Rocky Mountain Chocolate Factory

1. Rocky Mountain Chocolate Factory MGMT 436 Group 3 Karla Schaapveld, Jeremy Smith, Mark Bourgoin, Matt Misitano, Diego Elizalde, Jeff Stanton, and Reilly Kindred

2. I. Current situation Jeremy Smith

3. Current situationJeremy smith I. CURRENT SITUATION A. Current Performance • 329 Franchised and 5 Company owned stores • Increasing revenues year to year with $16.7 Million in 2008 • Sales have slowed due to economic downturn but the company is in an excellent financial position to withstand the recession

4. Current situationJeremy Smith B. Strategic Posture 1. Mission • Quality, Taste, Value, and Variety of products • Quality of the product is the number one factor

5. Current SituationJeremy Smith B. Strategic Posture 2. Objectives • Manage money carefully during economic downturn • Slowed expansion and elimination of debt • Maintain a good relationship with employees as well as franchisees

6. Current SituationJeremy Smith B. Strategic Posture 3. Strategies • Adding stores in resort, tourist, street front, and entertainment-oriented locations • RMCF is repurchasing stock as it felt it was undervalued • Owns 8 refrigerated trucks to move products from factory to stores • New line of sugar free candies for the health conscious and those with special dietary requirements • Each store is setup to make product where customers can view and smell the end result

7. Current SituationJeremy Smith B. Strategic Posture 4. Policies • Trucks are sent out from the factories with product for stores but return with ingredients to make more product making the trips more cost effective • Franchisees are held to a high standard of excellence • Company ensures that store locations are spaced apart well and offer the best probability for success • Free samples of fresh products made in stores

8. II. Corporate Governance Mark bourgoin

9. Franklin Crail Chairman CEO President Bryan Merryman Director VP CFO COO Treasurer Lee Mortenson Director Gerald Kien Director Clyde Engle Director Scott Capdevielle Director Rocky Mountain Chocolate Factory Inc.Board of Directors

10. Franklin Crail Chief Executive Officer President Director Bryan Merryman Vice President Chief Financial Officer Chief Operating Officer Treasurer Director Edward Dudley Senior Vice President – Sales and Marketing Gregory Pope Senior Vice President – Franchise Development and Operations Jeremy Kinney Vice President – Finance Jay Haws Vice President – Creative Services Donna Coupe Vice President – Franchise Support and Training Willian Jobson Chief Informations Officer Virginia Perez Corporate Secretary Rocky Mountain Chocolate Factory Inc.Top Management

11. III. External Environment :Opportunities and Threats (SWOT) Matt Misitano

12. External Environment A. Natural Environment B. Societal Environment C. Task Environment D. Summary of External Factors

13. Natural Environment 1. Extreme heat, Rain, Snow, Hurricanes, and Earthquakes negatively affect foot traffic and tourism. Weather conditions also affect crop production. 2. Severe weather conditions exist in all regions of the world and at different times depending on the season and geographic location.

14. Societal Environment 1. Economic 2. Technological 3. Political-Legal 4. Sociocultural

15. Economic forces a. Unstable economic conditions locally and globally are in a recession cycle but there are signs locally that show the economy is trending into the recovery stage which will increase consumer spending. (O) b. Low cost marketing strategy . (O) c. Company owned trucks. (O) d. Hershey and Mars allocating financial resources to increase the premium chocolate products locally and globally. (T) e. Experts forecast that the Gourmet and Organic Chocolate industry will grow to become a $ 2 billion industry by 2007. (O) f. Fixed pricing contracts with vendors for ingredients. (O)

16. Technological Forces a. Increased Internet functionality and security increasing online consumption. (O) b. Dynamic manufacturing processes implemented using advanced planning and scheduling systems with lean processes to reduce and quickly turn over inventory reducing costs and storage space (O). c. Automated machine processes eliminating work previously done by hand increasing the speed, capacity, and efficiency of manufacturing processes. (O) d. New manufacturing process called NETZSCH’s ChocoEasy along with purchased automated factory equipment allowing the development of any size or variety of candy to be cost effectively manufactured using their own proprietary brand. (O) e. Small chocolate manufacturing companies are being bought by huge companies with automated machinery and processes in place to mass produce gourmet chocolate (T). f. Airport’s constructing more motorized walkways decreasing foot traffic and moving potential consumers through terminals faster (T).

17. Political-Legal Forces a. Fair trade regulations and the use of child labor. (T) b. Licensing costs and regulation compliance with health, safety, sanitation, building, and fire agencies from each state where stores are located along with federal regulations for the manufacturing and distribution of food products. (T) c. Trucking regulations from federal, state, and Canadian provinces. (T) d. Import and Export regulations (T). e. Potential for striking labor forces like the 5 day strike by laborers on the Ivory Coast in 2006 due to unbearable working conditions. (T)

18. Sociocultural Forces a. Trends show consumers are supporting chocolate companies that implement ethical practices and follow fair trade regulations. (T) b. Economic recovery leads to an increase in consumer’s disposable income increasing the consumer’s ability to purchase premium goods. (O) c. Research indicates Dark chocolate has health benefits. (O) d. Trends indicate consumers are willing to pay higher prices for organic and gourmet chocolates that they feel are healthier for them. (O)

19. Task Environment The task environment forces that drive industry competition for Rocky Mountain Chocolate factory are: ingredient pricing, geographic locations, regulatory and licensing policies, large corporations entering the gourmet and organic market sectors, the ability to purchase optimal retail locations, and efficient manufacturing and distribution processes. These forces are broken down in the Task Environment and are rated as High, Medium, or Low forces depending on their impact.

20. Task Environment Forces and Ratings a. Threat of new entrants High: Large corporations like Mars and Hershey have positioned themselves to enter the market globally, and there are low entry barriers. (T) b. Bargaining power of buyers Medium: Gourmet chocolate is a leisure product and there are many alternate products and competitors. (T) c. Threat of substitute products or services High: Economic strength and consumer’s disposable income greatly affect gourmet product consumption and lower priced chocolate is very accessible to consumers. (T) d. Bargaining power of suppliers Low: Fixed pricing and alternative supplier options give RMCF leverage. (O) e. Rivalry among competing firms High: Industry growth and increasing entrants into the market pose a threat to RMCF. (T) f. Relative power of unions, governments, and special interest groups Medium: Consumer demand for fair trade and good ethical practices, union demands being met, and government regulations present challenges for RMCF. (T)

21. Task Environment Key factors in the immediate and future task environment for Rocky Mountain Chocolate Factory Inc. • Consumers demand for quality and healthy products as well as adherence to ethical labor practices. • Big name competitors like Mars and Hershey entering the market locally and globally. • Supplier’swillingness to provide ingredients at a fixed cost. • Creditorsability to provide potential franchise owners with loanable funds. Labor unions and employers ability to work together to produce raw materials at a low cost while operating under regulated guidelines. • Government and trade regulations dictate operating guidelines and entrance barriers in the industry. • Interest groups and local communitieswill support corporations that display ethical business practices and protest against businesses that do not follow those guidelines. • Shareholderswill support and invest in profitable business activities and growth as long as profits are realized.

22. Summary of External Factors (EFAS Table)

23. IV. Internal Environment: Strengths & Weaknesses Diego Elizalde

24. CORPORATE STRUCTURE • Incorporated company, operates franchises nationally and internationally. • The company operates as a highly cohesive unit, even though it has an active franchising program. • Some decision making, such as pricing, is left to local stores. However, more important decisions, such as store placement, have to be approved by senior management. • Corporate structure is clear to all company members. Training manual and operating specifications insure that this information is divulged to everyone. • The Corporation’s structure is instrumental to effectively manage its large geographical footprint of franchises.

25. CORPORATE culture • The company values clear objectives and well defined goals. • A review of the case study materials, plus a visit to their company website revealed no considerable sustainability efforts. • Company culture is to adapt quickly and efficiently to challenges, such as establishing its own fleet of refrigerated shipping trucks after finding no suitable 3rd party provider. • Internationalization is an important element of the corporate culture, as evidenced by its international franchising program.

26. Resources • Marketing • Utilizes low cost marketing tactics, such as participation at local events. • Store locations utilize existing customer bases to reduce marketing costs. • National advertising is not a part of the firm’s marketing strategy. • Company utilizes in-store advertising to stimulate impulse purchasing.

27. resources Finance • Company consistently making a profit. • Operating expenses (led by fuel costs) increasing. • Multiple income sources (sales to franchised stores, sales from company stores, and setup fees and royalties from franchises). • Overall financial health is strong with excellent long term prospect. Research and Development • Substantial R&D investment goes into store concept, market research for store placement, and developing inviting spaces to promote sales. • Over 300 recipes created by its Master Candy Maker. • Utilizes company store as testing grounds for new products.

28. resources Operations & Logistics • Strong areas for this firm. • Entrepreneurship has led to extremely streamlined operations. • Perfect blend of in-store production and external purchasing. • Efficient transportation solution by using own truck fleet. Human Resource Management • Most employees are hourly. • Utilizes temporary labor during peak times. • Company emphasizes respect, commitment and professionalism. • Company states wages and benefits are competitive and fair within the industry.

29. Resources Information Technology • Not stated in case study. • Stores operate independently from main corporate structure. • Some aspects of its operation must entail a certain level of Information Technology utilization, such as shipping, and company sales performance, inventory control, and accounting. However, Information technology does not appear to be a critical aspect of the operation.

30. Summary of internal factors(ifas table)

31. V. ANALYSIS OF STRATEGIC FACTORS Jeff Stanton

32. SITUATIONAL ANALYSIS (SWOT) Strengths • High Quality Product (won the 3 heart rating in a blind taste test) • Highly cohesive corporate culture • Strong brand recognition • Careful selection of store sites • Strong Franchise Program (#1 in 2008, Entrepreneur magazine)

33. SITUATIONAL ANALYSIS (SWOT) Weaknesses • Global presence

34. SITUATIONAL ANALYSIS (SWOT) Opportunities • New environments for success -Airport locations -Sport Arenas -Kiosks • Low cost marketing • Fixed price contracts • Company owned trucks

35. SITUATIONAL ANALYSIS (SWOT) Threats • Weather (tourist areas, crop farming) • Competitors -Hershey Foods -Mars Inc. -Godiva Chocolatier -See’s Candies -Fanny May

36. REVIEW OF MISSIONAND OBJECTIVES • Mission • Quality, taste, value and variety of products • Quality of the product is the number one factor • Objectives • Manage money carefully during economic downturn • Slowed expansion and elimination of debt • Maintain a good relationship with employees as well as franchisees

37. REVIEW OF MISSION AND OBJECTIVES • Rocky Mountain Chocolate Factory has continued to maintain its mission and objectives appropriately during times of expansion as well as recession.

38. VI. Strategic Alternatives and Recommended Strategy Reilly Kindred

39. Strategy Development from SWOT-TOWS Matrix SWOTTOWS

40. TOWS- used to create New Strategies Strengths: Weaknesses: Opportunities: SO Strategies WO Strategies -Focus on future -Internal fixes & growth. improvement Threats: ST Strategies WT Strategies -External fixes -for Survival

41. Main Strategy Alternatives: • Corporate Strategies • Stability, Growth and Retrenchment • Business Strategies • Cost Leadership and Differentiation

42. Corporate Strategies • Growth • Concentration • Diversification • Vertical Growth • Horizontal Growth • Concentric • Conglomerate • Stability • Pause/Proceed with Caution • No Change • Profit • Retrenchment • Turnaround • Captive Company • Sell-out/Liquidation

43. Business Strategies • Cost Leadership-lower cost competitive strategy aimed at huge markets and requires efficient operation for general affordable product • Differentiation- aimed at the broad mass market moving a product perceived as unique charging a premium

44. Rocky Mountain Chocolate Factory A. STABILITY ALTERNATIVES 1. Growth Strategy- (horizontal growth through franchising) Pro: Continue reaching and expanding to new markets as profits carry forward. Con: May not allow enough time for thorough planning. 2. Differentiation-(unique product and production process adds mystique) Pro: Viable for above-average earnings for exceptional product resulting in brand loyalty lowering customer’s sensitivity to price. Con: May see losses in hard times because of it being a luxury. 3. Stability Strategy- Pro: Allows for proper training of new franchisees. Con: May result in loss market share. B. RECOMMENDED STRATEGY Growth is the recommended strategy for the Rocky Mountain Chocolate Factory. The total U.S. candy market approximated $29.3 billion of retail sales in 2009, with chocolate generating sales of approximately $16.9 billion. That’s almost 60% of the candy game. RMCF as of March 31, 2010, there were 11 Company-owned, 29 franchisee/licensee owned and 305 franchised Rocky Mountain Chocolate Factory stores operating in 36 states, Canada, and the United Arab Emirates. Franchising, licensing and exporting will help short and long term goals of the company.

45. conclusion Discussion and/or Questions? Thank you for your attention!