Thorntons plc

Thornton Park
Somercotes
Alfreton
Derbyshire DE55 4XJ
United Kingdom
Telephone: (+ 44) 1773–540-550
Fax: (+ 44) 1773–540-066
Web site: http://www.thorntons.co.uk

Public Company
Incorporated: 1921 as JW Thornton Ltd.
Employees: 4,539
Sales: £153.5 million ($232.8 million)(2000)
Stock Exchanges: London
Ticker Symbol: THT
NAIC: 311330 Confectionery Manufacturing from Purchased Chocolate

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. Most of Thorntons’ sales come through its network of more than 500 retail shops—some 400 or which are directly owned by Thorntons, while the rest operate as franchises. The company’s products are also available through such large-scale department store chains as Marks and Spencers. In 2001, the company also began rolling out a line of products to be sold through the supermarket channel. In addition to its retail shops, Thorntons operates a growing number of Thornton Cafes, which sell coffee and other desserts in addition to the company’s chocolates. Many of these cafes are located within existing Thornton stores. The company also began pilot testing selling fresh coffee and other beverages and snacks at its retail stores, a program begun in 2000. Despite steady sales gains, Thorntons has been struggling with its profitability since the late 1990s. The company’s difficulties have seen its share price plunge from a high of nearly 300 pence in 1998 to as low as 85 pence at the turn of the century. This development has in turn sparked suggestions that the company may be a strong takeover candidate. A more likely scenario, given the company’s proud history as an independent chocolate manufacturer, may be a management buyout of the company. In the meantime, the Thornton family remain present in the company’s direction, with John Thornton, formerly CEO with the company, serving as its chairman.

“In Chocolate Heaven Since 1911”

Thornton’s was established in 1911 when Joseph Thornton, who had been working as a traveling candy and confectionery salesman, opened his own shop in Sheffield. Joining Thornton to help run the store was his eldest son Norman, then only 14 years old. The Thornton shop was a success, and in 1913 the family opened a second store. The new store included a kitchen where the family began making their own candies. By the time Joseph Thornton became ill in 1917, Norman Thornton had begun establishing a reputation for the Thornton name as a maker of quality sweets, while opening two more stores, plus a store selling fresh fruit, by the end of the decade. The younger Thornton took over the business’s operations entirely after his father’s death in 1919. Two years later, Thornton was joined by his younger brother, and together they began to expand the business, which was then incorporated as JW Thornton Ltd.

The success of the Thorntons’ chocolate and other confectionery products soon spread beyond Sheffield, and by the middle of the 1920s the family began to prepare to expand across the Midlands region. In 1927, the company opened its first full-fledged factory in Sheffield. The production from this facility, while still relatively small, enabled the company to supply a growing number of stores. By 1935, the company had opened 15 stores. By the end of that decade, the company’s retail network had expanded beyond the Midlands region and into the North of England, reaching a total of 35 stores.

The end of World War II, and the resulting economic boom as England reconstructed throughout the 1950s, proved a profitable time for Thorntons. The Thornton brothers continued to lead the company and were now by the third generation of the Thornton family, including Michael Thornton, who joined in 1957 and remained active in the company’s affairs until the end of the century. Thornton’s chocolates and other confectionery goods became a favorite of the British sweet tooth. The company underwent a rapid expansion, and by the 1960s operated more than 200 stores, not only across the Midlands and Northern regions, but in Scotland as well.

During the mid-1960s, the company added another family member, John Thornton, who was named managing director in 1982, then took on the roles of chief executive and chairman in 1987. The following year, the company went public, listing 25 percent of the company’s share—with the rest held by the Thornton family—on the London exchange. Over the next decade, the Thornton family continued to reduce its shareholding, which decreased to just 30 percent at the end of the 1990s.

Meanwhile, expansion of the company’s retail network had slowed somewhat, so that by the mid-1990s the company’s operations had grown to 260 company-owned stores. At the same time, Thornton’s began franchising its shops, which, although representing less than 10 percent of sales, allowed it to expand its retail network by more than 100 stores. Thorntons also began to expand beyond the United Kingdom, entering Belgium and France, where it built up a chain of some 21 stores.

Struggling for Profits in the New Century

In 1995, John Thornton retired from day-to-day management of the company, hiring Roger Paffard, formerly with the office supply retailer Staples. The company now exited the Belgium and French markets, where it had never successfully imported its retail formula. As a spokesman for the company itself described its inability to penetrate these markets, Thorntons “did not invest enough time and effort to understand the differences between the U.K. and the French and Belgian markets.” In 1996, the company sold off its Belgian subsidiary, Gartners-Pralines, to chocolatier Pauwels, then sold its 21 French stores to a rival retailer in that market, Jeff de Bruges.

Instead, Paffard led Thorntons on a new expansion drive in the United Kingdom. In October 1996, the company announced its intention to step up its number of new stores, backed by a £30 million investment program, with the intention of opening 90 new stores by 2000. The following year, the company became still more ambitious, forecasting the opening of its 500th company-owned store by the year 2001. In order to reach this goal, the pace of new store openings went into overdrive. In March 1998, the company announced its intention to open as many as 100 stores in that year alone. Supporting the company’s new growth was the beginning of construction of a new manufacturing and warehouse facility in Derbeyshire, to be completed by early 1999, part of a new £53 million investment plan. The stock market responded positively to the company’s buoyant forecasts, sending its stock price to a high of nearly 300 pence.

Yet it soon became apparent that Thortons had overextended itself. The company first stumbled in 1999 during the crucial Easter season, when it ran out of stock—sending customers to its competitors. By May 1999, the company was forced to make its first profit warning, admitting that: “We didn’t have the right product range. We changed as little as possible because we were concentrating on improving other parts of the business, be we underestimated just how unforgiving our customers would be.”

Company Perspectives:

Our current strategic intent is to remain the most popular confectionary shop in the High Street and Shopping Centres with a focus on high quality products and excellent customer service.

The company’s customers continued to withhold their forgiveness through the next year, despite the company’s efforts to correct the previous year’s mistakes. Thorntons now rolled out a range of novelty products—such as chocolate-scented tee shirts and body lotions. The company also pressed on with its new store openings, especially among its franchise network, hoping to open another 200 stores. Thorntons also began looking for new retail outlets, such as through the Internet, interactive television, and mail-order sales channels. Meanwhile, the rising popularity of coffee shops, such as Starbucks, inspired the company to begin developing its own coffee shops, most of which were to be located within its existing stores.

None of these efforts was able to stop the company’s profits slide. Another Easter stock error—which saw the company forced to deep-discount some £1.4 million of unsold Easter eggs—forced the company to make its third profit warning in 18 months. The company’s sagging profits continued to sink its share price, sparking fears that the company might offer itself up as a takeover target. At last, John Thornton asked Paffard to resign in March 2000.

Watching the company’s troubles was Peter Burdon, a former McKinsey consultant then working for the Boots retail chain. Burdon told the Daily Telegraph: “For the past 10 years it has been my ambition to run a medium-sized food company. When I read about (Paffard’s) departure I immediately thought ‘this is my job.’ I wrote to John Thornton saying these are the issues your firm is facing, this is me, and suggesting we got together for a chat.” Burdon was hired two months later.

Burdon immediately began implementing a three-year plan to restore the company to stability. Among his first moves was to slow the rate of new store expansion. The company then went to work rebuilding its product line, repositioning its stores toward the less seasonally dependent gift market and refurbishing its stores. The company also replaced its long-running “In Chocolate Heaven Since 1911” advertising campaign. Meanwhile, the success of its café format encouraged the company to continue rolling out coffee shops, reaching 23 shops by the end of 2000, with plans to increase that number to nearly 100 at the turn of the century. By then, the company had succeeded in stabilizing its profits, and was once again returning to sales growth, posting £153.5 million for the year.

In 2001, Thorntons began plans to roll out a new line of Thorntons branded dessert products for the U.K.’s supermarket branch, signing on customers including Sainsburys, Safeway, and Asda. By the end of his first year as company CEO, Burdon had successfully turned the company around and continued to point it in new directions. One of these was the roll-out of a new pilot program, that of offering hot drinks and pastries as carryout items at its stores. The company planned a full-scale roll out of this new concept to all of its stores if the pilot program proved successful. Despite the company’s renewed optimism, it remained frustrated by the continued low course of its share price—which valued the company at just £56 million, compared to a high of nearly £400 million—so much so that by the summer of August 2001 the company acknowledged that it might consider a management buyout to remove it from the public market—and the possibility of a hostile takeover.

Principal Competitors

Cadbury Schweppes PLC; Nestlé 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.

Key Dates:

1911:

Joseph Thornton, a traveling confectionery salesman, opens a store in Sheffield, and is joined by son Norman in the business.

1913:

The Thorntons open a second store including a kitchen where they begin developing their own candy recipes.

1919:

Joesph Thornton dies and Norman Thornton takes over the family business of five stores.

1921:

Norman Thornton is joined by his younger brother and the company incorporates as JW Thornton Ltd.

1927:

The Thornton company opens its first factory in Sheffield.

1928:

The company opens three more stores outside of Sheffield.

1935:

The number of the company’s stores tops 15.

1939:

The company expands beyond the Midlands region into the North of England, with 35 stores in 18 cities.

1960s:

The company opens its 200th retail store.

1988:

Thorntons takes listing on London stock exchange, selling 25 percent of its shares, and changes its name to Thorntons PLC.

1996:

Thortons exits French and Belgium markets and begins renewed store expansion in the United Kingdom.

1999:

The company launches new in-store coffee shops and cafes.

2001:

The company launches new line of Thorntons-branded desserts for supermarket sector and begins testing carry-out hot drinks and pastries.

Further Reading

Finch, Julia, “Thorntons’ New Recipe,” Guardian, March 7, 2001.

——, “Family Ousts Sweet Empire Chief,” Guardian, March 1, 2000.

——, “Thorntons Profits Crack In,” Guardian, May 6, 1999.

Lee, John, “Chocs Away with Company High Flyer,” Financial Times, May 12, 2001.

Jenkins, Patrick, “Thorntons Eyes Expansion in Hot Drinks and Pastries,” Financial Times, September 19, 2001.

Simon, Emma, “Hard Nut with a Sugar Coating Thorntons,” Daily Telegraph, April 23, 2000.

Smith, Alison, “Thorntons Aims to Get Up Close and Personal,” Financial Times, March 7, 2001.

——, “Thorntons’ Chief Hopes to Taste Seasonal Success,” Financial Times, December 14, 2000.

Treanor, Jill, “Thorntons Profit Meltdown Continues,” Guardian, June 3, 2000.

—M. L. Cohen