1)Which Ethical approach does Hotel Chocolate operate under and why?
2)What is the general strategy driving all other strategic initiatives at Hotel Chocolat? (Please refer to the Hotel Chocolat website as well.)
3)Does Hotel Chocolat have a social or ethical responsibility to be part of the “Fair Trade Accreditation”? Why? Why Not?
4)Are there any ethical ramifications to promoting the product as “high quality” because it comes from a particular country, even if the company is doing no research into proving this?
5)What do you see as potential ethical issues that could arise from Hotel Chocolat’s self-help programs in St. Lucia and Ghana?
6) Before deciding to do business in the United States, or another country, what does an organization need to know about the environment for which it wishes to enter? (Think beyond Hotel Chocolat and think about what organizations must consider with international markets.)
Please refer to below article.
This case study assesses how Hotel Chocolat has achieved its rapid rise and what it is doing to maintain consumer interest in the brand. SUMMARY
• Hotel Chocolat has grown its retail presence to over 20 UK stores in less than three years, achieving this by providing premium chocolates that are attractively packaged and sold in boutique style outlets. The company is providing Thorntons with its first real threat to its leadership position, with an intense rivalry now occurring between the two. Hotel Chocolat’s internet site is a key part of its business and one which has recently been established in the US, taking its premium offerings to the international arena.
• The company’s range of products contains some unique offerings, which helps it maintain differentiation on the marketplace. These include its signature chocolate slabs and single origin chocolate bars, while a focus on high cocoa, low sugar chocolate reinforces a premium and healthy focus. In addition, the company’s Chocolate Tasting Club provides the company with a unique forum to try out new products and gain first-hand feedback from its customers.
• Hotel Chocolat aspires to be an ethical business by running its chocolate operations in St Lucia and Ghana in a manner which capitalizes on consumer interest on how their food is sourced. The company is set to expand its business into ethical tourism, with the establishment of a hotel and factory tour at its St Lucia plant, further strengthening its ethical business practices. Hotel Chocolat’s rapid expansion had led its competitors to take note Hotel Chocolat has grown to exceed 20 UK stores in under three years UK chocolate retailer Hotel Chocolat was founded in 1993 by Angus Thirlwell and Peter Harris, specializing in luxury, mainly dark, chocolates. Originally operating as a catalog-only business, the company launched its products on the internet before opening its first retail store in 2004. The company has since grown rapidly, opening 22 shops across the UK in under three years, causing its leading rivals to assess the competitiveness of their own businesses. The company was originally called ChocExpress, but changed its name to Hotel Chocolat in 2003, shortly before opening its first high street outlet, to add a sense of European ‘mystery’ to the brand. Thirlwell said the new name creates the image of a ‘mystical place that doesn’t exist’, commenting that ‘chocolat sounds so much better than chocolate’. Enhancing its image as a premium chocolate retailer is the upscale design of the company stores, which are set up to resemble small boutiques. The chocolates are arranged on contemporary shelving, with wooden flooring aiding its upscale image. The store layouts are designed to complement its catalogue and online business, which, through displaying images of happy couples and close-ups of chocolate, aim to encourage sales by emphasizing the sensual qualities of its premium products. Figure 1: Hotel Chocolat promotes itself as a premium chocolate retailer, selling indulgent products on its website and through retail stores Source: Hotel Chocolat website D A T A M O N I T O R Hotel Chocolat case study Hotel Chocolat case study CSCM0153 / Published 01/2008 © Datamonitor. Expanding its online presence has also played a key part in Hotel Chocolat’s growth Hotel Chocolat expanded into the US in September 2007, launching an online store to deal exclusively with US customers. The company aims to tap into the large US market, which has shown an increasing interest in dark and premium chocolate over the last few years. If successful, the new business could potentially significantly boost the company’s business, from a small UK player, to a multinational one. In its marketing for the US launch, the company plays upon its European origins to exploit notions of Europe as a producer of premium products. Thirlwell states that: “Hotel Chocolat has the unique ability to benefit from both the skill of European chocolatiers and the knowledge of cocoa-growers to create pure chocolate that delights all of the senses.” The company encourages consumers to view its products as being better than American alternatives because of its origins. In order to promote its new US online service, the company has undertaken a novel form of marketing in the US. It has recruited 50 ‘chocolate ambassadors’ in Chicago to taste, rate and spread the word about its chocolates. People were selected to be ambassadors for being notable in their respective circles, with the expectation that they would spread their (hopefully positive) opinions on the brand to a large circle of associates. While word-of-mouth marketing can be an effective form of advertising, garnering the real opinions of these ambassadors may prove difficult. People could merely pick their favorite chocolates based not on which they like best, but what they think the company wants them to like best, as one ambassador noted: “It wasn’t really our favorite. But we thought it was trendy,” (Crain’s Chicago Business). This form of consumer research should therefore be used sparingly alongside other more traditional methods. An intensive competitive rivalry has begun with UK chocolate retailer Thorntons Thorntons sabotaging of Hotel Chocolat’s chocolates exposed the tension between the two rivals The rising popularity of Hotel Chocolat has been noted by its rivals, especially well-established chocolate retailer Thorntons. The tension between the two rivals was exposed by the recent activities of Thorntons’ master chocolatier Barry Colenso, who was caught on CCTV ruining chocolates worth £63.50 (US$131.0) at Hotel Chocolat’s Nottingham store. Colenso was forced to resign from his post, which he had held for 20 years. His behavior was put down to the stress of creating new chocolates to rival the pretender to its chocolate crown. Former Thorntons chairman commented on the incident in The Independent, highlighting that Hotel Chocolat has become the first real challenge to the company: “Thorntons has allowed them to come into a position in the market where they should have been: the aspirational, lifestyle area. Thorntons has become more of a chocolate shop rather than a chocolate specialist these days.” Before Hotel Chocolat established a presence on the UK retail market, Thorntons dominated the arena with over 500 stores across the country. Hotel Chocolat’s emphasis on premium, through its boutique-style stores and high-priced chocolates, has made the once premium Thorntons look dowdy by comparison and in need of an update. Hotel Chocolat markets a super-premium image with genuinely high-quality chocolates and unique sourcing policies Company marketing focuses on the sensory appeal of quality chocolate In order to establish itself as a premium end chocolate retailer, Hotel Chocolat has concentrated on marketing the sensory appeal of its products. For example, a press release for the launch of its US online store stated that the company, “invites American chocolate-lovers to put up the ‘Do Not Disturb’ sign and embark on a multi-sensory journey into chocolate bliss.” In addition, the company website contains multiple close-up images of its chocolates, in an attempt to highlight the attractiveness of its products, while also showing couples enjoying its chocolates in a bid to add to the aspirational appeal. Hotel Chocolat’s stores are designed to reflect the sensory appeal of its products through their ambient atmospheres, a notion the company is keen to retain by not placing too many of its stores in shopping malls. Company founder Angus Thirlwell comments that ‘we don’t want to be solely seen as mall operators’ (Shopping center Magazine), an attitude related to the bright lights and hot environment shopping centers which could harm the store ambiance – something that Thirwell says is an integral part of the brand. The chocolate slab and the introduction of pure, single source bars reflect Hotel Chocolat’s high quality and innovative approach As well as focusing on selling premium quality chocolate, the company has also introduced a range of innovative products on the market which help it stand out in the mainstream chocolate retail market. These include the chocolate slab and single source bars. The chocolate slab is the company’s signature product and consists of chocolate that has been poured onto a marble slab and allowed to set. Created by company founder Angus Thirlwell, the slabs are available in a variety of sizes and flavors, with special varieties being created for Christmas, Easter and other holiday periods. Hotel Chocolat’s single source Purist Bars are made from chocolate originating from one particular country, such as from the company-owned Rabot Estate in St Lucia, and are marketed as being high quality chocolate for connoisseurs. Product descriptions emphasize this positioning; for example the Purist Dark 72% bar is touted as “a deep mahogany colour with initial red fruit flavour notes slowly diminishing to leave Shiraz, black olives and spices. Exceptionally long in the mouth”. This description imitates the style used to describe wine, promoting chocolate as being a high-end product which has as many taste notes as wine. By doing this, the company is distancing itself from the perception that chocolate is a cheap candy unworthy of analysis. The company seeks to capitalize on the health trend by marketing the low sugar, high cocoa content of its products By manufacturing chocolate with a high cocoa content, the company can market its products as being better-for-you than conventional milk chocolate bars, capitalizing on rising consumer health concerns. Its products contain less sugar and fat than lower priced chocolate, as they gain their flavor not by these added ingredients but by having a higher cocoa content. The company’s milk chocolate products are said to contain less sugar than that found in major brands from mass producers such as Mars, instead of replacing sugar with a higher amount of cocoa solids. For example, its Purist line includes milk chocolate bars that contain over 50% cocoa. The Purist High Cocoa Milks line is termed as being “serious milk chocolate” by the company, which says that it is “made with more cocoa and less sugar so you can still experience the flavour nuances of different types of cocoa but with a comforting dash of milk.” With consumers wanting to eat more healthily without sacrificing taste, Hotel Chocolat can capitalize on this trend through promoting its premium chocolate range as being better-for-you than cheaper alternatives. The Chocolate Tasting Club provides an empowering forum for customers who can vote for favorite chocolates and suggest new products The company’s Chocolate Tasting Club runs alongside its catalogue and retail business, providing a unique forum for gaining customer feedback. The club sends out different selections of new chocolate varieties every month for members to taste and rate, with the company developing the new chocolates in partnership with other small chocolatiers. Membership costs from £15.95 (US$32.80) to £17.95 (US$37.00) a month, depending on what type of selection is chosen (dark, mixed or solid chocolate), so is fairly expensive. Members are given a scorecard with their monthly boxes for rating the chocolates. Overall scoring for each chocolate type, as well as comments, is then recorded in the monthly Chocolate News newsletter. The company also reviews this feedback, helping it decide which new chocolates to produce. It comments that this process: “provides the drive to demand better and better chocolate to replace the adulterated mass-produced version mostly sold.” With around 200,000 members in the UK, the club has grown into a substantial forum, providing a club that is unique in the mass chocolate retail sector and a place for Hotel Chocolat to garner customer opinion and test its new chocolate ideas. Hotel Chocolat aspires to be an ethical business, capitalizing on growing consumer interest in how their food is sourced Plantation ownership provides Hotel Chocolat with a novel point of difference A novel point of differentiation that Hotel Chocolat has compared to other chocolate makers is its ownership of a cocoa plantation – the Rabot Estate in St Lucia. Most of its competitors buy all their chocolate ready-made from specialist bean converters, but Hotel Chocolat wanted its own plantation so that it could take full control of the chocolate making process. This is a fairly recent development at the company, as it only bought the West Indian plantation in 2005, but it highlights how the company’s success has enabled it to venture out into unusual avenues to create novel points of difference. The company bought the plantation for three reasons: • to make it a successful West Indian business in its own right; • it fits with the company’s Engaged Ethics program; • it enforces the super-premium nature of its chocolate, connecting the origins of chocolate (cocoa growing) directly with its consumers. The company is said to be working towards organic accreditation for its St Lucia plantation and has developed its own cocoa propagation unit so that seedlings can be grown and planted on site. While the plantation has not been up and running for very long, its quality has been acknowledged by the chocolate industry: its first production of chocolate made only with beans from the Rabot Estate won a bronze medal in the World Chocolate Awards. This shows that it is achieving its aims of maintaining and improving the quality of its chocolate through the plantation ownership. The company promotes self-help programs at its plantations As well as St Lucia, Hotel Chocolat has a long-standing operation in Ghana, where it began buying cocoa in 2002. The company runs its business in the area in accordance with its “Engaged Ethics” scheme, providing the local community with work and financial aid. Company director Lynn Cunningham said: “I wanted our support to be seen as a ladder to self-help rather than a crutch to be leant heavily upon.” The company has seedlings nurseries in the region in order to develop pest-resistant cocoa plants, which are sold to local farmers at a subsidized rate. Over the years, it has built up 10 satellite nurseries, raising more than 100,000 seedlings each year, across two different regions of Ghana. The company buys the cocoa from these farmers, as well as other local farmers, at what it says is a rate that enables them to make a profit and re-invest in their cocoa farms. The St Lucia plantation also operates in line with its Engaged Ethics strategy. Hotel Chocolat said it has teamed up with the local government to run training workshops for farmers’ groups, and has also committed to buy their cocoa for 30-40% above the world market rate, thereby enhancing its ethical business practices. The company rejects Fair Trade accreditation in favor of controlling its own ethical sourcing By operating its business under the Engaged Ethics scheme, the company has acknowledged the growing importance consumers are placing on the sourcing of their food. The company’s website highlights the importance of customer feedback in building up its ethical business: “Club members were starting to ask questions about how the cocoa is grown, and the lifestyles of the cocoa growers themselves. And to ask whether the balance was right, to question their own consumer values and to challenge us to provide some answers.” The company developed the Engaged Ethics scheme in order to confront these questions and provide viable answers. However, Hotel Chocolat has not sought Fair Trade accreditation and has resisted being part of any other ethical labeling scheme, preferring instead to control its own ethical standards. This could concern some consumers, because it appears to suggest that the company is less ethical than it could be as it is not subscribing to commonly accepted standards. Nonetheless, Hotel Chocolat has set out its ethical practices in detail on its website, showing how it does business with farmers in both Ghana and St Lucia in a way that is financially beneficial to the farmers and that is more rewarding than what the market would provide without the subsidies. This highlights that the company does not promote ethicalness solely as a marketing tool and incorporates such practices in its long-term business plans. It plans to exploit interest in eco-tourism through a hotel and factory tour at its St Lucia site As well as subsidizing farmers as a way of promoting ethical business practices, the company is also attempting to establish eco-tourism at its St Lucia base. This includes running tours at its newly built chocolate factory on the island, and building a boutique chocolate hotel. The factory is being set up so that it is able to receive large numbers of visitor tours, as well as being having the capability to make enough chocolate to export back to the UK to be sold through its outlets. While the factory is on its way to begin production, the company’s second plan for its business on the island is a few years away from fruition. Hotel Chocolat plans to build a hotel near its plantation for chocolate enthusiasts who would like to spend a holiday in the midst of a working cocoa plantation. The aim of the hotel is to enable customers to learn more about chocolate, while being pampered in the island’s tropical surroundings. This new venture would propel Hotel Chocolat into a new business sphere, from chocolate sale and production to tourism, a sideline which could succeed in further promoting the brand as a high-end, distinctive chocolate producer. Case study series This report forms part of Datamonitor’s case studies series, which explores business practices across a variety of disciplines and business sectors. The series covers a range of markets including food and drink, retail, banking and insurance, pharmaceuticals and software. Each case study provides a concise evaluation of a company that stands out in some area of its strategic operations, highlighting the ways in which the company has become one of the best in its field or how it deals with different problems encountered within that sector. Methodology A variety of secondary research was carried out for this case study.