RMCF expansion presentation

India is chosen country . I will attach case study CompetencyBased on all research and work done prior, create a presentation to convince decision makers of the RMCF of the soundness for expanding into a new market that you have chosen.InstructionsCase StudyReview the case study above and prepare the necessary document as explained below.Rocky Mountain Chocolate Factory(RMCF) has hired you as a consultant to help them with a planned expansion into a new market. In this final step, you need to create a PowerPoint presentation that will be presented to the CEO and board of directors for the RMCF. In this presentation, you need to include the major points covered in the previous modules, and use this information to present a cogent, logical argument for making the expansion into the country or region of your choice. Remember, your goal is to convince the CEO and board of directors that this move will work out for RMCF both from a business point of view and also affect their bottom line in a positive way. You can assume they have read your previous reports, but feel free to bring up major points or information from them to help support your presentation.Based on the case study and other research you conduct:Create a PowerPoint presentation that will be seen by the CEO and board of directors of RMCF.Assume that you will be delivering the presentation, and understand that these people have access to your previous reports that you have written on various points of this expansion.Based on the major points presented in your previous report, you need to create a compelling business case for executing the expansion into the market of your choice. Your PowerPoint should contain the following points in it as you make your overall recommendation in the presentation:Factors important in the expansionMarket expansion method chosenRole and effect of culture in the expansionHow recruiting, marketing, and human resource management will come into playRole of investment in the international businessHow group dynamics will factor in the expansionDetail the organizational design and how the control function ties into the company’s strategyEnsure your PowerPoint has an introduction and conclusion. The conclusion should provide a strong recommendation and an overall strategic reason for making this expansion into the country or region you are choosing. Be sure to follow normal conventions for creating slides, work on keeping verbiage to a minimum on them, and utilize the speaker notes area as the place where you will write out your reasons and verbiage that you will use in the presentation and for each slide.
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Journal of Case Studies
www.sfcrjcs.org
November 2014, Vol. 32, No. 2 p. 27-32
ISSN 2162-3171
Rocky Mountain Chocolate Factory International
Rick H. Mull, Fort Lewis College
Kaori Takano, Fort Lewis College
Stephanie Owings, Fort Lewis College
This case was prepared by the authors and is intended to be used as a basis for class
discussion. The views presented here are those of the authors based on their professional
judgment and do not necessarily reflect the views of the Society for Case Research. Copyright
© 2014 by the Society for Case Research and the authors. No part of this work may be
reproduced or used in any form or by any means without the written permission of the Society
for Case Research.
Introduction
As he sipped his hot tea and looked at the translucent curtain of white obscuring the 14th Green
below his house, the muffled sounds heralded by the season’s first snowstorm put Bryan
Merryman in a pensive mood. As the CFO of Rocky Mountain Chocolate Factory (RMCF), a
publicly traded premium chocolate company created in 1982 and headquartered in Durango,
Colorado, Bryan recognized a significant challenge to the growth and future vibrancy of the
company. He knew only too well that the 2007-2008 financial crisis had a significant impact on
the growth of the firm and that he must rely on all his financial and strategic skills to continue an
incredibly successful track record of growth and financial profitability. Bryan understood that
growth needed to continue, but that it was his responsibility to manage the risk of that growth.
Bryan was proud of the Rocky Mountain Chocolate brand. RMCF nurtured their brand image by
primarily selling their product through franchise outlets. Bryan believed that the careful layout of
the store, the hand mixing of fudge on a marble table so customers could watch, and the smell of
fresh chocolate had contributed greatly to product sales. While other chocolatiers sold their
boxed product online and through department stores, he believed that limiting their sales to
brilliantly lit display cases of fresh chocolate in their franchise stores had been a major
contributing factor toward the high quality image of the product.
Bryan recalled the recent 2007-2008 financial crises and how it resulted in the decision by the
U.S. Small Business Administration to toughen up its loan standards. This tightening of credit
reduced the available capital to his potential franchise owners, which resulted in a decrease in
domestic expansion. The number of new franchises for his company had plummeted from 30-40
annually down to 5-10 annually. He anticipated that this trend would continue for some time,
which prompted him to consider refocusing company expansion to international communities.
Bryan knew that, given the size of the company and the resulting limited financial and human
capital resources, any expansion of the company into foreign markets must be smartly managed
and risk mitigated.
Bryan had loosely contemplated expansion in to a variety of countries and regions such as India,
Japan, Hong Kong, Singapore, China, Taiwan, South Korea, New Zealand, and Australia.
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Journal of Case Studies
www.sfcrjcs.org
November 2014, Vol. 32, No. 2 p. 27-32
ISSN 2162-3171
However, Bryan could not stop thinking about the more than 1 billion potential customers in
India. He saw customers falling like snowflakes to RMCF franchises to purchase their chocolate.
Given the current state of franchise expansion in the U.S. Bryan knew that he needed to decide
soon if the firm should embrace the Indian market or move on to other potential countries (B.
Merryman, personal communication, May 10, 2013).
Profitability
Contrary to other premium chocolate producers, RMCF derived most of its sales from onpremise purchase from within their retail outlets. Many of the on-premise purchases, such as
caramel apples, were also immediately consumed. This was in contrast to other fine chocolate
stores that earned much of their sales from products intended as gifts. Approximately 68% of
RMCF’s revenues came from sales of chocolates, which were manufactured in Durango, to
franchisees. Some products, such as fudge, were hand made in the retail outlet, but all still used
only the raw materials manufactured in Durango. The collection of initial franchise fees and
royalties from franchisees accounted for around 17% of their revenues. The remainder came
primarily from sales at company-owned stores. Table 1 below illustrates this breakdown.
Table 1
Approximate Percentage Sales Revenue by Type for Rocky Mountain Chocolate Factory
During 2009
Franchise Chocolate Sales
Franchise Royalties/Fees
68%
17%
Company-Owned Stores
Chocolate sales
15%
Products prepared on the premises of a typical RMCF franchised store generated an average of
55% of the store’s revenues. These in-store products included fudge and caramel apples. RMCF
believed this on-site production process was a key factor that differentiated their product from
competitors. In their estimation, “in-store preparation of products creates a special store
ambiance, and the aroma and sight of products being made attracts foot traffic and assures
customers that products are fresh.” All products that were made in franchised stores were
produced with RMCF proprietary recipes and from ingredients purchased directly from RMCF
or approved suppliers.
Demand for RMCF products had a distinct seasonality to it. They had significantly higher
demand during the holiday season (mid-December through Easter) and through the summer
vacation months. Many of the purchases made during this high season were boxed items that
were used for gifting.
International Expansion
At this time, RMCF had 10 company-owned, 49 licensee-owned and 296 franchised stores. They
had a presence in 40 states in the U.S. In addition, they had stores in Canada, Japan and the
United Arab Emirates (UAE). Although 97% of their revenues were derived from domestic
sources, much of their recent expansion activities had been overseas.
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Journal of Case Studies
www.sfcrjcs.org
November 2014, Vol. 32, No. 2 p. 27-32
ISSN 2162-3171
RMCF’s international expansion began ten years after its incorporation. In 1992 RMCF entered
into a franchise development agreement with a partner in Canada who was granted the exclusive
right to franchise and operate RMCF stores in Canada. To this point, RMCF had 53 Canadian
stores operating under this agreement. Bryan knew the success that such expansion could
provide. His mind contrasted this success with a similar agreement in 2000 with a partner in the
UAE that resulted in a total of only four RMCF franchise stores to date. Although the UAE had
ranked 4th in GDP/Person at just over $48,000, he had suspected that the UAE population of 5.4
million had driven that slower development. At that time, the United States had a population of
almost 312 million.
Bryan uncomfortably recalled the effect on his firm of the 2007 – 2008 financial downturn in the
United States. Previously, RMCF’s strategy of expansion provided roughly 30-40 new franchises
each year, and allowed entrepreneurs an opportunity to become part of the RMCF family with
only $50,000 in liquid assets, with 90% of store build-out costs financed by the U.S. Small
Business Administration (USSBA). This technique minimized RMCF’s needs for capital to
finance expansion. However, since then, the loan rule changes instituted by the USSBA after the
crisis significantly decreased the pool of potential domestic franchisees. Now potential retailers
needed between $100,000 and $150,000 of liquid assets and the remaining borrowed build out
costs, between $250,000 – $300,000, that needed to be secured by an asset of equal value. As a
result, RMCF new domestic franchises fell to 5-10 new stores each year. The type of
entrepreneurs that had driven RMCF’s domestic success in the past could no longer afford to
become part of the RMCF team. So Bryan felt they needed to consider expanding internationally.
His most recent international expansion, achieved over an agonizing three years, occurred in
April 2012 by entering into a Master Licensing Agreement covering the entire country of Japan.
With the right to open RMCF stores in Japan for its own account and those of franchisees, he had
eagerly anticipated significant success in this new market in the near future, which would
provide a solid financial base for continued international expansion. Although the cost of
shipping the product overseas was higher than within the United States, it was not prohibitive: he
estimated that door-to-door refrigerated shipping to deliver their product to Japan was only
approximately an additional $1/lb.
Expansion Strategy
Historically, RMCF did not have to pursue business partners. Within the United States, the
majority of new franchises had been granted to existing franchisees that wished to expand,
individuals referred by existing franchisees, or to customers familiar with the product. With the
decrease in domestic expansion, the shifting focus to international expansion lead to a different
franchise process than used in the U.S.
Regardless of whether the market is domestic or international, RMCF paid careful attention to
site selection of its stores. Among other things, they considered tenant mix, visibility,
attractiveness, accessibility, level of foot traffic and occupancy costs. About 25% of domestic
franchise locations were found in regional centers such as the Mall of America in Minnesota.
Another 25% were found in outlet malls. Approximately 15% were found in tourist areas such as
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Journal of Case Studies
www.sfcrjcs.org
November 2014, Vol. 32, No. 2 p. 27-32
ISSN 2162-3171
Fisherman’s Wharf in San Francisco and the Riverwalk in San Antonio. There were 13 airport
locations accounting for 5% of domestic franchise locations. Bryan considered their target
demographic group to be the “top of the middle.” Table 2 following reflects this distribution.
Table 2
Retail Store Distribution by Location Type by Type for Rocky Mountain Chocolate
Factory During 2009
Airports
5%
Miscelaneous
30%
Regional
Centers
25%
Outlet Malls
25%
Tourist
Destinations
15%
When RMCF expanded into another nation its strategy was to sign a Master Licensing
Agreement (MLA) with a firm that wanted exclusive rights to sell RMCF products in a particular
geographic area. The MLA granted the right for the partner to both open corporate stores for
their own account and to sell franchises, all, of course, exclusively selling RMCF product. The
franchisee in a location governed by a Master Licensing Agreement would pay a franchise fee
and royalty fees that accrued, in part, to the holder of the MLA and in part to RMCF.
As a result of the financial crisis, RMCF had recently chosen to also pursue a more pro-active
expansion policy. First, RMCF participated in a U.S. Department of Commerce program termed
the Gold Key Matching Service (United States Department of Commerce, n. d.). For a fee, the
Gold Key Matching Service program matched U.S. firms with 4-6 potential partners in a
particular nation. A trade specialist of the U.S. Commercial Service, located in a foreign U.S.
embassy or consulate, would identify potential business partners, narrow the field to the most
promising, and arrange for meetings between them and the U.S. firm. The trade specialist
provided background information on each of the potential partners as well as preparing
customized market research and an industry briefing prior to the business meetings. In addition
to the Gold Key Matching Service program, RMCF also had increased its participation at foreign
franchise trade shows. The show costs were subsidized by the U.S. Department of Commerce as
well.
Together, these strategies revealed several additional international expansion opportunities in
countries and regions such as India, Japan, Hong Kong, Singapore, China, Taiwan, South Korea,
New Zealand, and Australia. Given the development of RMCF as a franchise operation with
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Journal of Case Studies
www.sfcrjcs.org
November 2014, Vol. 32, No. 2 p. 27-32
ISSN 2162-3171
entrepreneurs providing a bulk of the capital required for expansion, Bryan knew that the firm
must employ its limited financial resources cautiously.
Bryan also knew that the chocolate market in India had been booming and was, at that time,
primarily maintained by large multinational corporations using franchisees for new market
expansion (TechSci Research, 2013). A report from the market research firm Mintel Group
suggested that India was currently a fast-growing market for chocolate in the world, and
presented a tremendous untapped opportunity for Western chocolate companies (as cited in
Kavilanz, 2013). According to the report entitled India chocolate market forecast &
opportunities 2018 (TechSci Research, 2013), the Indian chocolate industry had shown a
phenomenal growth average of 15% for several years before 2009, and was expected to continue
to grow at more than 20% annually.
This untapped market opportunity did not go unnoticed by Asian chocolate makers such as
Royce’ Confect Co., Ltd. According to an internet-based business news called SankeiBiz
(“Hokkaidosan choko Indo de,” 2013), Royce’ Confect, a local confectionary company in
Northern Japan had earned a solid reputation, establishing itself in India by having located their
first Indian store in a high-end shopping mall in Mumbai. The company was doing extremely
well with their unique chocolates supported by young women and upper-middle class customers.
The Indian customers tended to love their chocolates even though their popular boxes of
chocolates cost more than $10, in contrast to Western chocolate firms, such as Nestle, who sold
similar sized boxes for less that $1.00.
The Decision Process
As the wind turned the storm into raging patterns of white and gray and he watched the shapeless
figures of snow hurl effortlessly across the sky. How similar to his whirlwind of expansion
activity he thought. His tea now cold with floating snowflakes, he knew that the only way to
make sense of the patterns was to have a plan. Bryan felt that he must approach expansion
cautiously and with a carefully outlined analysis process-a deliberate plan. As he stepped through
the door and out of the raging storm, he decided that he would first gather information on the
economic, cultural, and political aspects of an Indian expansion, compare that data to other
market opportunities, and use this process to drive the increasingly important expansion efforts
of Rocky Mountain Chocolate Factory into the future.
References
Hokkaido san choko: Indo de hyo-ban jou jou [Chocolates made in Hokkaido are very popular in
India]. (2013, October 8). SankeiBiz. Retrieved from
http://www.sankeibiz.jp/macro/news/131008/mcb1310080503007-n1.htm
Kavilanz, P. (2013, February 22). India’s new craving for luxury chocolate. CNN Money.
Retrieved from the Cable News Network website:
http://money.cnn.com/2013/02/22/smallbusiness/india-chocolate/index.html
Rocky Mountain Chocolate Factory Inc. (2012, May 24). Annual report. Retrieved from
http://www.irdirect.net/RMCF/sec_filings/view/annual
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Journal of Case Studies
www.sfcrjcs.org
November 2014, Vol. 32, No. 2 p. 27-32
ISSN 2162-3171
TechSci Research. (2013). India chocolates market expected to cross US$ 3.2 billion by 2018.
Retrieved from http://www.techsciresearch.com/2114
United States Department of Commerce. (n. d.). Gold Key Matching Service. Retrieved from the
Export.gov website: http://export.gov/salesandmarketing/eg_main_018195.asp
Page 32
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