Rocky Mountain Chocolate Factory, Inc. Business Information, Profile, and History

Company Perspectives:

Frank Crail had a dream to raise a family in a quiet, small town environment. Not having a plan to support his dream in Durango, Colorado, the quaint Victorian-era town in which they had chosen to settle, he began surveying the town's local residents and merchants. "It came down to either a car wash or a chocolate shop," recalls the father of seven. "I think I made the right choice." Today, a shop still stands on Main Street, with its sights and smells tempting tourists and locals alike to experience a cornucopia of chocolatey treats. ...

History of Rocky Mountain Chocolate Factory, Inc.

Rocky Mountain Chocolate Factory, Inc. (RMCF) is a leading chain of confectionery stores. The company has about 300 retail locations in the United States (concentrated primarily on the West Coast and in the Sun Belt), Canada, Guam, and the United Arab Emirates, and a 53,000-square-foot factory near Durango, Colorado. The retail stores are typically located in tourist areas or factory outlet malls; all but a handful are franchised. Unable to find a suitable shipper, the company has built its own fleet of brown and bronze refrigerated semis. The factory produces 300 types of candies, and retail stores also produce a number of hand-dipped items using traditional methods. The best-selling items are caramel apples, followed by "Bears" (turtles). One key to the company's success is the experience of many of the confections being whipped up at the stores. Marketing Executive Ed Dudley described it this way in the Rocky Mountain News: "Because all of your senses are engaged, it's about giving the customer a five- to 10-minute vacation."

Creating a Sweet Job in Colorado

The Rocky Mountain Chocolate Factory (RMCF) was built around a location and a lifestyle. Franklin E. Crail had owned a thriving company in Newport Beach, California, that produced billing software for the cable TV industry (CNI Data Processing, Inc.). But he and his wife wanted to raise a family in a small town. They settled in Durango, Colorado, where Crail prospected for an entrepreneurial niche. "It came down to either a car wash or a chocolate shop," he says in the company's official history.

Frank Crail later told Candy Industry he would have been content to open a See's Candy store, but the California company did not franchise. Instead, he enlisted two partners and opened the first RMCF shop on Durango's Main Street on Memorial Day, 1981. The town was something of a tourist attraction, known for its scenic railroad and outdoor recreation. Many future stores also would be opened in vacation spots in order to be close to a large volume of traffic.

The stores themselves became tourist attractions in their own right, with much of the confection-making process on display. Trademarks included hand-dipped caramel apples and fresh fudge, heated in copper kettles and cooled on a 500-pound marble slab. The selection was staggering, with some stores offering 30 kinds of apples, ranging from basic caramel to a gourmet white chocolate and Oreo masterpiece. Wholesale chocolate was sourced from Burlingame, California's Guittard Chocolate Company and other suppliers.

True to its rugged mountain origins, RMCF became known for its big, chunky portions. One of its peanut butter cups was large enough to be called the "Bucket." The chocolate also won awards for taste.

The venture was successful from the start. Although tourist traffic was strong in the summer, locals shopped for gifts for Christmas and Valentine's Day. Crail's partners opened other stores in Breckenridge and Boulder, Colorado, within a year.

The first franchised stores were opened in 1982 in Colorado Springs and Park City, Utah. Crail later told ColoradoBiz that the typical franchisee was a professional who wanted to set out upon a second career in a small, family-oriented town, much as Crail himself had done.

An off-site chocolate factory also was opened in 1982, and Rocky Mountain Chocolate Factory, Inc. was incorporated in November of that year. Crail's two partners left the business in 1983.

Public in 1986

Crail took the company public on the NASDAQ in February 1986. Revenues were about $4.1 million for fiscal 1985-86, up more than 10 percent, though the loss tripled to $146,706. The loss increased to $1.8 million in fiscal 1986-87, when revenues were up to $4.5 million. The company then had 55 stores in 13 states.

Revenues rose 14 percent to $5 million in the fiscal year ended February 28, 1991, and net income slipped to $520,006 from $637,385. Ten of about 64 stores had closed, but the company was opening a handful of new ones. RMCF tested a mail-order catalog for Christmas 1991.

The company posted a loss of $34,000 in 1992 but soon recovered. Revenues were up to $13.6 million by 1995, with net income of $1.3 million. Chain Store Age pronounced RMCF founder Frank Crail one of its Entrepreneurs of the Year for 1995. A survey in Money magazine rated the company's chocolates superior to those from established chocolatiers such as Godiva and Fanny May.

By 1996, RMCF was making about two million pounds of candy a year. Revenues were $18.7 million. It had 350 employees, including 125 at the main factory. There were 162 stores, 45 of which were company-owned, from San Francisco, California, to Hilton Head Island, South Carolina. The company had opened a side venture, FuzziWig's, which sold hard candy (outsourced) for children at five locations.

In the summer of 1996, RMCF created a seven-foot, 430-pound white chocolate alligator for display at the San Francisco Zoo. The replica had more than one million calories and was worth $6,000, reported Candy Industry. Miniature versions were available for purchase.

Retooling in the Late 1990s

There were a couple of major refinements to RMCF's formula in the late 1990s. Most of the company-owned retail operations were closed or sold to franchises, allowing RMCF to focus on franchising and manufacturing. Nine stores were closed in 1997; the restructuring led to a full-year loss of $1.2 million. The company also was automating some of its factory operations after years of making almost everything by hand.

Kansas City, Missouri chocolate giant Whitman's Candies Inc., a unit of Russell Stover Candies Inc., made an offer to buy RMCF for around $16 million in 1999 but was rebuffed by management after RMCF's operating results improved later in the year.

With 125 employees in Durango, Rocky Mountain Chocolate Factory was the town's largest manufacturer, according to ColoradoBiz. It still had 34 company-owned stores. RMCF signed a franchisee in the United Arab Emirates in 2000.

New Look in 2001

A new logo and revitalized packaging were introduced in time for the Christmas 2001 season. Sleek new copper gift boxes were designed to reinforce the association with the copper cooking kettles. The stores were modernized as well. The company's logo was meant to represent swirling chocolate. Only 10 percent of sales stemmed from purchases of gifts, and the company was focusing on increasing that, COO Bryan Merryman told the Rocky Mountain News.

The product line expanded to include no-sugar-added and sugar-free candies. Factory-made products accounted for half of store sales, according to Confectioner; store-made products accounted for another 40 percent, with the remainder coming from other manufacturers. A new factory-made product developed between 2000 and 2002 was a line of licensed chocolates based on the I Love Lucy television show.

The retail concept was being modernized and upgraded to a more high-end feel, noted Confectioner. By this time, there were 204 stores in the United States, plus 23 in Canada and two in the United Arab Emirates. Of these, only four stores in Colorado were company owned; all the rest were franchised. Distribution had expanded to home shopping channels, FAO Schwartz stores, and Costco warehouse clubs.

In February 2002, the company introduced a 250-square-foot kiosk concept for areas where a traditional 1,000-square-foot shop was not feasible. The compact site did include a cooking area. A 125-square-foot kiosk also was developed. These allowed RMCF to open stores in very expensive malls.

RMCF's annual revenues were $19.4 million in 2002. The company was opening more than two dozen stores a year. Stores cost franchisees an average of $175,000 each to open and were averaging $300,000 to $350,000 in sales per year.

RMCF posted net income of $3.1 million on revenues of $23.6 million in the 2004 calendar year. The company had 285 locations in the United States, Canada, Guam, and the United Arab Emirates. Fortune magazine dubbed RMCF one of "America's 100 Fastest-Growing Small Public Companies." RMCF was planning to open between 40 and 50 units per year, an executive told CNBC.

Revenues rose to $24.5 million in the fiscal year ended February 2005, producing net income of $3.3 million. "We were borrowing a little bit here, a little bit there, paying 24, 30 percent in interest rates, whatever it took," Crail told Candy Industry of the RMCF's cash-strapped early days. Those days were long gone by June 2005, when the company announced that it had paid off all of its outstanding debt and had another $2 million in the bank.

Principal Competitors: Alpine Confections, Inc.; Godiva Chocolatier Inc.; See's Candies, Inc.

Chronology

• Key Dates:
• 1981: Rocky Mountain Chocolate Factory (RMCF) is founded by the family of Frank Crail.
• 1982: The first franchised stores open.
• 1986: RMCF goes public on the NASDAQ.
• 1997: RMCF restructures to focus on franchising.
• 2001: The company logo, packaging, and new store interiors are updated.
• 2002: The kiosk concept is developed.
• 2005: The company pays off all outstanding debt.