001 with an objective to create an increase in sales.
• Objective is to build a successful platform and not distracted by chasing too many new opportunities.
• Increase the number of Café Thorntons as an alternative solution to losses due to hot weather conditions.
• Increase the share of daily confectionery market so that they wouldn’t depend upon seasonal events.
• Opening Thorntons’ call centers and provides gift delivery service through phone calls.

5.

STRATEGY CLOCK

Competitive strategy is the basis on which a business unit might achieve competitive advantage in its market. Customers may choose to purchase from one source rather than another because either:

• the price of the product or service is lower than competitors
• the product or services perceived by the customer to provide better ‘added value’ or benefits than that available elsewhere

There are some generic strategies options for achieving competitive advantage flow-

1. No frills strategy – This strategy combines a low price, low perceived added value and a focus on the price sensitive market segment.
2. Low price strategy – This seeks to achieve a lower price than competitors whilst trying to maintain similar value of product or service to that offered by competitors.
3. Differentiation strategy – This seeks to provide product or services unique or different from those of competitors in terms of dimensions widely valued by buyers. Thorntons try to show that they are the best ‘chocolatier in haven since 1911’. This strategy might be achieved through the following:

• In quality, Thorntons aims to have the best tasting chocolate and confectionery, including using natural ingredients and by utilizing traditional confectionery skills.
• Differentiation is achieved by having fresher product than other confectionery manufacturers in the market, Thorntons achieves this through developing its own unique recipes utilizing the fresh ingredients resulting in a shorter shelf life.
• Thorntons also developed the manufacturing aspect of the business; people are often surprise by the amount of hand-finishing involved in the manufacturing of its products.
• Thorntons also allows the customers to personalize the product to their needs.

4. Hybrid strategy – This seeks simultaneously to achieve differentiation and the price lower than that of competitors.
5. Focused differentiation- This strategy seeks to provide high perceived value justifying the substantial price premium usually to a selected market segment.

B. Distinctive advantages

• Product innovation by Thorntons such as ice cream range expanded and the children’s range introduced with the product themes.
• Installation of EPOS on the shops.
• Product differentiation by hand-crafted chocolates
• Thorntons allows customer to personalize the product to their needs.
• Best tasting chocolate including natural ingredients and by utilizing traditional confectionery skills.

6.

Evaluation of Peter Burdon, Thorntons’ new CEO, strategy:

• Deliver short term profit in a controlled, co-coordinated and efficient manner.
• Focus on strengths like unique product, modern assets and differentiated skills to consolidate the company for future growth.
• Exploit strong brand through proper marketing and advertising campaign.
• Thorntons could expand the project to 400 of the company’s outlets over the next 3 years. There are also plans to double the number of Café Thorntons to 48 by 2004.
• Other strategies involve improving store environment, product range and style of service as well as increasing distribution of Thornton’s product by mainly impulse bars available in grocery stores.

But the company has blamed product mix, heavy investment as well as too many Easter eggs for its poor performance in the past. Thorntons has issued the latest in a string of profit warnings and is now saying full year pre tax profits are unlikely to exceed £5 million.

STRATEGY DEVELOPMENT DIRECTION

Whilst Thorntons’ existing businesses, they continue to look for further growth than can capitalize on the strength of Thorntons brand. They diversified their brand into different services such as –

1. Gift delivery service – Thorntons plan to grow substantially through this service and have extended their offering to the internet and through open on digital TV orders can be placed via the internet, by post, over the telephone or in any Thorntons shop.
2. Café Thorntons – Thorntons also started the café Thornton’s concept. This offer combines the continental café with their full confectionery offer. The café concept will be an ongoing development for Thorntons and the company wants to open more number of stores by 2004.
3. Partnership with major greeting card supplier in the UK and Ireland. Also, Fixtures investment schemes available including free on loan fixtures.

There are 3 main success criterions on which Thorntons measured:

SUITABILITY

It is concerned with whether a strategy addresses the circumstances in which an organization is operating the strategic position. Thorntons enhanced the utilization of the EPOS tills and the installation of these tills in the shops is the biggest support for their strategy. Thorntons overcome their weaknesses by pitting their stores in provincial towns and developed designer outlet centers. Thorntons opened call centers and delivery services for customers. Thornton’s shops are developed to achieve differentiation the company’s in-house delivery fleet served the outlets through 48 hour order delivery cycle. Thorntons has described itself as a “market-led, retail driven business”. Thorntons has developed overtime the knowledge and resources that are particular to the company and provide the required product characteristics. Thus the strategies are suitable for the company.

FEASIBILITY

Thorntons conducted a review of its cafés to further understand the drivers of profits and the opportunities for the improvement. Thornton’s current cafes are profitable on a fully centered basis. E-commerce/mail order remains the small but growing part of their customer offer and the sales increase was over 20 per cent. The increase in brand awareness has risen by 1 per cent to 86 per cent compare with other competitors. Different continental ranges and also increasing their presence in the personal treat market with products like chocolate bites and toffee chocs. They slowed down their expansion in order to focus their effort and investment on creating an appropriate return from their manufacturing facilities. Thus, it is suppose to be feasible in respect to the company.

ACCEPTABILITY

The strategy seems to be unacceptable as the cost generating on sales resulted in profit and also Thorntons’ net debt increase in the year and produce working capital. As introducing of such businesses like gift delivery services to the customers, café Thorntons, e-commerce requires heavy working capital and investment which is totally unacceptable at the current situation. So therefore, according to this it does not seem acceptable to Thorntons.

REFERENCING

Books

• Johnson, G., Scholes, K., 2002, Exploring Corporate Strategy: Text and Cases, Sixth edition, FT  Printice Hall
• Bob de Wit, Ron Meyer, 2002, Strategy: Process, Content, Context, Second edition, Thomson learning

Website

Lectures/Notes/Handouts

• Thorntons case study
• Reference weekly handouts

APPENDIX A

PESTLE Analysis

Economic

• High rate of Interest in French economy
• Downturn of profits due to seasonal demand

Social

• Ocassions increased the sales of Thorntons.

Technological

• Installation of EPOS (Electronic-point-of-sale) tills
• E-commerce/mail orders systems

Environmental

• Due to Hot weather conditions, the demand of chocolate goes down.

APPENDIX B

Potential entrants

         Threat

               Of entrants

Suppliers                Competitive Rivalry                Buyers

                    Bargaining power                        Bargaining power

          Threat

                    Of Substitutes

Substitutes

PORTER FIVE FORCES MODEL

Exploring Thorntons’ Strategy

Siddharth Saxena

Thames Valley University

MBA, Business Policy.

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