Hotel Chocolat records trading upturn despite coronavirus challenges

The UK-based premium brand Hotel Chocolat has reported a year-on-year upturn in revenues of 3%, to a figure of £136 million, despite recording a dip amid the coronavirus pandemic.

As the business noted, in the first half of the year, group sales of £92m were an increase of 14 per cent year-on-year, while conditions became challenging in the second quarter, reporting sales of  £45m, representing a decline of 14 per cent year-on-year, but its digital sales grew 200% in the fourth-quarter.

One of the key factors in the latter figure was down to all of its  UK physical locations were closed for a period of 12 weeks from 22 March to 15 June, which coincided with Easter and Mother’s Day, two of the three largest gifting seasons for the group.

According to the company, it was able to migrate a significant proportion of these sales to online, with its team  “demonstrating great agility: by collecting Easter inventory from over 100 retail locations, temporarily reducing the online product range, and introducing pre-selected product bundles so that the Distribution Centre could safely handle as much of the surge in online demand as possible.

In addition to increased gifting sales, digital sales growth throughout the period was supported by a 47% year-on year increase in the sales of subscriptions and recurring purchases, including Hot Chocolat refills for the Velvetiser in-home system.

The company’s factory in Cambridgeshire was temporarily closed for eight weeks whilst adaptations were made to ensure covid-secure working. It re-opened in May and is now operating at 90% of normal capacity.  While the actions above led to some material additional short-term costs in the second half of the year, both in the form of lower gross margins due to re-handling of inventory, and increased overheads due to the adoption of new working practices, it has led to improved agility and resilience of the ongoing business.

Since early March, the Group has been focused on managing both the immediate and longer-term impact of coronavirus on the business. The foremost priority throughout this period has remained the safety and wellbeing of colleagues, customers, and communities. Furthermore, 119 of its 125 UK locations are currently open for business, and sales in “High Street” locations are performing more strongly than in city-centre “commuter” locations.

While total sales from physical locations are lower year-on-year, digital growth remains very strong and Group-wide sales since the end of the period remain in line with management expectations. A similar pattern has been seen in both the USA, and in Japan, which is operated by a joint-venture partner.

Angus Thirlwell, co-founder and chief executive officer of Hotel Chocolat, said that the business had pulled together during the pandemic, with its recently introduced businesses arms in the US and Japan playing their part.

He said: “I’ve been hugely impressed by how our team have responded, culturally, professionally and ethically during the pandemic. The acceleration of change in the retail landscape has galvanised us to speed up our plans and investments in the opportunities we were already pursuing. “Our physical retail usually accounts for over 70% of sales in the second half, but all locations were closed for the entire Easter period this year and beyond.

“It is a testament to our lovely customers’ loyalty that they switched in droves to online and we contained the Group impact to only -14% in the half. “Online, our brand is now set to a significantly faster growth trajectory, delivering gifts, subscriptions and household indulgence. Some of this is attributable to Covid-accelerated change, but new concept launches, and digital enhancements have also supported growth.

“The Velvetiser in-home drinks system, the VIP loyalty programme, and new subscriptions capability will continue to generate growth in the years ahead. ”We remain positive about the unparalleled leisure experience a physical Hotel Chocolat can deliver within our multi-channel direct-to-consumer model. All we need is footfall, and so far we are seeing that return at different rates. Residential areas are stronger, with city centres more subdued without as many commuters and tourists. “

 

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