Case study "Rocky Mountain Chocolate Factory" page 794

Introduction
Rocky Mountain factory Inc. was an international franchisor, confectionary
manufacturer and retail operator. RMCF shops were to blend traditional and contemporary style.
The company sought to establish a fun and inviting atmosphere in all locations. Unlike most
other confectionery stores, RMCF shop prepared certain product, including fudge and caramel
apples, in the store while customer could observe store personnel making fudge from the start to
finish because RMCF believe the in-store preparation and aroma of its products enhanced store
ambiance, was fun and entertaining for customer, conveyed an image of freshness and
homemade quality and encourage additional impulse purchases by customer. The factory
typically produces approximately 300 chocolate candies and other confectionery products, using
proprietary recipes developed primarily by its master candy maker. These products include many
varieties of clusters, caramels, creams, melt ways, truffles band molded chocolate. RMCF
maintain the taste and quality of its chocolate and candies using only the finest chocolate and
other ingredients. One of RMCF's trademarks, big, chunky chocolate concoctions, we're created
somewhat by accident.
The retail stores are typically located in tourist areas or factory outlet mall because
RMCF believe that careful selection of store sites was critical to its success, and considered a
number of factors in identify suitable sites, including tenant mix, visibility, attractiveness,
accessibility, level of foot traffic, and occupancy costs.
In fiscal 2002, RMCF opened its first full-service retail kiosk to display and sell the
company products because RMCF believed kiosks were a vehicle for retail environment where
retail environments where real state is unavailable or building cost and or rent factors do not
meet the company's financial criteria. The also believed that kiosks concept enhanced its
franchise expansion program and allowed new franchisees that otherwise would not qualify for
store location, an opportunity to join the RMCF system. The term of franchise agreement was 10
years, and Franchise had the right to renew for additional 10 years term. The company did not
provide prospective franchisees with financing for their store, but had developed relationships
with sources of franchisees financing to which it would refer franchisees.
RMCF control the manufacturing of its own product in order to maintain its high product
quality standards, offer unique proprietary products, manage costs, control production and
shipment schedules, and peruse new or underutilized distribution channels. RMCF's
manufacture, including nuts, caramel peanut butter, creams and jellies and then coating them
with chocolate or other topping. All the process are conducted carefully at every stage of
manufacturing process. RMCF used a combination of manual and automated process at its
factory.
Facts of the case
 Founded in 1981 by Crail and two partners and Incorporated in Colorado in 1982,
RMCF was successful from the start.
 The first franchised stores were opened in 1982 in Colorado Springs, and Park
City, Utah.
 Crail's two partners left the business in 1983.
 In February 1986, Crail took the company public, where it is now found on
NASDAQ under the symbol RMCF.
 Chain Store Age pronounced RMCF founder Frank Crail one of its Entrepreneur
of the year for 1995
 In 2008, RMCF was international franchiser and confectionery manufacturer.
 As of March 31, 2018, there were five company owned and 329 franchised
RMCF stores operating in 38 states (concentrated primarily on the west coast and
in the Sun Belt), Canada and United States Arab Emirates, with total revenues of
$31,878,183.
 There were approximately 1,400 regional center in the United State, and as a
February 29, 2008, there were RMCF stores in approximately 95 ( down from 100
in 2007) of these center, including locations in the Mall Of America in
Bloomington, Minnesota; and Fort Collins, Colorado.
 February 2008, twelve (up from nine in (2007) franchised RMCF stores existed at
airport locations.
 On July 20, 2017, RMCF entered into an exclusive Airport Franchise
Development Agreement (which expires on July 20, 2009) with The Grove Inc.
 The Grove Inc. had the exclude right to open RMCF stores in all airports in the
United States where there were no stores currently operating or under
development.
 The Grove Inc. as of March 31, 2008, operated three store under this agreement.
 As of March 31, 2008, there were 18 (down from 24 in 2007) kiosks in operation.
 January 2008, RMCF was rated the number one franchise opportunity in the
candy by Entrepreneur magazine.
 As of March 31, 2008 there were 329 franchised stores in the RMCF system.
 As of March 31, 2018, there were five company- owned RMCF stores. These
store provided a training ground for company-owned store personnel and district
managers and a controllable testing ground for new products and promotion,
operating and training methods and merchandising techniques, which might then
be incorporated into the franchise store operations.
 The trade name Rocky Mountain Chocolate Factory, the phrases, The Peak of
Perfection in Handmade Chocolate, America's Chocolatier, The Word's
Chocolatier.
  In 2005, new chocolate manufacturing technology was introduced. This new
manufacturing process, called NETZSCH's Choco Easy.
 During fiscal 2008, the RMCF's manufacturing facility produced approximately
2.84 million pounds of chocolate candies, an increase of 4% from the
approximately 2. 73 million pounds produced in fiscal 2007. During fiscal 2008
the company conducted a study of factory capacity. As a result of this study,
RMCF believed its factory had the capacity to produce approximately 5.3 million
pounds per year.
 In January 1998, the company acquired a two- acre parcel adjacent to its factory
to ensure the availability void adequate space to expand the factory as volume
demands.
 Unable to find suitable Shipper, RMCF built its own fleet of brown and bronze
semis. In 2008 RMCF operated eight refrigerated trucks and shipped a substantial
portion of its products from its factory on its own fleet.
 In 2007 RMCF was ranked number 60 in Forbes annual listing of America's 200
Best Small Companies (up from number 124 in 2006).
 Cost of sales increased from fiscal 2007 to 2008 due primarily to increased costs
and mix of product sold.
 As percentage of total royalty and marketing fee revenue, franchised costs
decrease to 23.7% in fiscal 2008, 25.2% in fiscal 2007 and 25.6% in fiscal 2006
due to lower incentive compensation costs.
 Retail operating expenses, as a percentage of retail sales, decrease in costs
relative to the decrease in the average number of company stores in operating
during each fiscal.
 Depreciation and amortization of $783, 00 in fiscal 2008 decrease 10.4% from
the $873,000 incurred in fiscal 2007 due to the sale or closure of four company-
owned stores and certain assets becoming fully depreciates.
Problem
Director
 Directors of RMCF did not receive any compensation for serving on the board. Directors
received compensation for serving on board committees, chairing committees, and
participating in meetings.
Product/ operation
 The Seasonality of the Sales and New Store Openings Can Have a Significant Impact on
the Financial Results from Quarter to Quarter. The sales and earnings are seasonal, with
significantly higher sales and earnings occurring during key holidays and summer
vacation season than at other times of the year, which causes fluctuations in our quarterly
results of operations. In addition, quarterly results have been, and in the future are likely
to be, affected by the timing of new store openings and the sale of franchises. Because of
the seasonality of our business and the impact of new store openings and sales of
 franchises, results for any quarter are not necessarily indicative of the results that may be
achieved in other quarters or for a full fiscal year.
 Franchisees sales of products manufactured by the company's factory generated higher
revenue than sales of store-made or other product. A significant decrease in the volume of
products franchisees purchase from the company would adversely affect total revenue
and the result of operations. Such as decrease could result from franchisees decision to
sell more store-made products or products purchase from third party. This Significant
Shift by Franchisees from Company-Manufactured Products to Products Produced by
Third Parties Could Adversely Affect the Operations.

Marketing
 The company had not historically and did not intend to engage in national advertising.
RMCF focused primarily on local in-store marketing and promotional efforts by
providing customizable marketing materials, including advertisements, coupons, flyers,
and mail-order catalogs generated by its in-house Creative Services Department, and
point-of-purchase materials.
 Lack of awareness of the company
Manufacturing
 Lack of supplies/ stock needed by other Franchisees
 Lack of technology
 Brad awareness
 Because of new manufacturing process, called NETZSCH's Choco Easy. The smaller
companies we're no longer dependent on large chocolate manufacturers and we're now
free to create their own chocolate recipes and to develop their own proprietary chocolate
brands.
Consumer tastes and trends
 Changes in Consumer Tastes and Trends Could Have a Material Adverse Effect on the
Operations .The sale of their products is affected due to the changes in consumer tastes
and eating habits, including views regarding consumption of chocolate.
Ingredients
 RMCF, using only finest chocolate and other ingredients. They used principal ingredients
such as chocolate, nuts which is it is significant price fluctuations and their supply and
price are subject to volatility. The supply and price of cocoa beans, and in turn of
chocolate, are affected by many factors, including monetary fluctuations and economic,
political and weather conditions in countries in which cocoa beans are grown therefore
the availability and price of principal ingredients used in the product are subject to factor
beyond their control.

Franchising program
 Franchisees are independent business operators and are not their employees, and they do
not exercise control over the day-to-day operations of their stores. They provide training
and support to franchisees, and set and monitor operational standards, but the quality of
franchised stores may be diminished by any number of factors beyond their control. They
have limited control to the operation of their franchisee. Consequently, franchisees may
not successfully operate stores in a manner consistent with the standards and
requirements, or may not hire and train qualified managers and other store personnel. If
franchisees do not operate to their expectations, the image and reputation, and the image
and reputation of other franchisees, may suffer materially and system-wide sales could
decline significantly, which would reduce our royalty revenues, and the impact on
profitability could be greater than the percentage decrease in royalties and fees.
Financial position
 The decrease in retail sales resulted primarily from decrease in the average number of
company-owned stores in operation from 8 in fiscal 2007 to 5 in fiscal 2008.
 For the fiscal year ended February 29, 2008, same-store pounds purchased from the
factory by franchised stores decreased 9.1% from the previous fiscal year.94 Fiscal 2007
showed a similar trend with same-store pounds purchased by franchisees decreasing 2.6%
from fiscal 2006.RMCF believed the decrease in same-store pounds purchased was due
to a product mix shift from factory-made products to products made in the store, such as
caramel apples and fudge.
 *Notes receivable balances and related interest income declined in fiscal 2008 because of
two notes maturing or being paid in full compared with fiscal 2007.RMCF also incurred
interest expense in fiscal 2008 related to use of an operating line of credit. Other, net of
$67,000 realized in fiscal 2007, represented a decrease of $9,000 from the $76,000
realized in fiscal 2006, due primarily to lower interest income on lower average
outstanding balances of notes receivable and invested cash.
 *Cash and cash equivalent balances decreased from $2.8 million as of February 28, 2007,
to $676,000 as of February 29, 2008, as a result of cash flows generated by operating and
in-vesting activities being less than cash flows used in financing activities. RMCF had a
$5.0 million line of credit, of which $4.7 million was available as of February 29, 2008,
that bears interest at a variable rate. For fiscal 2009, the company anticipated making
capital expenditures of approximately $500,000,
Alternative solution of the problem It is under the Growth strategy because in order to
expand the company stability this strategy is applicable to RMCF because chocolate is one
product that has continued to be loves by many people all over the world. So there is no
doubt that industry is set for further growth.
Growth strategy
1. Product development – RMCF provide good quality of product by using only the finest
chocolate and other ingredients however they are lack of innovation, of their product or
differentiation in order to adapt the needs and wants of consumer. That suits the demand
 of the market. Chocolate falls under the category of food products. Therefore, consumers
are very critical on the ultimate impact of this product on their health. The recent
reawakening on living healthy and cutting weight is a factor to consider in both design
and marketing phases of RMCF. To ensure that the products are going to appeal to most
customers, the aspects of healthy living will be given much consideration. A lot of effort
should be put on issues that touch on diet and weight cutting. It is possible to come up
with chocolate products, which will not cause obesity and heart related conditions.
Campaigns geared towards promoting this new product will emphasize on countering
famous crusades opposing processed food products. The love of chocolate is an
intangible and precious asset at the firm’s disposal. The company will not face many
challenges in promoting new chocolate

2. Promotion - RMCF is lack of awareness of company and Brad awareness. RMCF did not
engage in NATIONAL ADVERTISING so they must promote of the product that should
support the primary objective of positioning of the brand, which largely depends on the
correct mix of elements of promotion. This means convincing communication with the
consumer, in particular for creating a high level of awareness about the products,
information regarding changes to products, creating an interest and connection with the
consumer with the ultimate goal of leading him to buy the product. Imported brands -
better quality, better/new taste, attractive packaging and availability of the product. These
few elements can be effectively used in creation of promotional messages to consumers.
Methods of promotion of the products may include publicity and sales promotion, and
public relations.

3. Market development - Since RMC is international franchisees and retail. The company
established RMCF stores in five primary environments such as regional centers, tourist
areas, outlet centers, street fronts and airport and other entertainment oriented shopping
center. Each of these environments had a number of attractive features including high
level of foot traffic.

Concentration Strategies
1. Vertical growth- because RMCF consists of taking over another company and this
strategy is somehow beneficiary for RMCF at this time because they tend to be doing
well and if they were to take another place over and run it as they run their own company
things would continue to be well off.

2. Horizontal growth- is spreading into other geographical locations. Horizontal growth is

also something that RMCF is looking to do at this point because expanding into different
geographical areas will benefit them and let them continue to become known all over.
The horizontal growth is huge through franchising at RMCF.

Diversification Strategies
 1. Concentric Diversification- RMCF seems to have a pretty strong competitive position in
the industry world.
2. Conglomerate diversification- comes into play here too and RMCF seems to be pretty
well and in a good spot with their cash making company.
.
Conclusion
The strategy of the company refers to providing solutions on how the company can
transfer the operations from the current position into the desired future position, and achieve the
desired end results. Companies that do business in expanding industries must grow to survive.
Continuing growth means increasing sales and a chance to take advantage of the experience
curve to reduce the per-unit cost of products sold, thereby increasing profits. Through product
development, promotion, market development can help to grow and expand the business in the
future. It is necessary to rationally use resources and to promote coordinated development of the
ongoing activities, to trace the development and the way of its accomplishment. The necessity of
market research is also confirmed as a function of the strategy that provides an efficient and
effective decision making for marketing on a particular market.

Recommendation
Recommended strategy for the Rocky Mountain Chocolate Factory is growth strategy.
The company has doing well they are developing good quality, taste, value and variety of
product. However they are luck of advertisement activities and the awareness of their products
and also they provide/maintain its store atmosphere and ambiance. RMCF has a good
relationship to customer and supplies. With doing very well most the time and being able to fix
what the company needs to, their business and functional strategies that the company use seem to
be working well.