Analysis and General Perspectives of Thorntons Company - Essay Example

Introduction Thorntons is a British chocolate company established by Joseph William Thornton in 1911. Thorntons today is a 180m turnover company withnearly 400 shops and cafes and around 200 franchises together with internet, mail order and commercial services Thorntons operates in four customer-market segments: gifts; personal treat; family-share; and, children, each with different customer needs. Their marketing mix reflected these different needs. Regarding the children segment, they created different themes like Dinosaurs, Fossils and Dalmatians spots. Not all toffee is special, unless we're talking about Thorntons. The chocolate- and toffee-maker owns and franchises sweets shops throughout the UK and Ireland. The stores offer premium and hand-crafted boxed chocolates, hampers, gift boxes, corporate gifts, and seasonal candies. Some of the Thornton shops double as cafes where patrons can get coffee, pastries, and sandwiches. The company sells sweets through its catalog and via its Web site, as well as through retailers. In addition, the company operates coffee shops under the name Caf Thorntons. General Perspectives Some general information and key numbers of Thorntons plc are given below: Company Thorntons PLC Industry Candy & Confections Website http://www.thorntons.co.uk Headquarters Alfreton, Derbyshire, United Kingdom Sales in U.S. Dollars (mil.) 372.6 (2007) One-year % Growth in Sales 16.2 (2007) Net Income in U.S. Dollars (mil.) 10.6 (2007) One-year % Growth in Net Income 60.2 (2007) Number of Employees 4,003 (2007) One-year % Growth in Number of Employees 0.3 (2007) Fiscal Year-End June Source: Thorntons plc annual report 2007 Thorntons Case Study: Summary Thorntons, a UK chain of chocolatiers, has implemented G.O.L.D., a suite of retail management software from Aldata, a leading provider of software solutions for the global retail industry, to support its business growth and forward strategy. Challenges In 1911, Joseph William Thornton opened the first Thorntons shop in Sheffield, England. Nearly 100 years later Thorntons plc now has an annual turnover of more than 160million, over 350 own shops and over 200 Franchises. The product ranges now include Ice Cream, Cakes, Biscuits, Chilled Chocolates as well as the more traditional Fudge, Toffee and Chocolates. A selection of Thorntons stores also includes an in-store Caf. The company produces Thorntons-branded products for many retailers including Tesco, and also makes selected own-brand products for Marks & Spencer and Boots. Historically a manufacturer, Thorntons had built up its business based around production rather retailing. Stores were a later development, during the eighties, and existing systems were developed rather than revamped. Thorntons' existing IT infrastructure had therefore been built up over many years and comprised a variety of systems with limited integration between them. Jim McLauchlan, Thorntons Program Manager, explains, "Our ordering system was over 20 years old and had been heavily customized over this time without full supporting documentation, so it became almost impossible to make further modifications. In addition to this, we had a number of unsupported platforms that gave unwanted risk. The third factor was that these systems no longer supported our future strategy. Replenishment was handled manually and was based not on store demand- more on the 'knowledge' of the store manager. Orders were actually phoned through from the stores to a Thorntons telesales team. As a result, Thorntons was unable to react quickly enough, to adjust production to match demand in the stores. For a business that is effectively a fashion retailer, needing to monitor, match and predict trends, the systems gap required urgent attention. Solution Thorntons did not hurry to make a decision, because most vendors it considered did not have systems specifically for a business that was retail, franchise, commercial and manufacturing. The company is currently vertically integrated and has developed different systems to cope with the differing activities. Thorntons wanted to find a supplier that would enable it to provide solutions that would work across the whole supply chain, from production to sales channel. McLauchlan added, "We are also looking to cut the number of system suppliers we deal with so that we can manage our systems infrastructure more easily and minimize costs." Thorn tons PLC chose Aldata on the strength of its references in Europe, where the company provides solutions to retailers, wholesalers and manufacturers. As part of a two-year project, Thorntons decided to replace core systems in head office, stores and warehouses in order to drive financial benefits for the company. The existing dial-up network would be retained in the meantime, with a view to replacement later on, so GOLD will manage the existing processes until this new network is installed. Thorntons chose Aldata for the G.O.L.D. suite of retail management software to replace the central database and take control of ordering and replenishment. Thorntons initially implemented G.O.L.D. Central and G.O.L.D. Shop across its entire estate. G.O.L.D. manages Thorntons head office processes and store operations for its own stores as well as for its franchise and commercial ordering. Thorntons chose G.O.L.D. because it will integrate with the other new systems that have been implemented, including its warehousing and production systems, but crucially, will also help enable Thorntons to manage sales and demand across the following channels to market - Retail (including cafes), Franchise and Commercial. Operating initially at the centre, Aldata G.O.L.D. gives Thorntons greater control of item-level information across these multiple channels, eventually enabling it to develop its retail operations and increase effectiveness. In the stores, Thorntons has already implemented new hand-held terminals, enabling staff and managers to perform easier stock counting, external sales, provide management information to store and a 'queue-busting' function in stores during key seasonal periods. As McLauchlan explains, "The Thorntons business is highly seasonal and our busy periods are Christmas and Easter of course, as well as Mothers Day and Valentines Day. It is critical that we can serve as many people as possible during those peak periods, but the checkouts need support. So we have equipped each of our stores with hand-held terminals to enable them to scan shoppers' purchases so all they have to do is pay." In addition to the above, Thorntons has also implemented a new warehouse management system and a reporting management system. Benefits Thorntons now has a single vision of its inventory for retail and commercial. At head office, Aldata solutions are now managing part of the supply chain that may not be the largest retailer in the UK but is certainly one of the most complexes. The solutions are beginning to give Thorntons the platform they need to support future business growth. Aldata solutions are being used to manage many variables within the Thorntons business, embracing retailing and commercial; then within retailing - stores, franchises, cafes, and internet; and within this, variations by season, store size and location. McLauchlan said, "It is very important for us to be able to manage retail demand on the one hand and integrate this demand with our manufacturing and production planning and scheduling on the other. The advanced features in Aldata's solution such as its very economical web-based architecture should also ensure support for the future needs of our businesses. Strategic Position of Thorntons PLC During the recent years, Thorntons plc has sought to deepen its understanding of the desires of both the retail and wholesale customers. It has aimed to meet the evolving taste of its customers through significantly improving its taste of products, enhancing the customers experience through the environment they shop in, be it in stores or online and strengthening the service to its commercial customers. Today Thorntons PLC is a 180m turnover company with nearly 400 shops and cafes and around 200 franchises together with internet, mail order and commercial services. Financial Summary Thorntons plc is one of the United Kingdom's leading manufacturer and retailer of chocolate and other confectionery products. Founded in 1911, the company remains more than 30 percent owned by the Thornton family. Yet the company's day-to-day operations are led by chief executive Peter Burdon, who joined the company in 2000. Thorntons' products, which focus on chocolates, fudge, and toffee but also include other candies, target the high-quality, high-end market. This commitment to quality has gained the company a strong reputation throughout the United Kingdom and made it one of the country's most popular brands. The financial summary of Thorntons PLC is given here: Financial Key Points (m) 2007 2006 Change Revenue 186.0m 176.6m 5.3% Profit Before Tax and Exceptional Items 7.1 5.9m 20.3% Profit Before Tax 7.1 5.2m 36.5% Operating Cash Flows Before Working Capital Movements 19.8m 18.0m 10.0% Basic Earnings Per 8.0p 5.6p 42.9% Paid Dividend Per Share 6.80p 6.80p - Net Debt 26.4m 27.6 Down1.2m Gearing 75.7% 86.3% Down10.6% Source: Thorntons plc annual report 2007 At the end of year 2007, Thorntons PLC apply the following key performance indicator in order to measure progress towards achieve shareholder value. Performance Indicator 2007 2006 Net Sales Growth 5.3% 5.9% Like-For-Like Sales Growth 0.8% 3.7% Gross Return On Sales 53.7% 52% Profit Before Tax 7.1m 5.2m Operating Cash Flow 19.8m 18.0m Source: Thorntons plc annual report 2007 Sales Group 2007(m) 2006(m) %increase Own Stores 129.2 127.1 1.7 Franchise 13.0 12.8 1.5 Commercial 37.0 31.2 18.5 Thorntons Direct 6.8 5.5 22.9 Total 186.0 176.6 5.3 Source: Thorntons plc annual report 2007 Consolidated Income Statement 53 Weeks Ended 30 June 2007 Statements 53 Weeks Ended 30 June 2007 '000 52 Weeks Ended 24 June 2006 '000 Revenue 185,989 176,626 Cost Of Sales (86,022) (84,765) Gross Profit 99,967 91,861 Operating Expenses Before Exceptional Items (91,923) (84,627) Exceptional Items - (726) Total Operating Expenses (91,923) (85,353) Other Operating Income 808 799 Operating Profit 8,852 7,307 Finance Income 61 12 Finance Costs (1,832) (2,154) Profit Before Taxation 7,081 5,165 Taxation (1,785) (1,517) Profit Attributable To Equity Shareholders 5,296 3,648 Earnings Per Share 53 Weeks Ended 30 June 2007 '000 52 Weeks Ended 24 June 2006 '000 Basic 8.0p 5.6p Diluted 7.9p 5.5p Source: Thorntons plc annual report 2007 Statements of Recognized Income and Expense 53 Weeks Ended 30 June 2007 Statements Group 53 Weeks Ended 30 June 2007 '000 Group 52 Weeks Ended 24 June 2006 '000 Company 53 Weeks Ended 30 June 2007 '000 Company 52 Weeks Ended 24 June 2006 '000 Actuarial Gain Recognized in the Defined Benefit Pension Scheme 1,510 1,219 1,510 1,219 Movement of Deferred Tax on Pension Liability (453) (366) (453) (366) Effect of Reduction in Tax Rate (342) - (342) - Cash Flow Hedges (Net of Tax): Effective Value of Changes in Fair Value - (150) - (150) Recycled to Net Income - (212) - (212) Profit Attributable to Equity Shareholders 5,296 3,648 5,149 3,391 Total Recognized Income and Expense for the Financial Period 6,011 4,139 5,864 3,882 Cash Flow Statement 53 Weeks Ended 30 June 2007 Statements Group 53 Weeks Ended 30 June 2007 '000 Group 52 Weeks Ended 24 June 2006 '000 Group 53 Weeks Ended 30 June 2007 '000 Group 52 Weeks Ended 24 June 2006 '000 Cash Flows from Operating Activities 14,600 17,304 26,409 13,452 Cash Flows from Investing Activities Proceeds from Sale of Property and Plant 400 844 400 844 Purchase of Property, Plant and equipment 5030 5100 5027 5100 Net Cash Used in Investing Activities 4630 4256 4627 4256 Cash Flows from Financing Activities Net Proceeds from Issue of Ordinary Shares 748 417 748 417 Net Interest Paid 1824 2360 1827 2365 Capital Element Of Finance Lease Repayments 4526 4293 4526 4293 Borrowings Advanced 3,000 (238) 3,000 (238) Dividends Paid 9 (4,512) (4,443) (4,512) (4,443) Net Cash Used in Financing Activities 7114 10917 7117 10922 Net Increase in Cash and Cash Equivalents 2856 2131 14665 1726 Cash and Cash Equivalents at Beginning of Period 2 2129 12041 10315 Cash and Cash Equivalents at End of Period 2858 2 2624 12041 Source: Thorntons plc annual report 2007 Balance Sheets at 30 June 2007 Assets Non-Current Assets Group 2007 '000 Group 2006 '000 Company 2007 '000 Company 2006 '000 Intangible Assets 5,950 6,027 5,950 6,027 Property, Plant and Equipment 66,378 69,392 66,180 69,190 Investment in Subsidiaries - - 18 18 72,328 75,419 72,148 75,235 Current Assets Inventories 18,202 15,317 18,193 15,309 Trade and Other Receivables 12,628 11,642 14,121 23,604 Cash and Cash Equivalents 2,858 932 2,624 831 33,688 27,891 34,938 39,744 Current Liabilities Trade and Other Payables (19,859) (19,070) (23,744) (21,531) Borrowings (22,577) (5,082) (22,577) (17,024) Current Tax Liabilities (1,418) (832) (1,001) (430) Provisions for Liabilities (181) (142) (181) (142) (44,035) (25,126) (47,503) (39,127) Net Current (Liabilities)/Assets (10,347) 2,765 (12,565) 617 Non-Current Liabilities Borrowings (6,692) (23,421) (6,692) (23,421) Deferred Tax Liabilities (2,512) (2,284) (2,476) (2,265) Retirement Benefit Obligations (15,417) (17,941) (15,417) (17,941) Other Non-Current Liabilities (1,996) (2,093) (1,997) (2,093) Provisions For Liabilities (478) (491) (478) (394) (27,095) (46,230) (27,060) (46,114) Net Assets 34,886 31,954 32,523 29,738 Shareholders' Equity Ordinary Shares 6,811 6,724 6,811 6,724 Share Premium 13,551 12,890 13,551 12,890 Retained Earnings 14,524 12,340 12,161 10,124 Total Equity 34,886 31,954 32,523 29,738 Source: Thorntons plc annual report 2007 Key External Drivers of Change Affecting the Organization The Group's principal activity is manufacturing, retailing and distributing confectionery and other sweet foods. The Group's branded products are Continental, Eden by Thornton, Diabetics, Thornton's Special Toffee, Thornton Classics, Dessert Gallery and Origins. Product range includes Celebration Cake and Bakery, Chilled Desserts, Ice Cream, Luxury Biscuits, Christmas puddings and Toffee Cream Liqueur. The Group is also into party favours, corporate gifts, seasonal cards, gift ideas and flower arrangements. The Group operates predominantly in the United Kingdom The UK confectionery market is divided into two broad sectors: chocolate confectionery (including count-lines, blocks, boxed chocolates and bite-size products) and sugar confectionery (including fruit sweets, mints and chewing gum). Chocolate confectionery of Thorntons PLC accounts for nearly three-quarters of sales by value. Count-lines continue to account for the largest share of the sector but boxed assortments are showing the fastest growth. This is being driven by the development of more brands targeting everyday sharing occasions, such as Cadbury Dairy Milk share boxes, which were introduced in 2005. This in turn has stimulated innovation in a slightly more premium tier for more special occasions, which is also helping to add value to the market. The changes occurred in Thorntons PLC are primarily by the continues effects of three major players: Cadbury Trebor Bassett (part of Cadbury Schweppes PLC), Masterfoods (the confectionery division of Mars UK Ltd) and Nestl Rowntree. The best-selling brands are long established and the sector has now all but given up on introducing new brands. Instead, the tendency has been to extend existing brands with new flavours and into new product areas, taking advantage of established names by turning them into umbrella brands. For example, during 2005, the celebration of the centenary of the Cadbury Dairy Milk brand offered a strong opportunity for new products and formats for the label. Another important effecting factor are the Thorntons' principal market competitors which are Cadbury Schweppes PLC; Nestl Holdings (UK) PLC; Mars UK Ltd; Kraft Foods UK Ltd; The Wrigley Company Ltd; Ferrero UK Ltd; Swizzels Matlow Ltd; Leaf (UK) Ltd; Bendicks (Mayfair) Ltd. How Does Thorntons PLC Add Its Value Every thriving consumer company has a deep understanding of its brand values. It makes sure that every product and every aspect of the organization's operation reflect them. Comprehensive market research has led us to conclude that there are four key brand values for Thorntons, which are referenced below. (a). Brand Why the consumers say that Thorntons PLC is unique Why it is a brand that they love and trust The answer is really quite simple as Thorntons PLC constantly meets or exceeds the very high expectations of its consumers with the chocolate and confectionary. It is the epitome of the quality, craft and care that the customers associate with a specialist food company, and the fact that it is centered on such an evocative food as chocolate only serves to deepen the customers' affection for the brand. Further more specifically, Thorntons stands for "the art of the Chocolatier". In a world of Mass-produced mediocrity, it provides the consumers with moments to savour for themselves and gifts for others that never fail to delight. (b). The Artistry and Craft of the Chocolatier Clearly Thorntons PLC is well ahead from its rivals because of the artistry and craft it sets to see through the exquisite look of its products, and is re-enforced by the wonderful tastes and textures. The organization passionately believes that to make the finest products by using the finest of ingredients and use the best of modern technology blended with the artisanship of a skilled workforce. Every recipe is developed by the Master Chocolatier and his skilled team, and is only launched once it meets with his approval. (c). Personal Warmness Another noteworthy characteristic of the Thorntons brand is its presentation of delicious products with charm and wit. Thorntons PLC always tries to think of little touches in all sorts of ways that will enrich the pleasure of choosing, eating or giving its products. It really boosts the values of its business. (d). Imagination Thorntons PLC is never short of innovative new ideas for great new products because besides the Master Chocolatier and his team, everybody in organization is encouraged to come up with new product concepts. The pursuit of inspiring, intriguing, and surprising new sweet special foods is part of the fun of working at Thorntons and really increases the values of company's brands. (e). Trust & Credibility Over the years Thorntons PLC has earned the trust from consumers for its unceasing and meticulous focus on quality. This has provided a platform of credibility from which Thorntons PLC inspires the customers to try innovative new products. Thorntons PLC knows that these brand values are recognized by the customers but not in a deep enough way and they are almost unknown amongst potential new customers. Therefore, the latter part of this initiative has been to develop the tools, for example packaging guidelines, and the training programs to make sure that all aspects of its product packaging, selling skills and other elements of the customer proposition are aligned with these brand values. (f). Modernization Thorntons PLC has introduced Aldata during the recent years to increase the sale of its brands. Aldata empowers retailers and their suppliers to sharpen the focus on what is essential for success, achieving the optimal balance to effectively and profitably manage and fulfill consumer demand. (www.aldata-solution.com). Thorntons PLC: A Sustainable Strategic Growth Up-market chocolate maker Thorntons PLC is well on the road to produce profitable sustainable growth. According to chief executive report, Thorntons PLC, is likely to hit full-year earnings targets. Chief executive's comments were contained in an upbeat trading statement ahead of Sept 10's finals which reported total sales of 186.0 m for the 52 weeks to June 29 from 176m, in the 53 week period of last financial year which is 5.3% increase in its sales. The company's best performance since 1997/98 is 3.7% like-for-like growth in 'own store' revenues and came against a backdrop of five further store closures. Sales jumped nearly 13 pct at franchise outlets and were up 89 pct via the internet to 4.2m and Thorntons said it is actually making a profit on line. Commercial income, meanwhile, was 37m which is an increase of 18.5%. A distribution deal through Tesco PLC is helping to take up the slack created by cutting certain lower margin non-branded lines. These results are further evidence that Thorntons PLC is well on the way to produce a sustainable profitable growth. Whilst much work still remains to maximize the opportunities for Thorntons' brand confectionery and sweet foods through a broadening set of channels to the consumer, we have increasing confidence that significant shareholder value can be created in the coming year (Chief Executive Report 2007). In the future, with a new systems structure in place (and further systems implementation planned), store ordering will be automated. This will enable Thorntons to minimize any stock-outs in store, better plan promotions and manage seasonal merchandising with the effect of boosting sales by meeting demand earlier on in the cycle. Thorntons will also make broader use of management information to measure various aspects of business performance, enabling it to target any specific areas requiring further improvement. Thorntons PLC is to implement a series of new marketing strategies, as part of its three-year revival plans. The plans include a move into the take-away coffee and pastry market, to be sampled at nine pilot outlets throughout the country. If successful, Thorntons could expand the project to 400 of the company's outlets over the next three years. Furthermore, Thorntons plans to distribute a new range of branded cakes, desserts and biscuits. Initially five lines will be available on sale in J. Sainsbury from September 2008, with additional listings also agreed with J.Sainsbury, Safeway and Asda. Other strategies involve improving store environment, product range and style of service as well as increasing distribution of Thorntons products by making impulse bars available in grocery outlets. The overall progress made by the company was summed up by Chief Executive as: We have made sound progress with the promise of much to come. There are no quick fixes and we are only one year into our turnaround. The company's vision is to become "The UK's leading retailer and distributor of sweet special food". References Eurofood. (Sept 27, 2001). FindArticles.com. 25 Jan. 2008. http://findarticles.com/p/articles/mi_m0DQA/is_2001_Sept_27/ai_79195996 Finch, Julia, (March 7, 2001).Thorntons' New Recipe. Guardian http://www.aldata-solution.com http://www.marketresearch.com/product/display.aspproductid=1598362&xs=r http://www.just-food.com/store/product.aspxID=43096 http://www.thorntons.co.uk 27 Jenkins, Patrick,( September 19, 2001). Thorntons Eyes Expansion in Hot Drinks and Pastries. Financial Times. Smith, Alison, (March 7, 2001). Thorntons Aims to Get Up Close and Personal. Financial Times. Thorntons Profits Crack In. (May 6, 1999). Guardian. Thorntons' Chief Hopes to Taste Seasonal Success. (December 14, 2000). Financial Times. Treanor, Jill, (June 3, 2000). Thorntons Profit Meltdown Continues. Guardian. Thorntons Annual Report, 2007. Read More