Otel Chocolat's Strategic Choices - Essay Example

? Hotel Chocolat’s strategic choices AFFILIATION: Introduction of Hotel Chocolat Hotel Chocolat was founded by two British entrepreneurs Peter Harris and Angus Thirlwell about twenty years ago in UK. It is the leading brand in the confectionary industry especially chocolate as it introduced the concept of making luxury chocolates to give a sensational and joyous treat to the consumers (Hotel Chocolat, 2013a). Basically, Hotel Chocolat is known as the ‘British Chocolatier’ which is the latest form of chocolate organisation. The main theme of this firm is that it makes a unique connection between the luxury chocolate making process and retailing by growing its organic cocoa. Since its existence, Hotel Chocolat has been operating as a privately run company with active involvement of the co-founders. Moreover, it is an example for those chocolate shops that are willing to enter the retail sector of the confectionary industry; Hotel Chocolat grew from an online store to a luxury retail store in the year 2004. The uniqueness of the brand’s offerings lies in its level of authenticity and originality that is evident in every bite of its manufactured chocolate (Hotel Chocolat, 2013a). Presently, Hotel Chocolat has about seventy stores in UK, five in the US and Middle East. Hotel Chocolat portfolio comprises of various attractive products and businesses that shed light on its aggressive expansion strategy. A cacao based cuisine street food cafe is present at Borough Market in London that offers the customers a wide range of delicious items such as sweet and savoury wraps of cacao, genuine cocoa tea along with huge choices of small chocolate batches. In Saint Lucia, there is the Boucan Restaurant which is presenting the customers with a complete experience of dining. The ambience is quite appealing for the visitors which are complemented with a healthy and light menu from cacao cuisine (Hurley, 2010; MarketingWeek, 2011). Hotel Chocolat is the pioneer brand in offering the ‘Chocolate Bonds’ for the expansion of the UK economy. These bonds were offered to its members of Chocolate Tasting Club who helped in raising fund of four million pounds. One of the best creations by the organisation is ‘London – Roast + Conch’; it is a venue that has been developed for roasting the bean in small batches and provide the customers an opportunity to view the process of chocolate making in front of their eyes (Cuddeford-Jones, 2012). In order to successfully fulfil the desires of the chocolate lovers, Hotel Chocolat has been offering the most diverse range of products and each one of them has a wide variety for selection so that everyone can buy the chocolate and enjoy it to the utmost satisfaction level. Broadly, the products are categorised in six divisions such as Sleekster Selection, The Purist, Giant slabs, Selectors, Liquid Chocolat, Cocoa Juvenate Beauty, Luxury Box Chocolates and Small Little Things (Hotel Chocolat, 2013b). According to Taylor (2013), Hotel Chocolat reported a complete year profit-before-tax (PBT) of 84% which is about 5.4 million pounds. At the end of June 2012, the group sales accounted for 63.8 million pounds and EBITDA rose to 7.8 million pounds which was a rise by 41% when compared on year-on-year basis. UK Chocolate Industry Analysis In order to evaluate the strategic options that are available for a company in its industry, it is imperative for the concerned personnel to carry out its external and internal analysis (Day & Moorman, 2010). The external analysis reveals the macro-environmental factors that can impact the business performance in the long-run. Although an analysis of the competitors is mandatory but political, economic, social and legal situations can drastically impact the business operations (Brodie, 2009). Hotel Chocolat strategic analysis can be completed only when the macro-environmental factors are analysed extensively to properly identify the likely obstacles that can be encountered by it. According to KeyNote (2012), UK is given the seventh ranking for having the highest consumption of chocolate delicacies. This reflects upon the customer market UK and the amount of chocolate lovers in the UK region. It is estimated that every individual in Britain eats about 10.2 kilogram of chocolate every year. As of 2011, the UK confectionary industry had sales of 5.41 billion pounds out of which four billion pounds were made from the chocolate sector (Rebecca, 2011). Even at the occasion of Easter, the chocolate sales were about five million pounds; it is reported that the Easter chocolate offerings were about 45% newer in 2012 than in the year 2011 (KPMG, 2012a). PEST Analysis The insights into PEST analysis of confectionary industry will address the likely challenges that can be encountered by Hotel Chocolat in the years ahead. PEST analysis allows the organisation to evaluate its current position and then accordingly make plans for future. This tool helps a business to evaluate the factors that can either boost or hamper the growth strategy of a company (Shepherd, 2009). For instance, an introduction of a new law by the government can significantly impact the expansion decision of a company operating within the industry or a slight increase in the cost of raw material can reduce the profit margin of the organisation. Any changes in the PEST factors may compel the organisation to work on their plans and strategies again. A detailed review of the UK chocolate industry in accordance to PEST analysis is given below: Political There are various policies and legal requirements that Hotel Chocolat will have to comply with to ensure that it conducts its business operations within legal and ethical business operation boundaries such as Weight and Measures Act, Minimum Wages Act, Equal Employment Opportunity Act, Trade Description Act and many more. Even while operating in other regions, Hotel Chocolat needs to ensure that all the political laws of the region are abided by and there should not be any breach of law as this would impact the company operations to a large extent. However, the company is not facing any political influence in its luxury chocolate retail sector. This is a good sign for the organisation and it is a relief as well because for organisations dealing with political pressure would be a burdensome task and would affect sales of company on and off. Economic Most of the countries are experiencing a positive outlook in their economies as the impact of economic recession is reducing by a significant level. An increase in per capita income means that the people will have more money to spend, even better penetration opportunities are present in the developing countries that can increase the revenue amount and increase in demand is expected as there is an increase in the urban population. Since the unemployment rate of UK is decreasing, people have more disposable income available for spending on the luxury items. There is huge potential that the market of luxury chocolates will increase despite the greater competition in the market (KeyNote, 2012). With increase in the purchasing power, consumers plan to fulfil their desires which they are unable to in times of financial crisis. As discussed above, the market of chocolate lovers is huge in UK and hence Hotel Chocolat has good chances of becoming a highly profitable organisation in the luxury chocolate market segment. Social There is a growing trend of giving chocolates as gifts and it has become a popular fashion trend among the customers. There are many people who give chocolates on occasions such as birthdays or anniversaries, celebrating project achievements and many other occasions as such. Some people are becoming health conscious so they are looking for healthy and nutritious alternatives in the chocolates category. Now-a-days, majority of the chocolate manufacturers are offering a wide range of options in healthy chocolates so that the obesity problem is controlled to a great extent and all types of consumers can be targeted this way (Burke et al., 2008). As the demand for high quality chocolates will increase in the next five years, the luxury chocolate manufacturers can consider the choices for entering into other attractive and appealing markets like in Asian, European and Middle Eastern countries. The luxury chocolate manufacturers can succeed highly in areas which have a good purchasing power and in culture where the exchange of gifts is very common. Technological As the technological advancements have increased, the production processes have become efficient and faster. Most of the countries have even removed the barriers for trade that is enhancing the trade among these nations. The companies that have operations in various countries across the globe can implement the latest IT system and manage their business transactions effectively. Emergence of technology has allowed businesses to conduct their operations in a fast mode and also produce bulk amount of products in a short span of time and also with the use of minimum human resources. Since Internet is the most widely used technology by the customers in today’s market, the best way of reaching them in utilising the online platforms such as social networking sites (Bruhn, Schoenmueller & Schafer, 2012; Thomson & Housden, 2011). The number of target market is quite large in the online sector as consumers of all range have become tech savvy. Tech savvy customers usually prefer everything to be conducted in an online mode including shopping. The social networking websites allo organisations to promote their product and services in a cheap way and also reach a wide target audience. Market size and competitors In UK, the confectionary market has grown to become a saturated market that is highly competitive and dynamic. This means that there are many types of small and big brands operating in the confectionary area. Currently, there are many companies present in the market that are competing to acquire the market share; the top ranked companies in UK in the confectionary industry are Thorntons, Lindt, Hotel Chocolat, Nestle, Cadbury, Mars, Galaxy and many more (KeyNote, 2012). Hotel Chocolat has a tough competition to face and hence it should constantly be working on improving its product for the valuable consumers. The confectionary industry is highly impacted by stringent regulations on the content of advertising, development of supply chains that are environmental-friendly and growing concerns for the Fair Trade content (KPMG, 2012b). Hotel Chocolat needs to keep in view the concerns for Fair Trade and accordingly conduct its advertising and promotion activities in the region. In order to compete in the confectionary industry, the companies are trying to maintain their existing position by focusing on the development of their brand equity which is defined as the “combination of four key elements i.e. brand image, brand presence, brand commitment and perceived quality that get accumulated in the form of a long-term value in financial terms both for the organization and its stakeholders” (Monotti, 2008). Maintaining a good brand image and reputation is vital for all organisations as many consumers feel good by using a high brand product. Some snapshots of UK confectionery industry are shown in the following charts: (Source: Confectionary Advice Mintel, 2012) (Source: Confectionary Advice Mintel, 2012) (Source: Confectionary Advice Mintel, 2012) Strategic Analysis of Hotel Chocolat The fundamental requirement of an effective and well-designed strategy is a thorough analysis of the company’s strategic capabilities. With the help of this evaluation technique, an organisation is able to review the core competencies possessed by it along with those areas that need to be addressed (Rundh, 2009; Stacey, 2010). In addition to the identification of an organisation’s ability and competitiveness, it even sheds light on the effectiveness of the strategy created and implemented for enhancing the level of productivity within the industry (Lamburg et al., 2010). In order to ensure that appropriate strategic options are considered for Hotel Chocolat, the SWOT analysis and Ansoff Matrix methods are used for assessing its current position in the respective market. SWOT Analysis Strengths Global presence across the world and a strong brand image. Consumers recognise the chocolate by its brand name. It has a diverse customer base with specialty in chocolate making and cocoa retailing. It possesses a unique manufacturing concept which makes the chocolate unique in itself. Top ranking for producing exceptional quality cocoa at its own plantation. Excellence in Research and Development (R&D) capabilities. With proper research and development, there emerges many new opportunities for the organisation. A loyal and dedicated workforce that is integral with its friendly corporate culture. Cooperation and coordination amongst the workforce leads to successful accomplishment of goals and objectives. Pioneer in introducing the online chocolate retail store concept and enjoys competitive edge in the luxury chocolate sector. Being a pioneer in online chocolate retail allows it to make a distinctive position in the minds of the consumers. A competent value chain that is hard to copy by the competitors. This allows it to develop a strong competitive edge as if processes are easy copied by other firms then this may not make the organisation attain a distinct position in the market. Strong values of integrity, trust and social responsibility are embedded within its business operations. Weaknesses Prolonged decision making process due to the large size of the organisation. In times of immediate decisions required, delays cause the organisation to lose on good opportunities. The price of cocoa is surging that can impact its sales in the long-run. It needs to work on some alternative or ensure that it invests in cocoa from its profits. IT system has become outdated for effective inventory management initiatives. An updates IT system should be implemented as soon as possible. The customer database is not updated frequently. Customers should be retained and to do this, the database needs to be updated on a constant mode. Lack of proper traditional marketing strategy and too much emphasis on online marketing mediums. Opportunities Likely expansion in Asia, USA and Middle Eastern countries. Growing income level of the consumers across the world can increase the demand of premium chocolates. People around the world are improving their standard of living. Enter into partnerships or alliances with ice cream parlours for enhancing the quality of customer offerings. This would allow it to increase its customer base. Technology is advancing at an accelerating rate and it can expand into other regions by upgrading its IT system so that there is efficiency in the operations management. The resources can be effectively utilised and synergies can be created to enter the new markets in the best possible manner. When different products are introduced with a single brand name, it is easier to enter the market and the customers will be attracted in an effective manner. Threats Barriers to entry in the chocolate industry are low so the competition can get more intense. Many small scale competitors are entering the market and this means an alarming sign for the already present chocolate companies in the market. Stringent regulations by the government for chocolate production as more emphasis is on using organic cocoa that is healthy, pure and nutritious for the consumers. Growing concerns for the environmental protection projects. Since the industry is price sensitive, an increase in the price of product or decrease in consumer spending power can force the customers to switch to competing brands. Customer may switch to other brands in a matter of seconds hence it is important for the organisation to ensure that they retain their valuable customers by availability of products and considering the prices that customers are willing to pay for the brand. Ansoff Matrix According to Johnson, Wittington and Scholes (2011), Ansoff Matrix allows an organisation to review its expansion strategy critically so that it is able to make its growth a success in the new regions. When a company decides to broaden its business horizon, it can either introduce new products in the existing markets, offer new products in new markets, launch current products in new markets or initiate new products in the new markets (Creusen, Veryzer & Schoormans, 2010). From the analysis of Hotel Chocolat’s business strategy, it is evident that it is making use of Porter’s differentiation strategy so that it can create a distinctive position in the chocolate industry (RetailWeek, 2012). However, it is making effective use of three strategies which are highlighted in Ansoff Matrix i.e. market penetration (introducing a wide range of varieties for the existing market), product development (launching new, unique and innovative products for enhancing the customer’s experience) and diversification (expanding into other regions of UK along with international growth in the US and Middle East). (Source: Miltesky, 2010) Strategic Options available for Hotel Chocolat Considering the data gathered from the strategic analysis of Hotel Chocolat’s business environment, following are the strategic options available for the brand: 1. Further strengthen the brand image by entering into strategic alliances with the top ranked ice cream parlours in UK. It will provide an opportunity to diversify into ice cream division of the confectionary industry as it will be able to supply them with the top quality, organic cocoa directly from its production plant. 2. Introduce the retail stores in European countries so that the customers can get hands-on experience and have access to the superior quality chocolates. In these outlets, it can start offering a wide range of customised gift packs that can ensure that the customers are provided the divine chocolate indulgence option. 3. The marketing strategy has to be redefined so that it can make effective use of both traditional and online marketing mediums. Although it has a strong Internet presence but there is an extensive need for availing the traditional marketing mediums for ensuring that the customers are reached from every aspect. 4. The international expansion is possible in other regions on a global level such as Middle Eastern and Asian countries as these regions are marked by growing economies. It can even consider the option of shifting the manufacturing plants in these areas as the cost of production is comparatively low and high profit margins can be successfully attained. Evaluation of strategic options In order to ensure that the strategic options are feasible and realistic, an assessment of each option is done on the basis of their relative importance and tendency of making contribution in the organisation’s enhanced performance. Since it is already present in UK and is considered to be the leading luxury chocolate brand, it is facing intense competition from Godvia and Lindt who have been dominating this sector for many years. In order to strengthen the presence of Hotel Chocolat in UK, the foremost thing required to do is make effective use of the marketing mediums. It is evident from the SWOT analysis that it has focused too much on its online sales and has exploited the traditional marketing mediums to a lesser extent. Hence, the entire marketing strategy has to be revised so that there is synchronisation in its business activities. Likewise, it has to focus more on expanding in EU countries as there is a high demand of luxury chocolates in these regions. Another point of attraction in these markets is that the cost of the company will be curtailed to a great extent as compared to expanding in other Asian and Middle Eastern countries. Once it is able to capture a significant market share in the targeted markets, it will be able to earn a good amount of revenue. After pooling in sufficient amount of reserves, it can expand into Asian countries like Malaysia, China, India and Singapore which are the emerging economies. These Asian countries have a high potential for growth as they can offer Hotel Chocolat the opportunity of locating manufacturing plants in these areas which are cost-effective options for the brand. Simultaneously, it will have to organise various events round the year so that it can attract the customers and induce them into trying out the products so that they become loyal customers of Hotel Chocolat. All of the aforementioned options fall within the framework of SAF as the company has the required resources and capabilities to meet the requirements of the customers and even enhance its performance within the industry. Recommendations In order to successfully implement the strategic options finalised, Hotel Chocolat can undertake following initiatives: 1. The foremost thing required to do is implement the latest IT system that will ensure that all the business related information is updated on a frequent basis. With the help of an effective IT framework, Hotel Chocolat will be able to effectively monitor its business environment and ensure that it reduces the market risk by taking appropriate timely action. It will provide it the opportunity of efficiently managing its business operations both nationally and internationally by taking adequate initiatives strategically. 2. The marketing strategy will be revised so that it can incorporate all the available mediums for enhancing its presence at the regional level. It will be the responsibility of the marketing department to properly align the virtual marketing tools with physical ones so that they work in synergy and ensure that the desired sales are achieved. The activities that can be undertaken are publishing advertisements in the magazines and newspapers to inform the customers about the latest offerings along with publicising it on the social networking sites and its website. 3. By the end of this year, it will ensure that strategic alliances are developed with leading ice cream parlours such as Ben & Jerry’s, Baskin Robins and Chocolate Butler Cafe. When effective vertical integration will be done, it will be able to diversify into this new segment in the new markets in US. This product will be exclusively available in US so that it can penetrate in the targeted region where ice cream consumption is the highest. 4. In the beginning of next year, Hotel Chocolat will open three outlets in each region’s metropolitan areas i.e. Switzerland, Malaysia, Italy, Singapore and Dubai. It will be the best time as the visitors from all over the world visit these places for having a splendid holiday vacation. 5. In order to strengthen its image as a socially responsible organisation, Hotel Chocolat will organise educational events to create awareness about the educational options available for the students; it will be helpful in attracting kids and young adults as these events will help them in gathering information about their aspiring career paths. The events will be held for a week in summer vacations so that they can be organised in every country and all the latest information about educational options will be provided to the students. 6. Cross promotion will be done via social networking websites such as Facebook, Twitter and LinkedIn along with tech carrier services such as Vonage and Skype. The social networking websites have proven to be a good platform for promotion and advertising for organisation as it is convenient and is cost effective as well. These efforts will help to attract the customers and reaching the customers will be easy. It will ensure that the online sales of the brand are growing at a constant rate of 10% per year. 7. A chocolate day will be organised with a particular theme on a semi-annual basis worldwide so that the brand is endorsed in an effective manner; the event will ensure that the chocolate lovers can have best time of their lives. With the help of this event, a distinctive image will be created in the customer’s mind. The chocolate lovers would have a new experience via such events and they may plan to use the particular chocolate more often. 8. The company will introduce a range of healthy chocolates in the year 2014 in USA, 2015 in EU countries and 2016 in Middle Eastern and Asian countries that will have all vital nutrients so that diet conscious customers can get indulged in the pleasure of chocolate without getting worried about gaining weight. Lady Gaga and Tom Cruise will do the endorsement. Healthy chocolate option would allow the company to attract a new market segment who are health conscious and this would increase the level of sales and profitability for the company. References Brodie, R.J., 2009. From goods to service branding: An integrative perspective. Marketing Theory, 9(1), pp. 107-111. Bruhn, M., Schoenmueller, V. and Schafer, D.B., 2012. 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