‘If you don’t have a smile, we’ll give you one of ours’

Business Strategy AnalysisLuke Dexter

Liz Wilson

Alice Hart

Gillian Day

History Of The Business• Founded in 1911, in Sheffield, by William

Thornton. Alfreton Factory.

• Steady growth throughout the decades and became publically listed on the London stock exchange at the end of the 1980s

• Present Day: 247 Stores + 186 Franchise Shops (UK & Ireland)

• Acquired by Ferrero for £112m in June 2015 –Change of strategy/direction?

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The Nature Of The Business

• Premium chocolate industry but in recent years has branched into a new market sectors with cafés, biscuits and ice cream.

• Seasonal sales have big effect on profits. 13% of global confectionary sales happen during holidays. UK Market share during Easter (2013) grew to 4.7% from 4%. [1]

• Ferrero acquisition likely to lead to a change in market sectors and additional products – will want a return on their investment.

(Image: Chocolate Hearts, 2014) [1] Just Food, 2013

Key Performance Indicators

07/012011

13/012012

11/012013

10/012014

09/012015

95.5p 9.875p 45p 135.5p 83p

THT Share Price

http://www.iii.co.uk/research/LSE:THT

Data obtained from Thornton’s Annual Statements 2011-14

Strategic Direction Of The Company

• Can be seen to be a focused Differentiation Strategy on strategy clock.

• Subject to change since acquisition - Will be concerned to meet Ferrero’s expectations.

• Aims to increase market share.

• To market chocolate as a gift.

• Transition period between CEO’s.

• Strategy in the past few years has been to reduce number of stores which were loss-making. 296 Stores in 2013 – 247 January 2015. [2]

• Aims to also sell wholesale to supermarket groups to get their products in more locations.

[2] Thorntons, 2015

‘The strategy clock represents different positions in a market where customers have different requirements in terms of value for money’ Johnson, Whittington & Scholes (2012, Pg. 150.

Scope Of Distribution

2011 2012 2013 2014

Business Model & Operating profit data obtained from Thornton’s Annual Statements 2011-2014

Luxury own-brand chocolate, toffee

and fudge. Seasonal & Themed chocolate shapes.

Selection trays

OnlineOwn Stores

Supermarkets

Luxury Biscuits

New as of October 2015

OnlineOwn Stores

Supermarkets

Gifts

Personalisation through icing

service. Introduced Hampers,

Flowers and Cards

OnlineOwn Stores

Café Thorntons

Sells hot drinks (Tea, Coffee, Hot Chocolate) cakes and Thornton’s

chocolates

Online (Hot Drink Products)

Own Stores

Ice Creams

Sells Tubs and Cones of Ice Creams in a variety of

flavours – not just chocolate

Own StoresSupermarkets

Extent Of Product Diversity

Scope Of Market & Competition

• Competition from ‘value’ chocolate companies such as Cadburys, as well as luxury brands such as Lindt & Hotel Chocolat.

• Hotel Chocolat – Established 1988. £8.3m pre-tax profit for the six months until 28 December 2014, whereas Thorntons raised £6.6m profit for the same period. Hotel Chocolat 81 Stores, Thorntons 242. [3]

• UK chocolate sales grew by 1.6% in 2014 = £4.1bn, however, chocolate sold fell 1% to 437 million kg. [4]

• Cocoa and raw ingredient prices rising. Alongside a more health conscious society is likely to halt a increase in chocolate consumed.

• 1/3rd of British chocolate buyers buy premium products either "regularly" or "all the time“. [5]

[3] Independent, 2015[4] Mintel, 2014[5] Canadean, 2014

Task 2 Critically evaluate external environment of your chosen organisation and how it impacts organisational strategy. Please consider how your organisation responds to the environmental

pressures.

PESTLE Analysis

POLITICAL Cocoa Supplies Sugar European Union

ECONOMIC Unemployment Bank rate increases Increased VAT

SOCIAL Gifts Treats Healthy Eating

TECHNOLOGICAL Online Shopping ManufacturingDevelopments

Advertising

LEGAL Employment Law EU Regulations

ENVIRONMENTAL Global Warming Waste/Energy Reduction

Sustainability

• Low, Lack of Experience• Limited access to Suppliers/Distributers

• Strong, can switch to a competitor

• Low, alternative suppliers available

• High, other products available

• Strong competitive rivalry in shops and high street

Porter’s Five Forces

Low Price

High Price

Low Quality High Quality

Price information correct 01.11.2015

Positioning Map

Mintel Report

FIGURE 18: Leading brands’ sales in the UK retail chocolate assortments market, by

value, 2013/14 and 2014/15

2013/14* Share 2014/15* Share % change

£m % £m %

Celebrations (Mars) 95 10 102 10 +7.4

Quality Street (Nestlé) 97 10 97 10 -

Lindt (Lindt & Sprüngli) 81 9 97 10 +19.8

Thorntons (Thorntons) 100 11 96 10 -4.0

Ferrero (Ferrero) 72 8 87 9 +20.8

Source: Mintel Report Chocolate Confectionery - UK - May 2015

Mintel Report

Source: confectionarynews.com

Market Share

Task 3 Analyse organisational resources and capabilities and how they contribute to the organisational competitive

advantage.

Resources & Competences

Resources Competences

-Tangible Resources• Plant (Derby)• Technology, such as machinery or equipment • Retail outlets/ Cafes• FMCG channels• 3868 Employees• Suppliers/Customers

-Intangible Resources• Family Culture • Corporate Culture • R&D Frame work• Brand awareness• Marketing Strategy (Gifting) • Company knowledge and experience• Cash flow• Budgets

• Communication• Budgeting and planning knowledge • Capacity to recruit and train staff• Management, and people skills• Effective management ( In all area: structure

people, financial, production/manufactural)• Attention to communication • Establishing focus• Motivational support and performance

management • Team work• Managing change • Developing and empowering others• Culture and style• Effect service • Flexibility • Safety • Leadership

“Resources are the assets that organisations have or can call upon. Competences are the ways those assets are used or deployed effectively” Johnson, Whittington & Scholes (2012. P. 51.)

Key:• Physical resources• Financial resources• Human resources• Intellectual capital

Threshold Capabilities

Threshold Resources • Plant (Derby)• Technology, such as machinery or equipment • Retail outlets/ Cafes• FMCG channels• 3868 Employees

Threshold Competences • Communication• Budgeting and planning knowledge • Capacity to recruit and train staff• Management, and people skills

“Threshold Capabilities are those needed for a an organisation to meet the necessary requirements to compete in a given market and achieve parity with competitors in that market.” Johnson, Whittington & Scholes (2012. P. 53.)

Table 3.2 Johnson, Whittington & Scholes (2012. P. 53.)

Distinctive/Dynamic Capabilities

Unique Resources • Family Culture • Corporate Culture • R&D Frame work• Brand awareness• Marketing Strategy (Gifting)

Core Competences • Effective management ( In all area: structure people, money, production)• Attention to communication • Establishing focus• Motivational support and performance management • Team work• Managing change • Developing and empowering others• Culture and style• Effect service • Flexibility • Safety • Leadership• Ethos

“A basis for superior performance depends on a company having distinctive or unique capabilities that are of value to customers and which competitors find difficult to imitate. Johnson, Whittington & Scholes (2012. P. 53.) ”

Table 3.2 Johnson, Whittington & Scholes (2012. P. 53.)

Competitor Benchmarking

Strengths Weaknesses

Thornton’s • High quality product• One manufacturing site• Gifting marketing

• Ageing packaging • High price• Only targets UK markets

Cadbury • World wide brand• High brand loyalty • Price

• Quality of product• Limited products• Seasonal sales

Hotel Chocolat • High quality product• Offers more than 1 area of

products (hotel)• World wide brand

• Highly priced• Relatively new brand• Bland marketing

Lindt • Highly regarded world wide brand• High quality product• Excellent brand reputation

• Highly priced product• Realises mostly on seasonal sales• Not as easily available as other

brands

“Benchmarking is a way of discovering what is the best performance being achieved – whether in a particular company, by a competitor or by an entirely different industry. This information can then be used to identify gaps in an organization’s processes in order to achieve a competitive advantage” Stroud (No date)

The Value Chain (M.Porter 1985)

“If organisations are to achieve competitive advantage by delivering value to customers, managers need to understand which activities they undertake are especially important in creating that value and which are not,” (Johnson, Scholes, & Whittington, 2009, p. 74)

Customer serviceComplaints/ product help

Branding pricing and promotion Online & Instore both own retail outlets and FMCG

Order handling/Logistical planning,Delivery, dispatch

Manufacturing, Packing,Production control, Labour control, quality control, Maintenances

Quality control, Raw material planning/control, Supply receipt

Plant, Retail outlet, Franchise, FMCG channels

Training, Recruitment, personnel development and retention

Sophisticated hybrid plant (Robotics)

Purchasing/accounts, sourcing

VRIN (Barney 1991)

Value

Rarity

Inimitability

Non-Substitutability

“The criteria of the VRIN Framework clearly rules out best practices as a source of competitive advantage. If other firms can easily understand and copy a capability, it is not a source of advantage.” (http://createadvantage.com/glossary/vrin-framework, no date)

Value adding services: • Firm infrastructure – aspects of both retail, franchise and focus on FMCG • Human resource management- Focus on their people• Operations- One manufacturing site = One result

Rare activities:• Brand awareness• Quality of different products produced (for more than one market)• ‘Gift’ Marketing

Qualities difficult to intimate:• Great respect for corporate social responsibility • Organisational culture • Excellent R&D framework

Resource or competences which can not be substituted:• Family recipe• Knowledge and experience• Excellent supply chain history and development

Task 4 Evaluate how your chosen organisation manages stakeholders and through what mechanisms and initiatives.

Thornton's

Employees of Thornton's

Supermarkets

Governments

Suppliers

Ferrero Rocher

Employee of Suppliers

FarmersCustomers

Smile Train Charity

BRCGS

DHL

HP –IT Solutions

Local Community

Stakeholders

Adapted from R E Freeman Strategic Management A Shareholder Approach Pitman 1984

Employees of Cocoa and

Palm oil suppliers

Loyal Customers,

Suppliers and all employees

Governments, Large retailers

and supermarkets

Owners

Stakeholder Mapping The power & Interest Matrix

Power

Low

Low

High

High

Adapted from A . Medlow 1986

Level of Interest

Influences on Strategic Purpose

Governance

structure

Strategic

purpose

Social

responsibility

and ethics

Stakeholder

expectations

• Invest in learning• Sponsor sporting

events• Committed

reducing there carbon foot print with DHL

• There main charity is smile train

• Developing the farmers businesses

• Rebalance and Grow

• Revitalise• Restore

• Strong growth in the FMCG division

• Growth of the business profitability

• Long-term success

• The owners• CEO• Management team

Thornton's Chain of Governance

Board

Audit CommitteeNomination Committee

Remuneration Committee

Chief Executive Officer

Strategic Governance

First line of defence

Operational and Financial Governance

Senior Management Team

Operational Management

Central Support Functions

Risk Management Functions (Including internal audits and

external advisors)

Second line of defence

Third line of defence

The Chain of Corporate Governance

CEO

Senior Management

Operational Management

Central Support

Functions

Risk Management

Board

Audit Committee

Remuneration Committee

Nomination Committee

Ferrero

Giovanni Ferrero new owner of Thornton's

Thornton's is no longer a PLC it was removed from the stock market 20/08/2015

Ferrero Acquisition

• Ferrero brought Thornton's because it’s the leading premium brand in the uk

• Statement made by Mr Ferrero

“We have long admired Thornton's and what they have achieved in the UK, as demonstrated by their tremendous customer loyalty, and we look forward to working with their experienced team,” Mr Ferrero said.

The group has sought to build its UK presence over the past three years, targeting the family confectionery segment with its Kinder Egg brands.

After the death of Mr Ferrero his son Giovanni Ferrero now chief executive of Ferrero International inherited the Ferrero company and his strategy is to seek to make acquisitions.

Task 5 Conclude whether business strategy of your chosen organisation is sustainable or not. Justify your opinion.

3 year strategy

Revitalise

Providing refreshed products

Branding/packaging

Restore

Providing the market with competitive

products with overall profitability

Gifting focus on food products (expand to

larger market)

Rebalance and grow

Ensure our products are available where people want to buy

them

FMCG

Information taken from: Thornton’s annual statement (2014 p.04)

Adapted from: H.I. Ansoff, Corporate Strategy, Penguin, 1988, Chapter 6

[6] Telegraph, 2014

Strategic Directions – Ansoff’s Matrix

SWOT

Strengths• Well known brand & Reputation• High quality products• Operations in lucrative markets• Quality of service• Uniqueness• No outsourcing manufacturing or distribution • lean combination of robotics and human hand

decoration• Positive future with larger parent company • Entry into new product markets

Weaknesses• Franchise weakness• In-house manufacturing unable to meet

demand due to seasonal peaks• Location• Outlets of shop• Most money made through seasonal sales• Confusing product focus (especially online)

Opportunities• Developing Strategy under new takeout• More opportunities for automation• Expansion into foreign markets• Internal/organic development

Threats• Competitors• Supermarket own brands• Other small and specialist chocolate

companies

“SWOT summarises the strengths, weaknesses, opportunities and threats likely to impact on strategy development” Johnson, Whittington & Scholes (2012. P. 65.)

TOW’S Matrix

Source: Adapted from D. Faulkner and C. Bowman, The Essence of Competitive Rivalry, Prentice Hall 1995.

The Strategy Clock

Hybrid Strategies (3)

Non-Competitive Strategies (4)

Low-Price Strategies (2)

Differentiation Strategies (1)

References

Task 1 - Just Food, (2013) ‘Thorntons sales propelled by share gains’: http://www.just-food.com/news/thorntons-sales-propelled-by-share-gains_id122935.aspx (Last Accessed 03.11.2015)

Task 1 - iii, (2015) ‘LSE:THT Data’ http://www.iii.co.uk/research/LSE:THT (Last Accessed 03/11/2015)

All Tasks - Thorntons Corporate Website , (2015): http://www.thorntons.co.uk (Last accessed 03.11.2015)

All Tasks - Johnson, G., Whittington, R and Scholes, K. (2012) Fundamentals of Strategy. 2nd edn. Essex: Pearson Education Limited

Task 3 - Stroud, J.D Understanding the purpose of benchmarking http://www.isixsigma.com/methodology/benchmarking/understanding-purpose-and-use-benchmarking/ (no date) (Accessed 04.11.2015)

Task 3 - Creating Advantage, VRIN Framework, http://createadvantage.com/glossary/vrin-framework, (no date) (Accessed 04.11.2015)

Task 1 & 2 - Canadean, (2015) ‘Chocolate Consumption report in the UK’: http://canadeanreportstore.industryreportstore.com/packaged-food/confectionery.html?region=169 (Last accessed 03.11.2015)

Task 1 & 2- Mintel, (2015) ‘Confectionary Chocolate Report May 2015: https://courseresources.derby.ac.uk/courses/1/2015-AUT-OC-KED-5LO501/groups/_21818_1//_966225_1/Mintel%20Report%20Sep%202015.rtf (Last accessed 03.11.20015)

Task 1 The Independent, (2015) ‘Hotel Chocolat Profits Surge’: http://www.independent.co.uk/news/business/news/hotel-chocolat-in-profits-surge-as-thorntons-struggles-10131652.html (Last accessed 03.11.2015)

Task 5 – Telegraph, (2015) ‘Chinese Shoppers and British Products’ http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11242945/Chinese-shoppers-choose-to-buy-British-online.html (Last accessed 03.11.2015

Task 4 - Strategy http://www.foodmanufacture.co.uk/People/Thorntons-restructures-board-to-boost-performance

Task 4 - Ferrero Rocher buys Thornton’shttp://www.chicagotribune.com/news/sns-wp-blm-europe-rich-4be78028-65d2-11e5-bdb6-6861f4521205-20151003-story.html

Task 4 - Thornton’s' chief executive quits after a torrid yearhttp://www.telegraph.co.uk/finance/11612064/Thorntons-chief-executive-quits-after-a-torrid-year.html

Task 4- Ferrero says take-up of offer on Thornton’s at 75 percenthttp://uk.reuters.com/article/2015/07/10/uk-ferrero-thorntons-idUKKCN0PK0F320150710

Task 4 - Chocolate Makers Unite as Ferrero to Buy Britain’s Thornton’shttp://www.bloomberg.com/news/articles/2015-06-22/chocolate-makers-unite-as-ferrero-to-buy-britain-s-thorntons

Task 4 - Corporate Social Responsibilityhttp://www.thorntons.co.uk/content.jsp?pageName=corporate_social_responsibility

References

Task 4 - Corporate Social Responsibility 2http://www.thorntons.co.uk/assets/category_files/pdf/Thorntons%20CSR%202014.pdf

Task 2 – Reuters UKhttp://uk.reuters.com/article/2015/07/10/ferrero-thorntons-idUKL8N0ZQ0DC20150710

Task 2 – Gov UKhttps://www.gov.uk/government/news/new-evidence-review-of-measures-to-reduce-sugar-consumption

Task 2 – Confectionary Newshttp://www.confectionerynews.com/Manufacturers/Ferrero-signals-intent-to-raise-retail-game-with-Thorntons-buy

Task 2 - D. Faulkner and C. Bowman, The Essence of Competitive Rivalry, Prentice Hall 1995.