A digital-focused strategy delivered growth of 150% over the last three months of 2021 for Hotel Chocolat in the United States. The British premium chocolatier’s shares have also bounced back to new heights over the same period, exceeding pre-pandemic levels and, last night, were up by over 40% versus a year ago.
In a trading update covering the 13 weeks of its fiscal second quarter (ended 26 December 2021), Hotel Chocolat also managed to more than double its active customer database in the U.S. with an increase of 119%.
That growth comes from a small base—the U.K. digital business and sales from 126 physical stores there account for about 97% of revenue, while 3% comes from elsewhere (mainly the U.S. with four locations, and Japan with 22 locations). The United States is, however, one of six ‘fast-growth’ opportunities identified by the British company which it describes as “digital-led and capex-light”, supported by stores in New Jersey, Washington DC, and two in New York City.
In the maturing market of Britain, Hotel Chocolat—founded by Angus Thirlwell and Peter Harris in 1993 and trading under the brand name since 2003—had growth of 38%. New customer acquisition campaigns resulted in 38% more active customers. Japan also saw solid growth of 131%.
Bullish for the year ahead
The combined effect in the second quarter was a group revenue rise of 37% compared to the same period the prior year, and 63% cent versus the equivalent period two years ago, before the Covid-19 pandemic began. Due to the momentum, the company now expects results “to be marginally ahead of management’s expectations” for the current financial year, it said.
In a statement, Angus Thirlwell, co-founder and CEO, added: “All of our growth drivers are behind the acceleration in sales (and) finding the formula for sustained growth. Our U.K. domestic market still has huge potential.”
In its trading update, Hotel Chocolat did not release sales figures, saving those for its half-year group results which will be out in two weeks. In FY21 the company generated £165 million ($225 million).
That same fiscal year was when the vertically integrated company—it has an organic cocoa farm in Saint Lucia and a chocolate factory in Cambridgeshire, England—pivoted its fledgling American business. By going ‘digital-first’ in response to the pandemic it managed to continue with its growth trajectory, despite store sales falling.
A fulfillment partnership with The Hut Group—whose founder became a billionaire after a London IPO in September 2020—means that Hotel Chocolat has a scalable U.S. growth model with minimal capital expenditure. The cost base is directly variable with sales volume, while the company retains direct control of the brand, the customer base and the strategy.
A ‘continuity sales’ model
One of the company’s winning segments has been The Velvetiser. Essentially a home-use machine for making hot chocolate (not unlike the George Clooney-associated Nespresso brand), it comes with an attractive lifetime value. There is built-in customer loyalty thanks to the continual need to buy chocolate recyclable pods and plenty of opportunities to cross-sell chocolate seasonal gifting ranges, especially at the higher end where Hotel Chocolat is building out further lines. This is what the company calls continuity sales, developed through subscription.
Thirlwell commented: “Our Velvetiser in-home drinks system was a star performer during the period. The majority of our subscription customers are now coming from our popular hot chocolate and coffee machines and drinks. We invested in refreshing our key chocolate gift ranges in the period and that resulted in an immediate and strong uplift in sales.”