Hotel Chocolat finds it has plenty of room for expansion
The premium chocolatier with its own cocoa plantation is aiming for 70 UK stores in the next three years
Thursday 09 September 2010
Retailers that launch in foreign countries have to adapt their offer to fit in with local tastes and customs. For Hotel Chocolat, the UK high-street chocolatier which opened three stores in Bahrain, Kuwait and Dubai through a franchise partner this year, the ban on alcohol in the region means its popular champagne truffles are unlikely to ever make an appearance.
But Angus Thirlwell, the co-founder and chief executive of the 42-store UK chain, says: "People in the Middle East typically have a very good diet and our style of chocolate seems to be very appealing to them."
Given its growth plans and recent performance, plenty of UK consumers also seem to be getting a taste for the premium chocolate of Hotel Chocolat, whose mantra is "less sugar, more cocoa".
The retailer delivered earnings before interest, tax, depreciation and amortisation up by 31 per cent to £3.8m for the 12 months to 30 June 2009. It has followed this with another "strong" set of results this year, driven by "double digit" underlying sales growth in the first half of 2010, says Mr Thirlwell, who developed a sweet tooth during the seven years he spent in Barbados as a child.
The chocolatier – which sells chocolates ranging from a luxury Christmas hamper for £300 to its Purist Bar of 100 per cent cocoa for just £5 – has certainly come a long way since its humble beginning.
Back in the early 1990s, Mr Thirlwell and Peter Harris, the retailer's finance director, launched Chocexpress, a mail-order firm selling chocolates to companies.
Their original goal was simple: "to make a better type of chocolate available to UK consumers bored by the mediocrity of that in supermarkets and on the high street". But they rebranded it Hotel Chocolat in 2003 and opened its first shop the following year.
Today, Hotel Chocolat – which operates a factory in Huntingdon, Cambridgeshire, and a 140-acre cocoa plantation in Saint Lucia – generates turnover of around £50m from its high street, wholesale and multi-channel operations. In fact, it is now embarking on the most ambitious phase of its growth strategy – boosted by the £3.7m raised through its innovative "chocolate bond" this summer. In the remainder of this year alone, it will open eight new stores, including in Manchester's Trafford Centre, Tunbridge Wells, Cheltenham and in One New Change, the new shopping centre next to St Paul's Cathedral.
Its plan is to get to 70 UK stores over the next three years and push ahead with more openings in the Middle East.
Hotel Chocolat will also use the funds to expand its tasting club overseas, invest in its factory in Huntingdon – creating up to 250 jobs over the next five years – and its cocoa plantation in St Lucia, including a new factory on the estate that will utilise solar power and rain harvesting. Before the end of this year, the chocolatier will open its first "boutique eco-lodge hotel" on the plantation, with 14 rooms.
In May, the retailer offered the three-year bond – where the return is paid in deliveries of chocolate over the period, typically each month – to the 100,000 members of its tasting club. Members could invest £2,000 for a gross annual return of 6.72 per cent or £4,000 for a return of 7.29 per cent.
Hotel Chocolat, which also has two stores in Boston, Massachusetts, had aimed to raise a maximum of £5m from the chocolate bond, but Mr Thirlwell was "bowled over" with the participation of 1,700 members and the money raised. Until the bond issue, Hotel Chocolat, which also sells through the John Lewis department store, had managed to fund the development of the business without seeking external capital.
Asked why it did not engage with a private equity firm to raise funds, Mr Thirlwell says: "We love our business culture. We have a big appetite for risk, as I think we have demonstrated by some of the things we do. We like the fact that we are calling the shots." The shareholding in Hotel Chocolat is split equally between Mr Thirlwell and Mr Harris.
Such an entrepreneurial spirit seems to be in the genes of Mr Thirlwell, who dropped out of university and spent two years in France enjoying the cuisine before he met Mr Harris at a computer firm in Cambridge.
Thirlwell's father, Edwin, who actually trained as engineer, co-founded Mr Whippy, the ice-cream firm. He then went on to found, and float, Prontaprint, the printing business. As for Mr Thirlwell, to describe him as passionate about chocolate would be possibly the under-statement of the century. "I eat chocolate two to three times a day – half for pleasure, half for work. I still approve every single chocolate recipe we do. I think it is important and I enjoy it."
For such a chocolate aficionado, it is no surprise that he has strong views on Kraft's £11.5bn takeover of Cadbury earlier this year, which Mr Thirlwell describes as "sad".
He says: "Like people of my generation, Cadbury has emotional connections. And being a keen student of chocolate history I am aware that Cadbury were a real innovator and – unlike a lot of rapacious conglomerates that are out there – Cadbury were a genuine Quaker and principled business that created a lot of one-off unique products in the early 1900s and many are still around.
"They are a business with amazing foundations so it is a shame that they lost their way a little and became vulnerable and now this [Kraft takeover] is what happened."
It is hard to see Mr Thirlwell acquiesing to any takeover approach for a long time given the growth plans ahead. No doubt the retail sector faces a testing year ahead with household budgets under pressure. But Mr Thirlwell says: "Consumers are still prepared to pay for good quality."
Man with a sweet tooth
Some people, at least until their hairstyles diverged, have mistaken Angus Thirlwell, the co-founder of Hotel Chocolat, for Sting, the former leader singer of The Police. In fact, two years ago on holiday in Barbados, Mr Thirlwell noticed he was getting "suspiciously good service" in a restaurant. But when staff started eulogising about the singer gracing them with his presence, he had to tell them the truth.
Mr Thirlwell, 47, is married with two children and lives in Hertfordshire. He is a self-confessed foodie and eats chocolates two to three times a day, for pleasure and work. "If I am feeling like I need a bit of comfort I will eat some some milk chocolate and if I want to get revved up I will have dark chocolate."
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