Strategic Evaluation for Thorntons - Case Study Example

Strategic Evaluation for Thorntons Table of Contents Company Background 3 Market Conditions in the U.K 3 PESTLE Analysis 4 Economic 4 Social 5 Technology 5 BCG matrix 6 Porters 5 forces 7 Bargaining Power of Suppliers: Moderate 7 Bargaining Power of Consumers: High 7 Threat of Substitutes: Moderate 7 Threat of New Entrants: Low 7 Firm Rivalry: High 8 Strategic Drivers 8 Recommendations for Future Strategic Directions 9 Reference List 10 Company Background Thorntons is a public company, based in the U.K. It is one of the most renowned chocolate companies of the U.K. Thorntons has established approximately 249 shops and 186 franchise stores (Thorntons Case, 2015). Additionally, the company also provides sales of its products through the internet, other commercial firms and mail order. Since the time when Cadbury became part of the Mondelēz International, Thorntons became the largest only parent confectionery corporation in the U.K. However, the company’s bulk sales come out of the Swiss and Belgian chocolate based products. Prior to entering the chocolate production arena, Thorntons prime products were fudge and toffee. These products occupy a minor share at present. As a strategy to enhance sales, Thorntons shifted from their high street presence. This led to numerous advantages in the long run and the company’s sales and production enhanced. Few of the shops of the company have diversified themselves into becoming cafes (Thorntons Case, 2015). Market Conditions in the U.K The retail sales of chocolates in the previous financial year had fallen by 2.8%. However, confectionery firms witnessed stagnation. Hence, existing chocolate manufacturers, taking cue from the market conditions are seen to either lower the prices of their products or to promote them at a larger scale to enhance sales (Thorntons Case, 2015). A price hike in chocolates during the weak economic times facilitated such trading down by consumers in the chocolate industry. While the prices of grocery items increased by 0.5% only, the prices of chocolates increased by 2.5%. Companies such as Nestle and Cadbury implemented higher prices so as to offset their costs of production. As a result of such price rise, consumer spending upon chocolates had reduced. Consumers were seen to show greater preference and take advantage of discounted chocolates and other low priced chocolates. Such promotions and discounts were seen to impose much stress on the traditional supermarkets. Also, many newly launched chocolates which were highly priced, was seen to do well initially but eventually displayed lower sales. Considering such market conditions, Thorntons determined to reduce the prices of their products and try to maintain their market position. Such a strategy facilitated Thorntons to grow considerably when most firms were seen to face financial troubles (Thorntons Case, 2015). Apart from sales, health concerns were also a major aspect impacting the chocolate market. Major supermarkets such as Sainsbury, Tesco and Aldi were seen to prohibit confectionery items from the checkout zones (Thorntons Case, 2015). PESTLE Analysis Economic Despite unfavourable condition in the U.K, global chocolate market was seen to grow adequately. The fast moving category of goods was seen to exhibit continuous growth as shown in the below figure: The overall spending of the consumers in the U.K retailing is benefiting a number of firms who operate in this segment. Similarly, the global chocolate market is seen to grow at 2% CAGR. In the coming years, it is expected that the market would grow at 3.25% CAGR. It is also expected that the per capita spending upon chocolates across nations would remain robust. Thorntons is counted amongst the top twenty chocolate manufacturing firms globally. Considering such economic conditions, Thorntons expects to establish themselves as a fast growing business and aims to achieve £15- 20 million values in sales (Thorntons Case, 2015). Social Although the financial conditions and the enhanced prices of chocolates had lowered the spending of the consumers upon confectionery items, the products of Thorntons were successful at achieving a strong position in the market and higher sales. Consumers of the chocolate industry in general displayed a radical shift towards products which were new or towards those products which offered price advantages. Considering such behaviour, Thorntons strategically adopted reducing the prices of the products. Moreover, chocolates are subject to convenience purchase. Thorntons takes advantage of such impulse buying behaviour by packaging their products in an innovative manner (Thorntons Case, 2015). Technology Technological innovation has played an significant role in the production and operations processes adopted by Thorntons. It is through the implementation of efficient technology that the company has been successful at reducing the costs of production and deliver products at lower prices. Across their different production lines, the company established capacity enhancement and efficiency improvement mechanisms. With improved technology, the company could manufacture more and achieve economies of scale. Consequently, the manpower requirements in the firm had also enhanced. In general the technological environment existing in the U.K is sound and has facilitated the growth of numerous firms (Thorntons Case, 2015). BCG matrix Market Share High Low High Market Growth Low Stars Affordably priced chocolates and related confectionery items. Boxed chocolates Question mark New chocolates launched into the market which have a high market growth but possess low market share. Assorted chocolates Cash cows Toffees, fudges and other confectioneries Dogs Seasonal chocolates and special confectionery items. Based upon the BCG matrix, it can be analysed that the company derives its strength in the market primarily from the affordably priced and boxed chocolate products. The company’s strategy in respect to products arises out of five key areas namely; inlaid box chocolates, season chocolates, single flavour, twist wrap and chocolate blocs. The company aims to concentrate upon these areas specifically to enhance their market position. Inlaid boxed chocolates of the company are seen to earn the maximum share in the market. One of the most important strategies of Thorntons is to give greater priority to attaining margin share in the market rather than high sales share. This means that Thorntons aims to establish themselves in the market as a premier brand with considerably high goodwill and adequate market share. Therefore the focus of the company is not just profit earning. Thorntons aims to develop their products in a manner in which they are always preferred by the consumers (Thorntons Case, 2015). Porters 5 forces Bargaining Power of Suppliers: Moderate Thorntons has been successful in establishing itself as a strong brand in the market. This has facilitated the company to develop a supreme power over suppliers. The company is seen to import high quality cocoa beans from the nations of South Africa and South America. These suppliers however may shift to other brands whenever they deem it to be suitable. Thorntons have however been successful at establishing strong and long term relations with suppliers (Thorntons Case, 2015). Bargaining Power of Consumers: High Thorntons had reduced the prices of their products primarily when consumer spending upon chocolates had reduced. In order to maintain market share, it is essential for Thorntons to reduce prices and diversify. Other firms in the industry who were not able to permanently reduce prices took the support of promotions and discounts, to be able to maintain their market share. Hence, it can be stated that consumer preferences and changes have a significant impact upon the strategies adopted by consumers (Thorntons Case, 2015). Threat of Substitutes: Moderate In terms of products, there are no direct substitutes for chocolates. Indirect substitutes may however include other confectionery items. However, apart from chocolates, Thorntons are seen to manufacture a number of other confectionery items as well. This diversifies the risks of the firm when demand for chocolates fall (Thorntons Case, 2015). Threat of New Entrants: Low Chocolate manufacturing is a cost induced process. As a result, firms cannot enter the industry with much ease. Moreover, considering the strength of the already established firms of the market, new firms are reluctant to enter the market. However, most retail firms try to enter the market by taking over established firms of the industry (Thorntons Case, 2015). Firm Rivalry: High There exist a number of competitors for Thorntons in the market, as shown in the following figure: Figure2: Competitors of Thorntons (Source: Thorntons Case, 2015) Cadbury, Lindt and Green, and Blacks are seen to be the prime competitors of Thorntons. The policies adopted by competitors make Thorntons to change or adapt new policies so that revenues can be maintained. In order to combat rival power, Thorntons is seen to popularize themselves as high quality and economically priced chocolate sellers. At present Thorntons enjoys a dominant position in the market in terms of excellence, creativity and as an option for gifting (Thorntons Case, 2015). Strategic Drivers Chocolate manufacturing firms in the U.K are seen to grow only when they innovate at a constant scale. Thorntons innovates in manner such that they can build upon their strengths and conquer greater market opportunities. This involves expanding sales to other nations and especially to the nations of North America and Australia. Thorntons recognizes that even though they are not highly profit minded, earning sufficient profits is essential so that they are able to maintain their scale of operations. Earning sustained profits and investing the same in enhancing store estate, talent of employees innovating new products and being able to deliver a high brand experience are the main strategies in terms of brand profitability. From the location point of view, most of the retail outlets that sell Thorntons chocolates are established in an accessible manner. Thorntons tries to achieve cost advantages through establishing efficient production and manufacturing systems. The company eliminates all unproductive activities and concentrate producing those products mainly which have high market demand. Through their diverse operational strategies, the company tries to remain as a premium chocolate manufacturing company. It can be stated that one of the main reason behind the massive success of Thorntons in the U.K is due to their careful assessment of the market and accordingly developing different types of products (Thorntons Case, 2015). Recommendations for Future Strategic Directions On the basis of the strategic evaluation carried out for Thorntons, it can be seen that the firm indulges less in promotion related activities. Thorntons is one of the very few commercial organizations which strive to create value or the society apart from just delivering products and earning profits (Thorntons Case, 2015). The firm may indulge in advertising activities through sponsoring different events, newspaper and television promotional campaigns and so on. Through such promotional tools, the company must focus on sending a string message regarding the brand. The message should not only be indicative of the economical pricing strategy of the company, but it must also indicate the high quality of their products. Additionally, it can be suggested that the brand must consider expanding into Asia. Most of the competitors of Thorntons are seen to be well established in the markets of Asia. Moreover, Thorntons would be able to achieve a distinctive advantage over their competitors as its products are less expensive. The company may also consider expanding into the market of the Middle East where the demand for high quality premium chocolate brands is considerably high. Thorntons must also focus on diversifying their existing lines of products by including other confectionery items such as cakes, chocolate cookies, toffees and fudges. Few of the retail outlets of Thorntons have been converted into cafes. Thorntons may consider increasing their number of cafes and thereby diversifying their scope of activities. Reference List Thorntons Case, 2015. Thorntons Strategies. [Online] Available at: [Accessed 17 April 2015]. Read More