Rocky Mountain Chocolate Factory (NASDAQ:RMCF) makes chocolate. In the confectioners industry, RMCF competes against much larger companies such as Cadbury, Hershey's, and Nestle. To compete, RMCF focuses on niche gourmet chocolates that are made with finer ingredients and are more eloquently packaged. This strategy allows the company to franchise its retail stores - all but five of the company's retail locations are owned by franchisees.
However, the company's focus on chocolate means it has missed out on the boom in chewing gum that some of its competitors have profited from. RMCF is also different from other confectionery companies in that its sales are evenly spread across the year, because its products are often given as gifts year-round, while other confectionery companies rely on the period from Halloween through Christmas for most of their sales.
Increased sugar, corn, and milk prices cause increased costs for confectionery companies. RMCF has responded to these rising costs by implementing software systems to boost production efficiency, leading to operating margins increasing from 23.01% to 23.95%.
In 2010 (RMCF's fiscal year ends March 31 of each year), RMCF posted total revenues of $28.4 million, a very small decline from its 2009 total revenues of $28.5 million. This had an adverse effect on its 2010 net income. Between 2009 and 2010, RMCF had its net income decline from $3.7 million in 2009 to $3.6 million in 2010.
The franchising segment markets and sells RMCF products to distributors. RMCF distributes its candies to five company-owned stores, 280 domestic stores, 18 domestic kiosks, and 41 international stores.
RMCF manufactures 300 chocolate candies and other confectionery products such as hot cocoa. Products are sold as boxed chocolates, gift baskets, and special assortments. Manufacturing generates revenue by selling these products from the factory and to vendors.
RMCF competes in the confectioners industry against large-cap companies such as Hershey's, Cadbury, and Nestle. RMCF, a small-cap company, finds strategies to grow in this competitive industry. Instead of selling a broad range of confectionery products such as candy and gum, RMCF sells gourmet chocolates. RMCF produces 300 different gourmet chocolates to be sold in boxes, gift bags, and other assortments.
By producing a niche product, RMCF can focus solely on gourmet chocolate production and marketing. Franchising helps RMCF create a company identity based on its niche product. For example, when consumers shop for gourmet chocolates to give as Valentine's Day or Mother's Day gifts, they recognize RMCF as a specialty store that makes gourmet chocolate sets. Also, producing a niche product allows RMCF to apply more energy to franchising.
Cocoa is RMCF's highest volume commodity, as cocoa is the key ingredient in chocolate production. Milk is an ingredient in RMCF milk chocolates. Corn for corn syrup and sugar are used as base ingredients for chocolates. Unfortunately for all confectionery companies, corn, sugar, and milk prices have increased in the last decade. Confectionery companies that also make chocolates are also affected by cocoa prices that have risen dramatically recently. Since RMCF only produces chocolates, it suffers more than other confectionery companies when cocoa prices rise.
RMCF has improved its operating margins by improving manufacturing efficiency with new software. RMCF implemented the Advanced Planning and Scheduling (APS) software and IBM's Point-of-Sale (POS) system.APS electronically allocates the correct amount of raw materials to precisely meet demand. The POS system gives employees easy access to sales data and identifies inventory trends.
Candy is in the highest demand during the holiday season. RMCF offers chocolates that are appropriate for any holiday -- including Easter and Mother's Day. For Mother's Day, RMCF produces niche boxed chocolates and chocolate assortments. During the Christmas, Easter and Valentine's Day holiday seasons, RMCF makes as many as 100 additional items, including many candies offered in packages specially designed for the holidays. During these three holidays, RMCF doubles its product line to compete with the large-cap companies. RMCF develops special packaging for the Christmas, Valentine's Day and Easter holidays, and customers can have their purchases packaged in decorative boxes and fancy tins throughout the year.  RMCF has a balanced quarterly income statement, as no quarter has sales above 27% of annual sales. Boxed chocolate sets are popular gifts for Mother's Day and Valentine's Day, so RMCF's franchising efforts have made its products popular choices.
|Competition||Rocky Mountain Chocolate Factory (RMCF)||Cadbury plc (CBY)||Mars||Nestle (NSRGY)||Wrigley (WWY)||Hershey (HSY)||Kraft Foods (KFT)||Ferrero|
|Global Confectionery Market||0.11%||10.1%||8.9%||7.7%||5.5%||5.5%||4.3%||4.2%|