Hotel Chocolat

Hotel Chocolat lost £550 million of value in two years.
Then Mars offered £534 million to buy it.

What did Mars see that everyone else had missed?

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THE SETUP

Walk into a Hotel Chocolat and someone offers you a chocolate to taste before you've asked for anything. That's the business model in one move.

Angus Thirlwell and Peter Harris started out selling mints in 1993 and opened the first Hotel Chocolat shop in north London in 2004. The idea was simple.

Posh chocolate that didn't cost a small fortune. More cocoa, less sugar, in a box that looked like you'd spent more than you had. A £6 cracker at one end, a £200 hamper at the other.

Hotel Chocolat made its own chocolate in its own Cambridgeshire factory and sold almost all of it through its own shops and website. No supermarket taking a cut. Even in 2023, a bad year, it kept 58p of every pound of sales after the cost of making the product.

It also knew its customers by name: 2.75 million of them in its loyalty scheme. Then came the Velvetiser, a hot chocolate machine for the kitchen worktop. By 2023 it was in 888,000 UK homes, one in 17 households. Every machine needs refills. Hotel Chocolat sold the refills.

Then lockdown shut the shops. In the year to June 2021 the stores were closed for six months and sales still rose 21% to £165 million because people ordered online. In November 2021 the shares hit 540p and the business was worth around £740 million.

Two years later the shares were at 140p. The stock market valued Hotel Chocolat at about £190 million. Two strategic decisions had gone wrong at the same time and only one of them made the headlines.

Then on the 16 November 2023 Mars offered 375p a share. £534 million in cash, a 170% premium. Thirlwell and Harris owned 27% each and walked away with about £144 million apiece.

Why would one of the biggest food companies in the world pay nearly three times the market price for a business that had just spent two years going backwards?

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THE PLAYBOOK

1. Ship the whole shop abroad

At home, one factory in Cambridgeshire fed around 130 shops and a website. The chocolate was made, sold and paid for in one country.

Hotel Chocolat tried to copy that abroad. A joint venture in Japan from 2018, then four of its own stores in New York. Same chocolate, same shops, same prices.

Everything that was cheap at home got expensive abroad.

The chocolate still came from Britain, so every box crossed an ocean and sat in a rented American warehouse before anyone bought it. The shops paid New York rents. And the free taste at the door only works when people already trust the name. Even in Britain, only 23% of people could name the brand unprompted. On a New York street it was significantly less.

Then Covid shut shops in Japan and snarled shipping. Thirlwell later called the timing of the American push terrible. The Japanese partner asked for more money. In July 2022 Hotel Chocolat wrote off £23 million it had lent to Japan and £3 million to close the US stores, which included £6 million of Japanese lease loans written off weeks later. The shares fell as much as 47% in a day.

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Takeaway: your margin at home is built on things you stop noticing, like a factory up the road and customers who already know your name. Take the product abroad and you lose both.

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2. Mistake a lockdown for a trend

The bigger mistake was made at home.

This is what the board saw in 2021 and early 2022. Online sales more than three times their 2019 level. Brand awareness up from 17% to 23% in six months. First-half sales up 40%. American sales up 150% over Christmas 2021. Velvetiser buyers worth more than twice as much as other customers.

So the board went for it. Production capacity was already up 66%, enough for £250 million of chocolate sales. Then in July 2021 it raised £40 million to double the size of the factory. The plan was to turn a British shop business into a “globally ambitious digital-led brand”. Investors believed it too. Early in 2022 the shares traded at 80 times expected earnings.

Every one of those numbers had the same hidden cause. The shops were shut and people couldn't buy a present in person.

When the shops reopened, customers went straight back to them and stopped ordering online. In the year to July 2023, shop sales rose 8%. Sales online and through other retailers fell 24%. The drop was far bigger than the gain, so total sales fell 10%. The costs didn't fall with them. The company was still paying for the bigger factory and the distribution network it had built during the boom. Underlying profit went from £21.7 million to a loss of £0.8 million.

So which mistake did more damage? The overseas failure cost about £32 million. The unwinding at home, with a cost of living squeeze on top, wiped out more than £20 million of annual profit. Japan and New York made the headlines. It was lockdown that did the damage.

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Takeaway: when every number goes up at once, find the one thing they have in common. If that thing is temporary, so is the growth.

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3. Sell the brand to someone who already owns the pipes

By 2023 Hotel Chocolat had found the fix in Japan. It went back with a Tokyo partner, Eat Creator, which put up the money and ran local production across 21 stores. Hotel Chocolat kept a 20% stake and took a royalty on sales. Someone else carried the cost and the brand still earned.

When Mars made its offer, Thirlwell admitted the problem. To grow properly abroad, Hotel Chocolat needed factories and warehouses in each country. It didn't have the money to build them.

Mars did. What it wanted in return was the brand. Mars makes chocolate on a huge scale, but it sells almost all of it through supermarkets and corner shops. It had nothing like Hotel Chocolat: a premium brand with its own shops and millions of customers who buy direct. Mars said it bought the business for its gifting and its shops.

The stock market was valuing a company that had just warned on profits. Mars was valuing a brand it would take decades to build itself. Mars is family owned with no shareholders to answer to, so it could afford to take the long view.

Then it put its money behind the brand. Mars runs its global snacks business from Chicago, so that's where Hotel Chocolat went back into America. The US business was moved into Mars in June 2024. The first two Chicago stores opened in April 2025. By Christmas there were four, including a flagship on Michigan Avenue. New York, Boston and Los Angeles are next.

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Takeaway: the brand and the pipes underneath it are two different assets. If you're brilliant at one, find the business that already owns the other.

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ONE MORE THING

So did Mars get a bargain, or did it bail the founders out of their own mistakes?

The founders did well either way. Harris took his £144 million and retired. Thirlwell promised to put 80% of his share back into the business and stayed on to run it.

Other investors did less well. The funds that paid for the 2021 expansion bought their shares at 355p. Two and a half years later Mars paid them 375p, just 20p more. Anyone who bought at the 540p peak lost about a third of their money.

So far, Mars's numbers don't prove it right. In 2025, its first full year as owner, Hotel Chocolat made £225 million of sales. That's about the same as at the height of lockdown. It opened 20 new UK stores but lost £9.5 million, including £4.3 million spent merging into Mars. It also made less on every box. For every pound of sales it kept 57.5p after the cost of making the product, down from 62p.

So Mars hasn't got a bargain yet. What it has bought is time. It can open shops in Chicago and take a losing year without the share price crashing. Hotel Chocolat never had that as a listed company.

The stock market said Hotel Chocolat was worth £190 million. Mars paid £534 million. The next few years will tell us who was right.

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THE PAPER TRAIL

BBC profile of Angus Thirlwell, 2014

4 minute read

An entertaining origin story: corporate peppermints, mail-order chocolate and the unconventional “chocolate bonds” that helped turn Hotel Chocolat into a high-street business.

https://www.bbc.com/news/business-29689340

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Capitalism is Sweet: Hotel Chocolat’s chocolate bonds, 2014

5 minute read

The story of Hotel Chocolat borrowing more than £4 million from its customers and paying interest in chocolate.

https://www.ibtimes.co.uk/hotel-chocolat-choclate-bonds-peter-harris-469141

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The Retail Exchange interview, 2021

Podcast episode

Thirlwell discusses “retail Darwinism,” Hotel Chocolat’s pandemic ecommerce boom and the growing international appeal of the brand.

https://www.theretailexchange.co.uk/retail-podcast-hotel-chocolat-angus-thirlwell

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Behind the scenes at Hotel Chocolat’s factory, 2025

Video and 6 minute read

A tour of the Huntingdon operation showing the industrial complexity hidden behind the brand: hundreds of chocolate varieties, production of up to 10 million individual chocolates a week and enough Velvetiser capacity for approximately 100 million sachets annually.

https://www.confectioneryproduction.com/feature/56058/exclusive-behind-the-scenes-at-hotel-chocolat/

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