Montezuma’s searches for buyer as Inverleith heads for the exit

Upmarket chocolate brand Montezuma’s has hired advisors to find a buyer for the business and provide private equity owner Inverleith with an exit, The Grocer has learned.

Professional services firm Grant Thornton is in talks with a number of interested parties to secure new investment for the lossmaking brand.

A City source said a new owner would need to invest in the region of £2m to return the business to profitability, focusing on the grocery channel and away from the network of lossmaking owned stores. They also highlighted the need to put more money into automation at the Chichester factory, where the premium range of chocolate is manufactured, to reduce costs further.

A statement signed off by Montezuma’s board said: “The board recently engaged advisors to explore options regarding investment or a sale and are currently in active discussions on the future of the business and are confident that a way forward will be found that will enable this British independent chocolate manufacturer and brand to continue to provide our extraordinary chocolate to its loyal consumers.”

Montezuma’s has made significant distribution gains in supermarkets, with listings won with Waitrose, Asda, Co-op and others in recent months to add to its presence in Tesco, Sainsbury’s, Booths, John Lewis, Selfridges and with Ocado and Amazon, as well as its mini bars in Costa.

“The brand itself is in a really good place, with significant new listings across the supermarkets, work done to simplify the range and a strong rebranding exercise finished, but it just got clobbered during Covid,” the City source said. “It may have been a very different story if not for that.

“The stores are also not in high footfall locations, so that side hasn’t really recovered post-pandemic either, with the business haemorrhaging costs.”

Inverleith, which has overseen the administration of Farmison and Planet Organic in recent weeks, bought a majority stake in Montezuma’s in 2018 from founders Helen and Simon Pattinson.

The brand has made a loss ever since, with £252k of legal and professional fees related to the deal pushing Montezuma’s into the red in the 2018/19 financial year.

Losses widened to £1.6m the following year as Covid forced the closure of all its retail shops as an non-essential retailer.

According to the most recently filed Companies House accounts, for year ended 31 May 2021, the group made a pre-tax loss of £1.1m despite a 19% jump in revenues to £8.1m as a result of the high-cost burden and a lower margin on rising online sales as shops remained closed.

Sales from the owned shops sank to just £806k in 2020/2021, coming down from £1.7m in 2017/18 when Inverleith bought the business, while online was up to £1.4m versus £365k in 2017/18.

The Grocer understands further losses are also expected in 2021/22 and 2022/23.

The group also expanded the store network to nine strong, with sites in Oxford, Guildford and Southampton opened in 2021, despite the pandemic. Today, Montezuma’s runs seven shops, all located in the south of the UK.

Montezuma’s employs in the region of 150 staff, with about 50 staff in the stores and another 50 in the factory, costing the business more than £3m in 2020/21.

In 2019, a new executive team, led by Bruce Alexander as MD and Carl Moore as finance director, was brought in to take the business to the next stage. However, both parted ways with the company at the end of 2022, with executive chairman Michael Taylor now in charge.

“Over the last three years, Montezuma’s, like many small British food and drink companies, has been hit by three major, unprecedented events: namely the UK impact of Brexit, the Covid pandemic and the recent Russian invasion of Ukraine,” the Montezuma’s board statement added.

“After close to two years of our retail stores being closed, the widely held hope of a post-Covid recovery was immediately thwarted by the Russian invasion of Ukraine and the subsequent extreme inflationary pressures on ingredients and manufacturing costs combined with the decline in UK consumer confidence. Small businesses in the food and drink sector face significant challenges in the current economic environment with limited ability to pass on cost price increases. Despite this, Montezuma’s has seen great distribution gains over the last 12 months.”

The Pattinsons started the business in 2000 with a shop in Brighton and a mission to make ethical chocolate at its Chichester site.

The brand is 100% palm oil free and all the packaging is recyclable, compostable or biodegradable.