Rocky Mountain Chocolate Factory Inc.

http://www.youtube.com/watch?v=yDH5BdbPymw

Timeline

1981: Founded by Crail & 2 partners in Colorado.

1982: Franchised first store in Colorado Springs& Park City,Utah

1983: Co-founding partners left RMFC

1986: RMCF went public(NASDAQ)

1992: Franchise Development Agreement covering Canada with Immaculate Confections Ltd. of Vancouver, BC.

1995:Store concept revised from Victorian décor

1995: Frank Crail announced “Entrepreneur Of The Year” by Chain Store Age

2000:Franchise Development Agreement covering the Gulf Cooperation Council States of United Arab Emirates, Qatar, Bahrain etc

2002: opened first full-service retail kiosk

2002: Won three National Paperbox Association Gold Awards

2007: Entered into Airport Franchise Development Agreement with The Grove Inc.

2008: RMCF owned 5 company owned stores and 329 franchised stores in 38 states

2008: Rated the number one franchise opportunity in the Candy category by Entrepreneur Magazine

Procurement Chain

Cocoa beans from Africa, Mexico

Chocolate from Guittard Choco Factory

Nuts beans from all over the world• Company owned store• Franchised stores

RMCF’s products • Approximately 300 chocolate candies • Other confectionery products are premium ingredients and proprietary recipes• In products include nut clusters, caramels, butter creams, mints and truffles • Special designs packages for seasonal holidays such Christmas, Easter,…• “Finest, highest quality ingredients” with no artificial preservation

50%40%

10%

Products manufactured in RMCF's factoryProducts made in-store Ice-creams,coffee others

Store locations

Regional centers Tourist areas

Outlet centers Street Fronts

Airport and other entertainment-

oriented shopping centers

•1400 centers in US•Concerns of expensive rent structures, competing food and beverage concepts

•110 factory outlets in US

Competitors 1. Scharffen Berger and Joseph Schimidt

•-medium-sized gourmet chocolate companies •-$46.6 million and $61.1million

2. Principal competitors •Alpine Confection Inc., Godiva Chocolatier Inc., See’s Candies Inc., Chocoladefabriken Lindt & Sprungli AG, Fannie May and Ethel M’s/ethel’s

3. Godiva Chololatier •Annual sale - $500million•Franchised retailed stores, company owned stores and distribution •Part of UK group, which is largest consumer goods company in Turkish food industry

4. Chocoladefabriken Lindt & Sprungli •Multiple brand names; Lindt, Ghirardelli, Caffarel, Hofbauer and Kufferle•Lindt & Sprungli; recognized leader in premium chocolate in more than 80 countries

5. Alpine confection Inc •Sale $125 million •Owned many candies company; Maxfield Candy•Produce confections under license for Hallmark and Mrs. Fields

6. See’s Candies •Manufactured over 100varieties of candies and over 200 retail candy shops

7. Wayne Zink and Randy Deer (new competitors)•Endangered Species Chocolate Company •Sale &16million •Natural food stores •Ganic and healthy products made with fair-traded ingredients

S• Socio-

cultural

T• Technologic

al

E• Economic

E• Ecological

P• Political-legal

Steep Analysis

Socio-cultural Factors

•Trend of handmade chocolates

•Premium chocolate to account for 25% of US market; sales predicted at $4.5 billion.

Changing lifestyle

•Rise in demand for premium segment of chocolates

•Focus on chemical and preservatives free chocolates

Status symbol and consumption pattern

•Concerns about exploitation of African workers

•Unethical organizations and fair trade practice

Human rights

•Rising awareness about healthy benefits of cocoa

•Demand for dark chocolate: reduces risk of hypertension, improved sugar metabolism

Health care

•Advertisements in regional and local newspaper

•Customized in-store promotions

•Concerns for Arab and States laws

Localized marketing

Technological Factors

Improvement in telecommunication

infrastructure

Easy to provide ongoing

support to franchises

Transportation network

Aids in delivery

Change in automated machinery

Introduction of NETZSCH’s ChocoEasy

Improved manufacturing

Patent protection

Propriety rights in US and Canada

Application for other expanding

markets

Economic Factors

Inflation

Rising prices Reduce purchasing power

Reduces Per Capita Income

Price fluctuations

changes in price of raw materials

Intra-company trade

Unemployment

Reduces income of people

Lowers demand for premium-chocolates

Economic Factors

Economic Integration

•Reduces trade barriers

Currency Convertibility

•Currency conversion between company and franchises

Credit availability

•Recession- decrease in GDP•Lowers loans

Ecological Factors

Global warming•Changing world temperature might impact plantation

Pollution •The transportation services as well as emission of waste from chocolate factory.

Political Factors

Franchising Regulations and tax laws

Corporate tax and repatriation tax subject to change

External Factors Weight Rating Weighted Score

Comments

Opportunities1) Growing demand in new markets2) Low-fat healthier snacks and

health-related benefits of chocolate

3) Growth remained for gourmet (higher-priced premium segment)

4) Consumption of confectionary are still high

5) Change in trend from mass-produced to handmade chocolates

0.150.05

0.15

0.1

0.05

33.5

2.5

2.5

4

0.450.175

0.375

0.25

0.2

1) increasing at a rate of 25% a year in the Asia-Pacific region and 30% in China

2) Diabetes, heart-attacks, low blood pressure , low cholesterol level

3) 25% in market, Russia is key market for European growth

4) Western Europe and North America; market are most mature but consumption is high

5) Premium chocolate to account for 25% of US market; sales predicted at $4.5 billion

Threats1) introduction of new

manufacturing process called NETZSCH’s Chocó Easy

2) The supply and price of the ingredients Coco bean subjects to volatility

3) Competitors are stronger and greater and high local confectionary competition

4) Economic and consumer trends5) Unethical Issue

0.15

0.1

0.1

0.10.05

3.5

3

2.5

22

0.525

0.15

0.375

0.20.1

1) Smaller chocolate companies are no longer dependent on large chocolate manufacturers

2) monetary fluctuations, economic, political and weather conditions

3) Greater name recognition, financial, marketing, and resources both domestically and globally

4) Consumer changing tastes and eating habits and recessionary forces of U.S economy

5) Exploitation of African workers and preference of ethical firms

Total Scores 1.00 2.8

External Factor Analysis Summary (EFAS Table)

Internal Factors Weight Rating Weighted Score

Comments

Strengths1) Product quality and freshness2) Marketing advantage3) Own trucking system4) attractive stores sizes generate

strong name recognition5) Packaging

0.10.150.050.15

0.05

3.53.544

3

0.350.5250.20.6

0.15

1) Store personal making fudge from start to finish

2) Unique in-store candy demonstrations3) Deliver quickly and cost effectively4) 40 stores at tourist areas, 1400 regional

centers, 95 stores at the mall 5) won 3 National Paperbox Association

Gold Awards in 2002, copper package

Weaknesses1) Small store sizes and inventory

storage2) No patent protection for recipe

3) Franchisees sell more store-made products or products purchased from third-party suppliers

4) Company owned only 5 stores

5) Little practice of mass production

0.1

0.15

0.15

0.05

0.05

2.5

3

2.5

2

2.5

0.25

0.45

0.375

0.1

0.125

1) 1,000 square feet, approx. 650 of which is selling space

2) Registration for trademarks, service marks, symbols, slogans, logos and emblems, but not for invention

3) Adversely affect total revenue and operations of company

4) Company focus on franchising more ( more than 280 franchises stores )5) large confectionary companies mostly

concentrated on mass production and have cost effective.

Total Scores 1.00 3.125

Internal Factor Analysis Summary (IFAS Table)

Strategic Factors Weight Rating score SHORT

Inter MediAte

LONG

Comments

S2) Marketing advantage

S4) attractive stores sizes generate strong name recognition

W2) No patent protection for recipe

W3) Franchisees sell more store-made products or products purchased from third-party suppliersO1) Growing demand in new markets

O3) Growth remained for gourmet (higher-priced premium segment) T1) introduction of new manufacturing process called NETZSCH’s Chocó EasyT3) Competitors are stronger and greater and high local confectionary competition

0.1

0.15

0.1

0.15

0.1

0.15

0.15

0.1

3.5

4

3

2.5

3

2.5

3.5

2.5

0.35

0.6

0.3

0.375

0.3

0.375

0.525

0.25

X

X

X

X

X

X

X

X

X

X

X

X

X

X

-Unique in-store candy demonstrations-40 stores at tourist areas, 1400 regional centers, 95 stores at the mall -Registration for trademarks, service marks, symbols, slogans, logos and emblems, but not for invention-Adversely affect total revenue and operations of company-increasing at a rate of 25% a year in the Asia-Pacific region and 30% in China-25% in market, Russia is key market for European growth-Smaller chocolate companies are no longer dependent on large chocolate manufacturers -Greater name recognition, financial, marketing, and resources both domestically and globally

Total 1 3.075

SFAS Table

Financial Analysis

Time-series analysis to check performance over the years.

2004-2008

Ratios covered:1. Return on investment2. Net profit margin3. Fixed asset turnover4. Inventory turnover5. Current ratio6. Debt to asset ratio

1.Profitability Ratios: ROI

2004 2005 2006 2007 2008

ROI 0.129070761822416

0.172311122199147

0.21327961514324

0.257091165560957

0.307254267853893

2.50%7.50%

12.50%17.50%22.50%27.50%32.50%

ROI

%

ROI = Net profit/ total assets

A measure of management’s efficiency, it shows the return on all the assets under its control, regardless of source of financing.

2004 2005 2006 2007 2008 -

2,000,000.00 4,000,000.00 6,000,000.00 8,000,000.00

10,000,000.00 12,000,000.00 14,000,000.00 16,000,000.00 18,000,000.00 20,000,000.00

total Assets Net profit after tax(NOPAT)

year

•Increased sales to speciality markets.•Decrease in general and administrative costs.•Lower depreciation cost.

2.Net profit margin

2004 2005 2006 2007 20080.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%16.0%18.0%

NPM

NPM

Net Profit Margin = Net Profit / sales x 100

Masures after-tax profits are generated by each dollar of sales.

2004 2005 2006 2007 2008

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000

NOPATSales

Increase in sales revenue increase in royalty fees from 5% to 10%.

Activity Ratios3. Fixed Asser Turnover

2004 2005 2006 2007 20080.00000

1.00000

2.00000

3.00000

4.00000

5.00000

6.00000

Fixed Asset turnover

Fixed Asset turnover

Fixed asset turnover = Sales/Fixed assetsMeasures the utilization of the company’s fixed assets (i.e., plant and equipment)

2004 2005 2006 2007 2008

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000

fixed AssetsSales

Fixed assets reduced due to lower company owned stores.

4.Inventory turnover

2004 2005 2006 2007 20080

2

4

6

8

10

12

inventory turnover

Inventory turnover =Net sales/ inventory

Indicates the effectiveness of the inventory management practices of the firm.

2004 2005 2006 2007 2008

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000

Salesinventory

Decrease in inventory due to increase in in-store products(product mix shift).

5. Liquidity ratios: current ratio

2004 2005 2006 2007 2008

cur-rent ra-tio

2.66693764026665

3.56943008639216

3.59054059584431

3.3044456108227

2.35196649395128

0.25

1.25

2.25

3.25

current ratio

current ratioAxis Title

Current Ratio = Current Assets : Current Liabilities

2004 2005 2006 2007 20080

2000000

4000000

6000000

8000000

10000000

12000000

current assetscurrent liabilities

Change in inventories due to increase in in-store production, maturing of notes.

Lower incentive compensation cost.

Leverage Ratio 6. current liabilities to equity

2004 2005 2006 2007 20080.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%

current liability to equity

Current liabilities to equity= current liability / equity x 100

Measures the short-term financing portionversus that provided by owners.

2004 2005 2006 2007 2008

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

current liabilitiesequity

•New line of credit of $300,000.•Increase in accounts payable.•Repurchase of stock; undervalued.

Financial Summary

Ratio AnalysisCurrent ratio BadFixed asset turnover

Good

Inventory turnover

Bad

Current liabilities to equity

Bad

ROI GoodNPM Good

Firm is better with long-term debt management rather than cash management.

Strategic alliance- successful???• RMCF was rated the

Number One Franchise Opportunity in the candy category by Entrepreneur magazine.

• Ranked 60 in Forbes annual listing of Americans best 200 Small Companies.

“Operators are the ones that really

make this company a success.

Strategy

INTERNATIONAL

Franchising and licensing is recommended.

To gain access to distribution channels

To overcome financial ,political and regulation barrier.

Business Level Strategy

Lower cost competitiveness strategy • cost reduction from experiences,

tight cost, overhead control• cost minimization in areas like

R&D, service, sales force, advertising and so on

Cost leadership

RMCF sought low-cost, high-return Cost minimizing in national advertising 1% of monthly sale from each franchised store

Benefits Risks Cost efficiency Defense against competitors Barrier for entrants Above-average returns on

investment Generate high market share High bargaining power to its

suppliers

Negative perception of customers on product value

Standardized products Low attractiveness Easily imitate by competitors Fast technology changing

RMCF sought low-cost, high-return publicity

opportunities through participation in local and

regional events, sponsorship, and charitable causes

No engaging in national advertising

1% of monthly sale from each franchised store

Su Myat Naing 5318123

Manufacturingo new manufacturing

process called NETZSCH’s Chocó Easy

o Speed & cost effective by automated process

Truckingo Deliver quickly and cost

effectively o fill products from 3rd

parties on return trip

RMCF matches with the business strategy

Recommendation Marketing Strategies to focus on ethical

practices of the firm and emphasis on hand-made chocolates to capture handmade chocolates trend and use existing brand recognition to next level.

Do joint venture to increase global presence and use firm’s quality chocolates as defense against competitors as well as to satisfy increasing demand.

Recommendation • Expansion to countries such as Japan and china

would be advisable• China have shown 30% of increasing consumption of

chocolates and 25% in Asia specific. Stores can be open in a place such as Shanghai ,Hongkong and Japan.

Expected Behaviour in China Chocolate confectionery is expected to experience

ongoing healthy constant value growth over the forecast period.

due to leading players further expanding into lower-tier cities and the premium trend in China.

A widening range of gift packs focused festivals will be a strong driver for sales growth.

manufacturers are seeking new sales areas in wedding sales by offering wedding gift packs.

Ferrero and Hershey’s are expected to continue to dominate wedding gift sales

http://www.euromonitor.com/chocolate-confectionery-in-china/report

Approximately-80,000 to 90,000 person per month of tourist

http://www.tourism.jp/en/statistics/

First Class- Five airport

The United States has been Japan's largest economic partner, taking 31.5 percent of its exports, supplying 22.3 percent of its imports

No specific trade agreement with United States.Japan is a high Income country

2008Japan 20082008

Confectionary Consumption in japan

Japanese Confectionery: Market Overview © Her Majesty the Queen in Right of Canada, 2010 ISSN 1920-6593 Market Analysis Report AAFC No. 11181E

Japanese Lifestyle

Indulgent foods such as premium chocolate, functional chewing gum and candy have become popular among Japanese office employees seeking a break from work stress. According to a consumer survey conducted by Datamonitor:• >77% of Japanese consumers believe it is very important

to find a way to escape from their stressful lives; • 16% of Japanese workers snack at work in the morning at

least twice a week.• 44% of surveyed consumers snack in the afternoon

during work hours more Japanese Confectionery: Market Overview © Her Majesty the Queen in Right of Canada, 2010 ISSN 1920-6593 Market Analysis Report AAFC No. 11181E

Consumption pattern

Japanese chocolate consumption in 2008 was equal to more than 6% of the world’s chocolate market value. The Japanese chocolate market is expected to reach $4.6 billion by 2013. Japan’s chocolate market chracterised as:Premium ingredients and functional benefits; Product segmentation that targets very specific

consumer groups; and High-end packaging that provides convenience and

portion control. Japanese Confectionery: Market Overview © Her Majesty the Queen in Right of Canada, 2010 ISSN 1920-6593 Market Analysis Report AAFC No. 11181E

Health Conscious

• Survey revealed that 49% of female and 40% of male Japanese consumers find enhanced nutrients in food and beverages very appealing. Japanese consumers continue to be willing to pay high prices for food products that are perceived to be of high-quality and that offer dietary supplements. Prefer dark and organic chocolate.

Japanese Confectionery: Market Overview © Her Majesty the Queen in Right of Canada, 2010 ISSN 1920-6593 Market Analysis Report AAFC No. 11181E

News article:

Fiat shares surge after deal to buy remaining Chrysler stake• Fiat is about to buy the remaining 41% shares of

Chrysler. It states that with this Fiat might be able to widen Fiat global reach as well as help Fiat lower its cost and compete more effectively with bigger players like Volkswagen

• The new business strategy being used cost leadership. As the firm will appeal to wider market as well as reduce cost from technology sharing.

• http://www.bbc.co.uk/news/business-25571200

News article:

Strategy change helps Washington glazing firm grow 35%• Fendor Ltd is a Washing based firm which specializes in

fire glazing. Due to saturated market of their core service they have diversified their business to high security environments like detention centres and mental health facilities. This diversification has enabled them to achieve growth by 35%.

• The strategy used by them is differentiation strategy because they now reach beyond intended glazing market to security and has differentiated their product from others via products like CleanVent and CleanGuard.

• http://www.thejournal.co.uk/business/business-news/strategy-change-helps-washington-glazing-6558097

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