Corporate Strategy of Thorntons Plc - Essay Example

Case Study: Thorntons Plc Q1. Identify key issues ive). Ans. Some of the key issues are One of the key issues has been the taste of thechocolates manufactured by the company. Thorntons' range of the continental chocolates has made the company largest selling specialist of assortment chocolates in the UK. 2) One more key factor is the company's own strong network of the retailing shops. These shops are located in the prime locations and also maintained well by the company. 3) One of the major issues based on the personal feelings is the policy of the company's management, which is more oriented to the old culture of the Thorntons' business style. For example the company had still kept on running with the policy that the chocolates should be sold fresh to the customers. This despite the research carried by the company that the freshness of the product was not given the importance by the consumer when purchasing the product. The other companies make greater use of the vegetable oil, which result in the better shelf life of their product. 4) The other key issue is that the company's chocolates are seasoned. For example the box chocolates show the sales of almost 35% during the period of 10 weeks before the Christmas, a further 10% are for the Easter, including three million Easter eggs. Typically the company sells almost 10m in last 72 hours of Christmas. 5) Chocolates of the company are hand made this makes the process of automated packing difficult for the boxed chocolate. The other companies on the other hand like Cadburys make moulded chocolates, which makes the automated packing easier. 6) Thornton's long-term strategy included vertical integration and product differentiation. This means the top person in the company belonged to a particular family. The product differentiation apart from the taste of the chocolate was also marked by the freshness of the chocolate. Q2: Why are they key issues Context Industry Product/market Ans: Let us consider all the key issues one by one: 1) Taste of the chocolate: It is the exotic taste of the chocolates manufactured by the company that has made such a huge selling of their product. Also freshness has been receiving the top priority. It is these factors, which laid strong foundation stone of the company for it future growth and expansion. 2) Strong network of retailing stores: For any manufacturing company the most crucial requirement is the excellent network of franchisee. Thornton' has its own retailing outlets, hence there is much more lesser dependency on external marketing strategy or the franchisee. 3) Freshness of the chocolate: Freshness of the product is the distinctive feature of Thorntons'chocolates. However, since the demand of company's chocolates is seasonal this puts extra pressure on requirement of the manpower during the peak season. The requirement of casual staff for packing purposes increases which leads to reduction in efficiency. Also the sales during peak season become almost ten fold hence there is requirement of extra staff at the retail stores also during the peak season. This makes the company more dependent on the casual staff. The casual staffs are quite expensive and it is not easily available. As it is the requirement of the casual staff in general in the market is more during the festive seasons. Also the casual staff is untrained, hence it has to be trained, which requires some of the resources of the company. The casual staffs have lower speed of working thus reducing the efficiency. The other critical issue is that the chocolates have lower shelf life, this makes it difficult for the company to sale the chocolates through alternative retail outlets like the garages, super markets and small shops. This reduces the market of the company, which could help the company during off peak periods. 4) Company's chocolates are seasonal: The maximum sale of the chocolates manufactured by the company is during seasons like Christmas and Easter. Now the company has a huge manufacturing infrastructure. It also has wide network of its own retail outlet. All these infrastructures are utilised much below their capacity levels during the off peak period. This is waste of the precious resources at the manufacturing plant and the retail stores. This has two harmful effects. Firstly, reduced production means obviously reduced sales and profits. Secondly the overheads in the form of salaries of the permanent staff remain the same. The retail stores are situated in the posh expensive locations, which go wasted during most of the part of the year. If there had been other products company could not only have utilised its resources properly but also would have made more profits and progressed more. 5) Hand Packing: Chocolates of the company are packed manually. This reduces the speed of the production and the capacity of the company. As it is the company has market only during the seasons, that also with limited capacity. This increases the cost of production and reduces profits. The other company like Cadburys has automated manufacturing and packing process. 6) Vertical Integration Strategy: The company had Chairman from a particular family till 2003. This marked the monopoly in policing of a particular person who may be expert in production but not in marketing. Giving full authorities of a public company to such person may not be wise. Q3: Which methods of analysis might be appropriate SWOT 5force model Value Chain Ans. For the company SWOT analysis would be more appropriate. Strengths: 1) One of the biggest strength of the company is the taste of the chocolates. Thorntons' range of the continental chocolates has made the company largest selling specialist of assortment chocolates in the UK. 2) The company at present has about 389 own retail outlets and 198 franchisee Outlets. Such a huge marketing network base ensures the sale of the products of the company. Even if the company had no franchisee network, its own retail outlet networks are good enough to sell its products. 3) The company has a big manufacturing plant which can cater to all the needs of the market. 4) The company has expert staff for manufacturing of the chocolates with proven taste records. 5) The company has excellent financial resources and stocks. 6) Company's own retail outlets provide excellent services, they have good reputation in the market. 7) Presently experienced team of professional Management people runs company. Weaknesses: 1) The company does not seem to have a clear and strong Business strategy. 2) The demand of the company's products is seasonal, during off peak periods the sale goes down drastically. 3) During the off peak periods the huge manufacturing infrastructure is under utilised. 4) During the off peak periods the company owned retail outlet staff is under utilised, their expenses remain the same. 5) The company has not come up with strong strategy to manufacture the products which can be sold when chocolates do not have market. 6) The company is still struck to its old policy of providing fresh chocolates to its consumers. This reduces the shelf life of the product and thus reduces the time for the product to get sold. It is also due to these reasons that alternative outlets like small shops, garages, super markets were not used for marketing, thus reducing the marketing base. 7) Packing of the chocolates is done manually while the other companies use Automated systems. This reduces the efficiency of the company. 8) The products manufactured during off peak periods do not seem to be marketed aggressively. Opportunities: 1) Company has excellent manufacturing infrastructure and expert staff. The top Management can do research in market about products which have demand throughout the year and start its production with least extra expenses. The retail outlets are always there to sell them. 2) Company has excellent infrastructure in form of retail stores in various locations in UK. This is the age information technology. The staff can take orders not only on telephone but also on the website; and make the home delivery. 3) The company by organising the local events can popularise its products. 4) Aggressive marketing by the company of its new products can help it sell new Products. 5) By doing a little research company can widen its international presence. Threats: 1) Company depends on the seasonal sales. If due to any reason the season does not goes well then the sale of the products is also severely affected, this brings the losses for the company. There is no other season to compensate for it. 2) During peak seasons company relies heavily on the casual workers. They have lower efficiency and are less reliable. They may available one day and absent the other day. 3) Company does the packing manually, while other companies do it automatically on the machines. Hence they can meet the sudden high demands in a short time stealing the orders of the company. 4) The company does not seem to have a clear and strong Business strategy. This can take the company to a blind. 5) If the products meant for selling during the off peak season are not marketed properly, then it may lead to failure of the product. This will not only generate losses for the company, but will also loose the potential market and potential customers. Q4. Identify current strategies - are they appropriate in the light of the above Ans. Peter Bourdon was appointed as the Chief executive in July2000. He introduced three-year plan as follows: Year 1: Stabilisation of Business Year 2: Creation of organic growth. Year 3: Development of new growth options, possibly through acquisition of rivalry confectionary brands. The strategy is also visible from Chief Executive's declaration that company needed to exploit its brand through marketing and advertising and there was no need of new product range. He also intensified the efforts to reduce the dependence on the seasonal sales. The policies would lead to reduction in product range by 15%. Opportunities to increase the commercial sales were also to be explored. The capital expenditure was to be reduced and more focus was on profit enhancement. Rolling out of new shops was to stop. Agreement was reached for a number of joint venture shops selling chocolates and cards. The lower rents and attractiveness of joint ventures was to prove profitable by 2001. It was announced that company would reposition its products so that they can be sold not only during the occasions of Christmas and Easter but during every the other occasions like birthdays, exam success, job changes. The look of the shops was to be altered to display the gifts more effectively. By mid 2001 the stabilisation plan was completed in time. Company had improved stock levels and reduction in selling and distribution costs. In 2001 annual report Mr. Burdon said that Thorntons' vision was to become ' UK's leading retailer distributor of special food' with the intension of increasing the manufacture and retailing to other retailers. In annual report 2002 Mr. Burdon announced that Thorntons' no longer intended to implement the third year planning. In turn he announced new strategic agenda which involved: 1) Brand Values: Clarity and consistency of all elements, such as product, packaging, shop environment and staff uniforms. 2) Support Retail Activities: Implementing simpler stock and planning systems. Separate Management structure for caf and birthday joint venture stores. Develop relations and opportunities presented by third party distribution. 3) Faster new product development. 4) New caf concept aimed at doubling the number of cafes in two years. 5) Long-term shareholder value. Through seeking new opportunities. Considering the fact that company needs the profits the strategic planning does seems to be on the right track. Positive results were reflected in company's next year's performance. Q5: Key issues (more objective): Are they still the same Ans. The key issues seem to have changed. Following are some of the key issues: 1) Reducing the dependence of company on the seasonal sales: Since the company has huge manufacturing and sales network, it has very high overheads, which cannot be compensated by merely seasonal sales. Hence growing need has been felt of starting the other range of products which company did. 2) Starting new own shops is no more found to be feasible, instead opening shops in joint venture is found to be profitable. 3) Staring the other products, which can be sold throughout the year at the various outlets of the company, was also felt necessary. 4) Making agreement with the supermarket was felt necessary to expand the market base. 5) In all, the main target of the company is to reduce the overheads and increase the profits. Q6: Strategic Direction: Where do we go next Recommendations and suggestions Ans: In 2002 Annual report the Chief Office Mr. Burdon had announced the strategic agenda for the future with the vision of making Thornton's ' The UK's leading retailer and distributor of sweet special food'. In the year 2003 by the time of Valentine's Day the performance of the company had improved. However, by Easter 2003 due to extreme summers the overall sales of the chocolates and of Thorntons' are reduced drastically. Mr. Burdon hoped that decrease of sales of chocolates would be compensated by sales of the other products. Agreement with the Tesco Supermarket chain was over and in turn agreement was made with the other retailers. As per Mr. Burdon long term success would come from being branded manufacture operating through multiple channels to the customer. The disappointing results of the year 2003 brought criticisms from the financial press. Questions were raised about companies' failure to develop the profitability. There were also questions on company's strategy and still relying on is extensive chain of shops in the era where more than 50% of the sales of chocolates are done through super markets. Then there were talks of selling of the shares by Mr. John Thornton. The future of the company does seem to be very tough. Some drastic changes can only bring profits to the company. Otherwise in the present scenario the company will only have to face the hardships and criticisms. Recommendations: The financial press is right when it brings forth to the company that in present day more than 50% of the sales of confectionaries is through supermarkets. The company has high expenditures on its retail shops, which are no more viable in the present scenario. The company has not yet been able to gain profits from other products. Also the supply chain was developed at the time when there were not many shops that can provide to customers the clean and healthy atmosphere that Thorntons' want. But it is available now at many shops who do multiple products selling. In this context I would recommend that the company should think of selling its supply shops. It may keep some of its premium shops. It should concentrate more on marketing through franchisee network and the supermarket. For this the company will have to make certain changes in the product also so as increase the shelf life of the product. It would be better to follow the general style of marketing being followed presently by other companies. Suggestions: 1) Develop a thorough Business strategy and stick to it, implement it. 2) Reduce the number of the supply chain shops and thereby reduce the staff. 3) The profits in sales to franchisee system and to Super markets may be less but those are the happening things these days. Follow the general style of marketing in present circumstances. Read More