The British chocolatier Hotel Chocolat demonstrated that high quality tasty chocolate products, for eating and drinking, can be developed and produced in the United Kingdom. The founders, Angus Thirlwell (CEO) and Peter Harris, succeeded thereof in establishing a rightful choice alternative originated in Great Britain to chocolates from countries in the European continent. Unfortunately, this success has reached a limit, like a brick wall the company could not surpass with its own resources. In November 2023 Hotel Chocolat (HC) was sold in a deal worth £534 million to Mars, an American-based major confectionery company, but with a strong foothold in the UK.

Two developments emerge as main causes of the difficulties faced by Hotel Chocolat: one arising largely from its own doing, and the other is an extreme event that has put the business in jeopardy. Internally, the expansion drive of HC, especially globally, apparently went too far to an extent the company could not proceed on its own, not even with funding from investors as a public company (shares trading in London Stock Exchange since 2016). More recent extensions of its marketing and operations in the US and Japan did not fulfil expectations and forced the company to backtrack. Externally, the company was hit by the Corona pandemic, which caused sharp falls in its sales (products bought, for example, as gifts on holidays or in spending for spoiling oneself). The company did not fully recover afterwards, continuing to suffer from waning consumer demand (e.g., for premium products) and inflationary pressures [1].

It is hard to tell whether the internal or external developments were more impactful. The company has been raising funds to accelerate its expansion, online (website) and offline (e.g., café-bars and shops) since 2016 (including by materialising some of the founders’ own shares). How longer would have they been able to continue the expansion had the pandemic not occurred? It seems reasonable that negative economic effects from the pandemic of the coronavirus curtailed the efforts for continued expansion at Hotel Chocolat, in funding and in marketing (e.g., affected by reduced consumer spending). One cannot rule out that the expansion plans got excessive and would have hit the ‘brick wall’ sooner or later in any case. Yet, the external factors most probably hindered those efforts further, making the company exhaust its financial capacities sooner.

• A highlight venture of Hotel Chocolat was the acquisition of a cocoa plantation in the Caribbean Islands, and subsequently developing a vacation resort in their estate, including a hotel and restaurant (2011).
• Since 2014 Hotel Chocolat opened shops and initiated programmes outside the UK in Denmark (Copenhagen), Ireland (Dublin), Hong-Kong, Japan (Tokyo), and the US (New-York City).
• The website of HC (March 2024) lists 135 shops, 54 café-bars, the hotel (Boucan) in the Caribbeans, and two restaurants — one next to the hotel and the other in London (Rabot 1745). Some establishments combine a shop and café-bar (e.g., in Covent Garden, London).

In January 2018 the share of Hotel Chocolat traded at 333p (within a 6m range of 245-380p) [FT.com viewed 26 Jan. 2018]. Four years later, by the start of 2022, the share was still doing well where its price even reached 500p. But post-pandemic signs started to show in 2022, which was marked by a slowdown, and the share price started dropping. At the time of the deal in mid-November 2023 the share was down to 139p. Mars offered on acquiring HC a price of 375p per share (a premium of 170% to shareholders), as the basis for the deal’s £534m total value [2].

Thirlwell and Harris, as heads of Hotel Chocolat, were disappointed by the financial results: the drop in share price, a loss of £800k in the year up to 3 July 2023 (down from £21.7m), while sales fell back 10% (to £204.5m) [2]. The founders remained confident, nevertheless, of the business potential of HC and the strength of its brand, within and beyond the UK, hence they agreed to take the offer from Mars that would commit to support and enable this expansion (e.g., recover its activities in the US and Japan). Thirlwell and Harris are expected to keep £144m each out of the total value. Thirlwell is planned to stay-in as CEO for five more years, and re-invest in the continued growth of HC, whereas Harris is likely to cash-in and retire [3].

Thirlwell related to the disappointment from their efforts to grow HC and expressed his expectation following the deal: “By partnering with Mars, we can grow our international presence more quickly using their skills, expertise and capabilities” [1]. However, a key question remains open: How good is the match with Mars for Hotel Chocolat? It is yet to be seen how well Mars, a confectionary giant, honours and sustains the premium chocolate quality that distinguished Hotel Chocolat. Furthermore, that quality proposition of HC stood to disrupt the chocolate offerings of Mars. After acquiring its upper-tier competitor, in what looks as a ‘soft takeover’, will Mars succeed in convincing consumers of its commitment and ability to uphold the variety and quality standards of the product offerings of Hotel Chocolat? As a starting point, the remainder of this post is dedicated to reviewing chocolate and other confectionary products of Mars and Hotel Chocolat, and assessing the match between them.

Hotel Chocolat offers various types of chocolate delicacies that will not be possible to cover here in full. Most of the chocolates are in the form of pralines, but there are other forms such as chocolate slabs and batons. There are filled chocolate sticks (e.g., with orange or ginger), kirsch cherries, and filled pralines (e.g., with marzipan & amaretto, hazelnut, mint), as well as champagne truffles. The chocolates may be of the dark, milk or white variety. Other products, which may not be defined strictly as chocolates, are yet combined mostly with chocolate (e.g., macarons, biscuits, puddles). The chocolate offerings are of fine quality, tasty, and visually appealing, which seems to follow in the best European tradition.

The chocolatier also proposes numerous ideas for gifts that incorporate different selections of those products. They may come in different sizes and shapes of boxes or other packaging. Customers may also compose their own selections. In addition to chocolates for eating, HC also offers mixes of chocolate flakes for preparing hot chocolate to drink (e.g., dark at different cocoa intensities, milky, salted caramel, orange, ginger, and chili flavoured). The drink affectionate consumers may also buy from HC a specialised preparation machine, the Velvetiser. Other cocoa mixes are made for cooking or baking.

The kinds of chocolate-based confectionery products one can get from Mars are largely different. The chocolate-making business of the Mars family was founded by Frank C. Mars in 1920, later established as ‘Mars, Incorporated’. From its early years, Mars specialised in confectionery chocolate candy bars (e.g., Milky Way, 3 Musketeers, Mars, Snickers). Later it added its chocolate candy balls (e.g., Skittles, M&M’s). His son Forrest Mars Sr. moved to the UK in 1930 and founded Mars Inc., which remains a strong arm of Mars to these days. Frank the father stayed in the US where he died in 1934.

Forrest Mars Sr., his successor, stayed in the UK for ten years and returned to the US in 1940, wherein he established the M&M’s brand. It took five more years, however, until in 1945 M&M’s made its major move into the wide consumer market; thereafter it has grown into a $1bn global brand (the famed trade-mark m&m’s appeared in 1950 and became its well-recognised brand logo). Manufacturing operations were expanded in the UK and the Netherlands in 1962. Forrest Sr., who retired in 1969 (passed away at age 96 in 1999), was succeeded by his son Forrest Mars Jr. In more recent times Mars launched notable initiatives such as a programme since 2009 for sustainable farms for growing cocoa and adding nutritional labels on its products globally.

Mars has three main product categories: Snacking, Food & Nutrition (including Ben’s rice, pasta meals with sauces, Asian exotic meals, nutritional products), and Petcare (first introduced in 1935, with food brands such as Whiskas for cats and Pedigree for dogs). The category relevant to this post, however, is Snacking on which we elaborate below.

The Snacking category of Mars entails 33 brands (March 2024), among them: 3 Musketeers (chocolate & nougat centre); Bounty (coconut in milk or dark chocolate coating); m&m’s (coloured candy shells chocolate-filled — initially there were m&m’s bars, but the balls in various colours are better familiar these days); Mars (fusion of chocolate, caramel & nougat); Milky Way (chocolate-malt-flavoured bars); Skittles (bite-sized chewy shell candies); Snickers (“packed with peanuts, caramel and nougat then coated with milk chocolate”, best-selling, since 1930); Twix (caramel cookie bar). In addition, the category includes a range of gums, in particular Orbit / Extra / Freedent (mouth fresheners), Doublemint (chewing gum), and Eclipse (sugar-free gum with mint).

The main issue with the bars & balls confectionery products is that they are primarily candy snacks with chocolate. They are quite unlike classical chocolate products (e.g., in tablets, bars or pralines) where the chocolate is dominant, felt and tastes as such. In chocolate bars of Mars, the filling is often felt more dominant than the chocolate, too chewy and difficult to bite, or sweety. There are many chocolate products with fillings or flavour-added (e.g., orange, marzipan, hazelnut, pistachio) from European countries (e.g., Switzerland, Belgium, Italy, France, Germany and Austria) where chocolate is the salient component in mass or coating. The products of Hotel Chocolat are far more in line with this European form and tradition.

However, there are two brands in the category that stand-out as more chocolate-driven, better aligned with traditions and specialties of chocolate products: Ethel M & American Heritage. They seem to represent genuine, better quality chocolate confectionery. Therefore, they could be a promising bridge to connect with Hotel Chocolat, corresponding with the types and qualities of HC’s products, and the skills and capabilities needed to develop, produce, and market them.

• Ethel M — This brand of quality chocolates was initiated in 1981 by Forrest Mars Sr. after his retirement. The product concept was developed by him “as a tribute to his mother, her recipes and her chocolate”. The typography of the brand name ‘ethel m‘ is probably meant to signal a taste of nostalgy to earlier times — the brand symbolises the legacy of Frank & Ethel Mars family. The range of chocolate “treats” is composed of pralines, tablets and bars. There are dark and milk chocolate variants. The pralines come with fillings (e.g., dark and milk cream, caramel, nuts, fruits, and liqueurs). There are also flavours added to bars and tablets (e.g., peppermint, Tiramisu, lemon). The brand also offers a box of ‘gourmet hot chocolate’ mix (“shaved milk & dark chocolate”). Overall, the selection looks deserving and of good standard.
• American Heritage — This brand of artisanal chocolates was developed in 2006 and is dedicated to telling the story of the history of the American nation through the “archives of chocolate’s historic past” (e.g., recipes from the 1700s). It involves varieties of chocolate formats for eating, drinking, cooking and baking: ‘tasting squares’, ‘tablet bars’, ‘grated chocolate’, and ‘gourmet hot cocoa’. The brand has a unique character and seems more exquisite.
• Note: Regretfully the products from these two brands were not available to the author for tasting, and the impressions are based on verbal descriptions and pictorial images.
• In terms of relevance and proximity (e.g., variety, flavours, capabilities), the Ethel M seems as a closer match with Hotel Chocolat, insofar as Mars is intended on continuing the British brand.

The matter at stake for Mars is of persuading consumers that it has a chocolate culture that fits with Hotel Chocolat in attitude, expertise and approach to chocolate products. The brands Ethel M and American Heritage with their products suggest that Mars may be a ‘fitting parent’ also to Hotel Chocolat. But these are not the brands that Mars is usually associated with and best known for. Therefore, the burden of ‘proof’ for Mars could be heavier. The success of HC in its new home also cannot depend only on the skills and capabilities of Mars in marketing and growing the network of Hotel Chocolat, as Thirlwell counts on in justifying the deal. It is also subject to the knowledge and capabilities of Mars in producing quality chocolates, especially in the days after Thirlwell as CEO.

There are a number of moves that Mars can take to increase the likelihood of acceptance of Hotel Chocolat by consumers as a brand in the hands of Mars. First, the company needs to separate its more authentic chocolate-driven brands from the Snacking category. It may create a new category of (Real) Chocolate that will include Ethel M, Hotel Chocolat, and American Heritage. It can thereby shape and enhance consumer perception of the three brands as chocolate brands. At the same time, it can help in re-shaping and directing the managerial approach in ways that highlight the merits of its category of chocolates. Second, Mars may need to differentiate and distinguish between Ethel M and Hotel Chocolat to consumers, or it may choose to designate them to different segments and even exclusive geographical regions in the world (e.g., Ethel M in the Americas and Hotel Chocolat in UK & Europe). Third, the success of HC under Mars may depend on how the teams of Mars and HC share their knowledge, skills and capabilities in different areas, from product development, brand marketing, to global strategy and distribution — what they can teach each other and how they can help strengthen their brands.

In a press release by Mars (25 January 2024 [4]), the company stated: “With the transaction now complete, Mars is well-positioned to support Hotel Chocolat’s next growth phase and provide the brand with an enhanced platform for growth, in the UK and potentially in new geographies.” In personal statements: Andrew Clarke, Global President of Mars Snacking, expressed his appreciation of Hotel Chocolat and its achievements, and looked forward to partnering with Thirlwell and his team, committed to quality, sustainability and purpose; Angus Thirlwell talked about finding “a true meeting of minds in Mars”, similar values shared, and concluded with looking forward to “seeing the business climb to new heights”. (The values declared by HC were originality, authenticity, and ethics, but it also espoused sustainability.)

The next few years will be critical for Hotel Chocolat. Consumers will have to be persuaded that the brand can maintain its quality, originality, and the spirit of hospitality (e.g., in its shops and café-bars) also with Mars. The drive for growth could be overrated; a focus on excellence, as in quality of products and service, may have to come before further growth and expansion for successful continuity of the brand. Chocolate lovers with true appreciation for quality delicacies would probably want that most.

Ron Ventura, Ph.D. (Marketing)

Sources:

[1] “Mars to Buy Hotel Chocolat £534mn Deal“, The Financial Times (FT.com), 16 November 2023 (registration required).

[2] “Hotel Chocolat Sold to Mars to Enable Global Expansion“, Alec Mattinson, The Grocer (UK), 17 November 2023

[3] “US Giant Mars to Buy Britain’s Hotel Chocolat for $662m“, Reuters, 16 November 2023

[4] “Mars Completes Acquisition of Leading Premium Chocolate Brand Hotel Chocolat“, Mars (News & Stories), Press Release, 25 January 2024.