Hotel Chocolat dials back ‘digital-led’ strategy to focus on store growth

The retailer’s revenues decreased over the first half of its financial year, dropping to £129.79m compared to £142.9m the year prior. Profit dropped from £16.2m to £6.3m.

HotelChocolatAfter experiencing rapid digital growth during the pandemic, Hotel Chocolat is refocusing on its stores as its “principal sales channel” in an apparent reversal of its former strategy.

Having previously hailed its goal to evolve from a “UK store-led brand to globally ambitious digital-led brand”, the chocolate retailer says it generated lower online revenues in the six months to 25 December 2022 compared to the same period the year prior. It attributed this to a “customer preference” to return to physical stores and a “deliberate” reduction in marketing spend behind the channel.

Overall revenues for the half year decreased, dropping from £142.9m to £129.79m. Profit dropped to £6.3m from £16.2m the year prior.

However, like-for-like retail sales rose 7% year on year, and 25% compared to the same period in pre-pandemic 2019. In-store purchases now represent around 70% of the brand’s UK sales. Its digitally-underpinned store model is “unique” to the brand, it told investors.

Hotel Chocolat now sees almost double the frequency of store shoppers versus those who purchase online, the business claims. It attributes the success of its stores to factors such as its database marketing and its loyalty programme VIP.Me.Hotel Chocolat reassesses UK growth opportunity, finding the market is ‘a lot bigger’ than it thought

“This strong sales performance from Hotel Chocolat stores, underpinned by our scaled database, is a result of hefty investments we continue to make into our brand,” CEO and co-founder Angus Thirlwell says.

Despite lower revenues and profit, Hotel Chocolat says its brand consideration is now at its highest level since it began tracking the measure. It claims its consideration score has grown by 7 percentage points (13%) since October 2020, and by 4 percentage points (7%) year-on-year.

Hotel Chocolat currently has 123 UK stores and is aiming to open 50 more over the next three to five years, as a result of the success it is seeing from its current portfolio. It is also investing in “stores of the future”, which have more space and contain cafes, which the brand claims to have seen success from. Two of these stores opened during the last six months, and the retailer plans to roll them out in more locations going forward.

Driving frequency

The retailer’s shift away from prioritising digital growth is the second U-turn made by the brand in the past 12 months. In June, the business announced it was rowing back on its international expansion and refocusing on the UK growth opportunity.

However, it continues to invest behind its loyalty scheme and luxury hot chocolate system, Velvetiser. The VIP.Me loyalty scheme has grown its base by 152% since 2019, and 30% year on year, to 2.75 million members. Over the last few years, the brand has introduced more bespoke experiences for members across its touchpoints and introduced preferential pricing on the Velvetiser system.

Both VIP.Me members and Velvetiser purchasers interact with the brand at a greater frequency than other customers, the business claims. These initiatives have helped the brand to grow average frequency by 14% since 2019.

The Velvetiser proposition launched four years ago, and Hotel Chocolat now sees it as “a major long term winner” for the brand as it continues to innovate around flavours. Hot chocolate sales now represent 12% of the brand’s retail sales and are up more than 10 times (1132%) versus pre-Covid levels.