Earlier this week, Mars, the US's fourth-largest private firm, completed the purchase of upmarket chocolate maker, Hotel Chocolat, in a deal worth over half a billion pounds. The deal signifies a new era for Hotel Chocolat, after a difficult and turbulent few years. The firm has struggled with falling demand for its luxury chocolate this past year, reporting a loss of £800,000, leading many to question why Mars would spend such a fortune on a declining business. Has Mars bitten off more than it can chew?
The chocolatier, which focuses on low sugar and high cocoa content, was originally founded in 1993 by Angus Thirlwell and Peter Harris. The brand was later established in 2003, initially as an online retailer. The owners opened their first store in North London in 2004, and since then, the business has gone from strength to strength, expanding to 131 stores in the UK and becoming a household name in the premium chocolate industry. The pair, who pocketed £140m each following the deal, have come under huge pressure, with many critics attacking their decision to sell their self-made business. However, Thirlwell, who will remain at the firm as chief executive, has hit back, announcing that he will be investing 80% of his payout back into the firm. Thirlwell believes that for Hotel Chocolat to achieve its full potential, “substantial investment” is required, stating that Mars offers a “consumer-centric approach for confectionery”.
The half-a-billion-pound offer represents a massive premium on the chocolate maker’s share price, which was valued by stock market investors at just £191m the day before the deal took place. The chocolatier has blamed inflationary pressures, low consumer confidence, and the high costs of recent Foreign Direct Investment (FDI) efforts on the weak performance of the company over the past year. Following the expansion of the UK company abroad, Hotel Chocolat last year revealed plans to shut down its US stores as a result of huge losses, with its American customer base not taking to the premium chocolate brand to the same extent as their British counterparts. The firm also cancelled its investment in a Japanese joint venture due to increasing losses, although it has now agreed to a new joint venture in Japan.
Andrew Clarke, the global president at Mars, sees the “long-term potential” for Hotel Chocolat, recognising that Mars's huge global and commercial presence, coupled with its extensive supply chain, will provide the right tools to get the firm back on track. Shares in Hotel Chocolat have already surged by 160% since the deal was publicized, with many prospective investors predicting this rise in share price and investing thousands of pounds in the firm, further pushing up the share value. Mars has said that it will use its international influence to expand Hotel Chocolat overseas, stating that recent failures have been due to problems with manufacturing, rather than demand issues.
Despite initial scepticism about the massive overvaluation of Hotel Chocolat, it seems that Mars has made the right choice, with the share price of the company soaring in recent days. However, it remains to be seen whether this investment will be a recipe for disaster or a recipe for success.
Really great post Yazan!