This nationally franchised chocolatier is experiencing growth while other retailers are falling behind. The secret to the success is a focus on quality, family, and perfect chocolate partners. Rocky Mountain Chocolate Factory began as a single location in Durango, Colo. in 1981. Since then, the company has become the largest chocolate retailer in the US and North America in terms of retail units, but it’s never strayed from its founding principles of family, product quality, and atmosphere.
Rocky Mountain Chocolate Factory started franchising in 1982. Bryan Merryman, COO and CFO, said 90% of the company’s franchisees enter into the chocolate business after just one visit to a Rocky Mountain Chocolate Factory store, and many franchisees approach the business as a family affair. “Families, not individuals, get into Rocky Mountain Chocolate Factory, with mom and dad running the store and the kids helping,” he said.
Rocky Mountain Chocolate Factory franchisees are expected to meet net worth and liquidity requirements, which are typical in any industry, but it’s the support the company provides after those obligations are met that give the new owner/operators confidence to start their business. Franchisees come to the Durango headquarters for a discovery day in the factory, touring the facilities and meeting with the executive team to understand the concept.
Franchisees then work with the company’s sales department to select their store location. Once the finances are settled, franchisees come to Durango for seven days of training. Seven days may seem a bit much, but consider this: 55% of the products sold in each Rocky Mountain Chocolate Factory location are made on site.
“There’s a production area in the front of each store where the consumer can watch store-made confections come to life,” said Merryman. “The company was founded with the understanding that certain products have short shelf lives and would be more conducive to in-store production.”
Following the franchisee’s seven-day training period in Durango, when the store is ready to open, the support team travels to the store location to help set up and open for business.
Rocky Mountain Chocolate Factory changed the look and feel of its locations, moving away from a country Victorian look to a modern, upscale kitchen gourmet look. Despite the changes to the design of the stores, the basic principles on which the company was founded remain the same.
“We have always focused on the best quality chocolate that can be produced, using an old-fashioned production process,” said Merryman. “The shift in the style of our stores roughly eight years ago did not change that quality.”
In fiscal year 2009, Rocky Mountain Chocolate Factory opened 38 stores. For FY2010, the company is on track to open 30 to 35 stores. These numbers may seem aggressive considering the current economic climate, but a co-branding partnership with Cold Stone Creamery has set the chocolatier up for continued success.
Of the 30 to 35 stores projected for fiscal year 2010, 15 to 20 are expected to be from new franchisees/licensees and 10 to 15 from co-branded locations with Cold Stone Creamery. Merryman expects the master licensing agreement with Cold Stone to push that number even higher.
“Chocolate and ice cream are a good retail combination since chocolate tends to have stronger sales when ice cream is weak and vice versa,” he said. “It was just a matter of finding the right partner.”
The first nine test locations under the co-branding partnership saw double-digit increases in same-store sales—a tremendous success considering most same-store sales in the retail industry have gone down, not up. Additionally, Cold Stone’s 1,400-store national footprint gives Rocky Mountain Chocolate Factory the chance to expand its presence in retail real estate environments it couldn’t normally break into with its standalone locations.
“Cold Stone is a destination business, and we’re an impulse business,” said Merryman. “Cold Stone has an established customer base in its stores, and we provide a different but strongly performing product line for times when ice cream is seasonally weak. It’s a win-win situation.”
The co-branding relationship with Cold Stone Creamery has brought a few product development ideas, such as candy bars featuring Rocky Mountain Chocolate Factory’s chocolate recipe with Cold Stone Creamery ice cream flavors in the center, but for the time being, those are only ideas. Rocky Mountain Chocolate Factory’s independent brand product development comes from understanding what consumers want.
“Our product development strategy revolves around adding new SKUs to successful pre-existing products,” said Merryman. For example, English toffee is the company’s number one selling SKU. To innovate, the company introduced a dark chocolate English toffee product because consumers are showing more interest in dark chocolate for health reasons.
“We’re not like a kid’s candy company that constantly develops products for short periods of time,” Merryman continued. “When we develop a product, it’s either a seasonal product we expect to repeat each year or a tweak on an existing product.”
Merryman expects Rocky Mountain Chocolate Factory to be one of the few retailers to see significant expansion in the near future. Although part of that will come from the partnership with Cold Stone Creamery, other smaller partnerships will also help.
Rocky Mountain Chocolate Factory has a relationship with Haagen-Dazs to open two or three units per year, as well as a partnership with The Grove, a fresh snack company, to open co-branded and independent locations in airports across the country. The hope, however, is that once the economy recovers and credit becomes available for small business expansion, the number of Rocky Mountain Chocolate Factory standalone stores will grow as well.
“Given the current economic climate, our near-term expansion will be through partnerships,” said Merryman. “We will continue pursuing partnerships with companies where chocolate fits in well with what they’re already selling, but we won’t overlook the growth potential from our franchisee business.”