Since June of 2022, I was the board chair. On May fourteenth, I was asked to step in as interim CEO, which I accepted, and at that time, consistent with our company policy about separating the CEO and the chair role, I stepped down. We asked Starla Johnson to step in, which she did, thankfully, and she's provided excellent leadership for us. Prior to May fifteenth, for the last 17 years, I've been the CEO of Global Value Investment Corp, which is an investment firm that happens to own today about 16% of Rocky Mountain Chocolate Factory. I also sit on the board of a public company in New Jersey that's involved in technology called Climb Global Solutions.
I joined their board in February of two thousand and eighteen, and I happen to be the chairman there. I'm the guy who always raises his hand. They say, "Who wants to be chair?" I say, "Oh, I'll do it, fine." And then, I also sit on the University of Wisconsin Department of Economics Advisory Board. It's a nonprofit, of course. I'm a UW grad, studied econ, which has come in handy over the years. So that's a little, just a little bit of background on why I'm sitting here today. I think we make a great product, which is really the reason, and we have some of this on the table, so, don't be shy. At any rate, I'm really happy to have everyone here. This is a new era for the company.
I'm glad to usher that in. An era of openness, transparency, active engagement with investors and the public, and we've really tried hard to reach out to people and get everyone involved. Although to the people in town today, I apologize. I was told by Tracy earlier that we may have been a little delinquent in getting notice of this meeting out. I'm glad everybody's here. Next year, we'll try and do a little bit better on that. So for those people, I apologize. I want to recognize a couple of franchisees that we have here, which is Robin Fryer and then Jeannie Bria and her husband, Steve. If you guys can just raise your hands real quick, so they know. And both Robin and Jeannie happen to sit on our Franchise Advisory Council, what we call the FAC.
We established the FAC maybe eighteen months ago as a mechanism for the company to engage with its customer, and our franchisees are really our customer. And we wanted to have an open dialogue where we could really ask advice, you know, seek input, you know, what are we doing right? What are we doing wrong? What can we do better?
When I joined, and I think it had been on a quarterly basis, said, "Hey, guys, you know, I can talk to you every month." And so we started out, and we had an hour, and we had this huge agenda, and everyone's like, "Oh, we got-- We need to meet more than an hour." I said, "Okay, how about an hour and a half?" And Jeannie the other day said to me, "We could go two hours." I said, "I'll go as long as you guys want, but I, I really appreciate it. You're volunteering your time." And so I have 12 people across our system. Round numbers, we have about 105 unique franchisees. So these 12 are really representatives for them to speak to us.
And so the hour and a half or two they give us every month, it's just a fraction of the time, because I understand other franchisees call you or you call them to kind of query, you know, what's working and what's not. So appreciate that. And to the other ten who aren't here, and I assume most of them are on our Zoom call with us today, thank you guys a lot. It really is extremely helpful. It's instant feedback for us, and you've given us some great ideas, and hopefully, it's been a mechanism for us to communicate back to you some on some of the sticky issues that invariably arise.
Recording in progress.
in a franchise, franchisor or franchisee relationship. So thank you. I'd also like to recognize the board of directors. Currently, the company has a board of five. Starla Johnson, who I mentioned earlier, raise your hand, is our board chair. Charles Arnold, who is joining us today, is our newest member, also chairs our audit committee, which is a really important position on the board, helping us to be compliant with the SEC and keeping our finances in order. Mark Riegel and Steve Craig were unable to join us, but to all four of you, and I'm the fifth director, but I'm considered a non-independent director. The other four are independent. As an operator, as a CEO or interim CEO, I'm no longer an independent.
So, to the four of you, thank you so much for your support, for all of your input and your advice. It's really important, and I know you guys do a lot of work behind the scenes, too. And most importantly, to all of our stockholders who are here today, I thank you. Thank you for your support. This meeting's for you. We know that you guys own the business. Ultimately, we work for you.
Recording stopped.
All right. On an annual basis, the stockholders elect directors, the five of us. The directors' job is really twofold. Number one, hire a CEO. Number two, approve a strategic plan. And then, as governors, your job is to enforce that. Make sure we achieve the plan. If not, fire the CEO. It's pretty simple. That's your job. I'm a little conflicted as both the CEO and a director, but in fact, if I do a bad job, you guys should fire me. And as the stockholders and the owners, really, the quintessential relationship, I work for you. You tell us what to do. If you're not happy, let us know. Call the board.
You should do that, and we're gonna work our rear ends off to try and get it right. Now, everyone up here is an employee, and most everyone up here is also a stockholder, so there's this weird dichotomy, and Tracy in the back reminded me, "I'm a stockholder, too," and I said, "Yeah. Yeah, you are." We're accountable as operators to stockholders, and you're stockholders, you got to hold us accountable. So you got to look in the mirror and say, "I'm holding you accountable to getting the job done," and it's right. It's kind of a weird dichotomy, but that's exactly right. As operators, we owe a service to all of our stockholders here. So the meeting's being held in person and via Zoom for those who couldn't make it, and it's a little tricky to get up to Durango.
For everyone who made it, who traveled into town, I appreciate it. When I came here on May fifteenth, I looked at my wife, and Charlotte and I had a conversation. I hung up with Charlotte, and I said, "Dear, what do you think about moving to Durango for a while?" She said, "How long is a while?" I said, "I don't know." But she said, "Sure, sounds like an adventure." And I think what we learned over time is that it was really important to have the guys that were running the company be here and interact on a daily basis. Al Harper, who's one of our new shareholders, and I met maybe two weeks into it. He called me up, he said, "Do you wanna have breakfast?" I said, "Sure." He said,
We met, and he said, "I wanna buy the company." I said, "We're not for sale, but I'd love to have you as a stockholder." He said, "I accept that, but, where do you live?" I said, "Well, I'm from Charleston, but I live here now." He said, "No, but, I mean, where do you live?" I said, "No, really, I live here. I moved here." He said, "Really? You're the first guy in I can't remember how long, who has lived here." It has been so important, and all you guys can attest, I show up to the plant every day. I walk around the office every day. It's so easy to walk into someone's office and say, "Hey, I got an issue." I know we can do this on Teams, but anyone who uses Teams or video, you know, it's not the same.
I go downstairs, like, 95% of the days I've been here, I've been downstairs. I know 80% of those guys by first name. I understand what we're doing downstairs. Critically important. When Tyson says to me, "We need to replace this piece of equipment," all of a sudden, I can say, "Oh, I understand, because I've been walking around and looking at this thing for the last 90 days, and I can see it's an important piece of equipment, and if it breaks, we're in trouble." So having boots on the ground here is important. What I've said to the guys, the guys collectively, the men and women who work here, is I'm gonna stay as long as it takes to get this thing stabilized and back in a really profitable position. But whoever comes in after me is going to live here.
They have to. It's not negotiable, and we hired Carrie as our CFO recently. One of the criteria, you have to live here. You gotta show up. Now, there's exceptions to those rules, of course, and particularly with our business consultants and the people that report up to Donna, I need to put them out in the field. I need them close to their end customer, either whether it's Colorado Springs or Lodi, California, or Charlotte, North Carolina. Better to have those guys remote. It's a little bit of a trade-off, but having most of the people here and showing up every day is critically important. At any rate, the purpose of this meeting is really for us, as your operators, we work for you, to share our views about where we are today, where we're going in the future. This should be a dialogue, really.
This isn't a sales pitch. There's no PowerPoint. There's no slides. We're not here to woo you. We're here to explain to you what we think the business looks like, where we can go, where the opportunities are, what we need to do in order to execute. We have a good business plan in place right now. I've kind of penciled in two and a half hours. I've taught at three universities. I know I can go two and a half hours, but I won't. I want everyone here to have an opportunity to talk to you guys, and so you have a better understanding, really, of the depth of this experience and the skills and the knowledge that everyone here represents.
'Cause I'm one of the newest guys, and I often say to my executive team, "I don't know anything about making chocolate. I'm a finance guy, but I do know something about managing business, and I definitely know a lot about what a good business looks like." I'm gonna hold all these guys accountable because the board's holding me accountable, and you're holding the board accountable to getting this right. So we will go two and a half hours. I promise we'll break in between. If you need to leave a little bit early, when you go out, make sure you grab a box of chocolate on the way. I'd like this to be a dialogue, so if at any point you have a question, just raise your hand. It's just this small, intimate group, so feel free to ask.
Then we have coffee and stuff around here. Before I ask Sean and Carrie to read our legal disclosure, I just want to cue this up. We're gonna talk about really four themes, and then shortly after I got here, I sat with this group and probably another 10 or 15 people. There must have been 20 people that I called together, either in person or remotely. I said, "Guys, we got to figure this out. We got to figure out what really matters." We distilled it down to four items. Number one, data and analytics. We need really good data in order to make analytical decisions about how to run the business. Number two, revenue generation. We've got to increase the top line. We've got to figure out where we sell, where we can be effective at selling.
Number three, production efficiency and output, which was saying to Tyson and company, "Guys, we got to get more capacity. We've got to figure out what can we do better downstairs to manage labor, to manage output, to improve margin." And number four is financial stability and strength. And as everyone here is probably aware, we lost round numbers, $4.5 million last year. We lost almost $6 million the year before. We lost $1.6 million in Q1. So the day I showed up, the mandate was: Get this fixed. Make sure cash flow positive, which meant that's why we're sitting in this room. There's now some amount of austerity here, and everyone said, "You're gonna bring your investors in the kitchen?" I'm like: Well, look, I'm not gonna spend a thousand bucks to go over the DoubleTree.
Why would I? And I think it's an important message to you. We're, we're locking it down. Where we can squeeze expense, we are. Not 'cause we wanna be cheap, but because we've got a business to run. And if I were sitting out there, I would say, "Hey, Jeff, squeeze expense. You're losing money. Figure it out here." So thematically, throughout this conversation today, we're gonna hit on those items, data and analytics, revenue generation, production efficiency, and financial stability. With that, Sean, can you unmute? Hey, Sean Mansouri, are you out there?
Yep, I'm here. Can you hear me?
Yeah, you should be able to hear me. Sean?
Can anyone hear me?
Yep.
Yeah. Okay, Sean Mansouri is the CEO of Elevate IR, which is our external investor relations firm. We have to conduct ourselves according to SEC and Nasdaq rules, and they require us to read the Safe Harbor disclosure. So Sean, if you would do that, please.
Sure. This presentation may contain forward-looking statements within the meaning of Section 27 A of the Securities Act of 1993
and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, that address activities, events, or developments which we expect will or may occur in the future are forward-looking statements, including statements regarding the intent, belief, or current expectations of the company and members of our management team. The words will, believe, intend, expect, anticipate, estimate, predict, and similar expressions are also intended to identify forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks and uncertainties. These risks and uncertainties include, without limitation, the timely availability and acceptance of new products, product mix, market conditions, as well as factors that affect the chocolate confectionery industry in general, among other factors.
The forward-looking statements contained herein are also subject, generally, to other risks and uncertainties that are described from time to time in our filings with the SEC, including our annual report on Form 10-K. Actual results may differ materially from those contemplated by the forward-looking statements, and we undertake no obligation to update or revise our forward-looking statements to reflect future events or circumstances. In addition to US GAAP financial measures, this presentation may include certain non-GAAP financial measures. These non-GAAP financial measures are in addition to, and are not a substitute or superior to, measures of financial performance prepared in accordance with US GAAP. A presentation and reconciliation to the most directly comparable GAAP measures can be found in the company's filings with the SEC. With that, I'll turn it back to Jeff.
Thank you, Sean. So let's get started here. I want to start with the leadership team or executive team, and to preface this, these guys are VPs, senior VPs. They provide input and advice to me. As I've said, I'm not making these decisions in isolation, guys, although I'm responsible for it. I'm definitely going to seek your input. They help develop strategy, and they're. I hold them accountable for the execution of it, much like you hold me accountable for the execution of it. Our CFO is Carrie Cass. She's been here five weeks. Senior VP, Information Technology, Ryan McGrath, 15 years. VP, Franchise Development, Kara Conklin, 10 months. VP, Production, Tyson Snyder, 2 years. VP, Marketing, Kelsey Ferrato, 15 years. VP, Supply Chain and Logistics, Andy Black, 25 years.
VP, Franchise Business Support, Donna Coupe, 30 years. And VP, Franchise Operational Support, Lisa Taylor, 25 years. There's kind of an and it's interesting because we have about half this group, including me, I'm like four months. About half, eight of the or four of the nine are relatively new, under two years. Everyone else is relatively long tenured here. It creates a nice environment for us because the long tenured people help us preserve the legacy, the history, the nostalgia of the company. And the new guys, of course, all come in and ask the stupid question, "Why are we doing it that way?" Which is important because it helps us kind of bring honesty and integrity to the process. It's not, "We've always done it that way." So if we've always done it that way, why?
Because it doesn't really seem to me like that's the smartest way to do it, and sometimes they say, "Well, it is actually the smartest way." But we've got a great balance here. I think everyone is listened to, everyone's respected, everyone has a voice at the table, and culturally, it's really important. And I said to anyone, "My door is always open. If you got an issue, you got a concern, come in." And someone not on this group the other day walked in and said, "Hey, Jeff, I didn't do this last time. I'm doing it this time, and I think we got a problem." I listened to him. We reacted right away. So that, that's a big change in culture. So thank you, guys, all.
Everyone up here, except Andy, is going to have his talking part a little bit later, but stay alert. I might call on you. Jean will be sitting in the back. I might call on you, too. All right. I want to start by talking about our business, and what is our business, really? This might be a little bit of a surprise to you. I'm going to couch it in terms of what are our revenue sources, but the question is, what do we sell? When I asked the guys early on, it was like, "Well, we sell chocolate." I said, "Mm. We sell confections. Mm-hmm. Apples. Yeah. Joy," was one answer. I said, "Yeah, maybe." But I said, "Guys, aren't we a franchise company?
We're in the business of selling franchises." That's what we do. We file a franchise disclosure document, an FDD, every year with the FTC on June thirty. We just finished filing it, and that gives us a license to sell a retail concept where we have premium confections. That's our business. Now, it's not the lion's share of the driver, but it is the picking stock of what we do, because we need new stores in order to expand, in order to sell more product. And we definitely do supply the stores with chocolate and other products, but we're a franchise business. We make a great product, which is why I wanted to put it out on the table for everybody to try, except the caveat, the Rocky Pop's addictive. And I just said, "We're not selling it on e-com." I said, "Are you kidding?
We've got to be selling this. It's like selling Coca-Cola or what are other addictive products? Cigarettes or alcohol. We got to sell this stuff. It's really, and it's good, by the way. But what do we make downstairs? Which is an important question, and we really start by bringing in bulk chocolate from Guittard, which is a California supplier, and they make a really good product for us, by the way. And then we create the bulk, which is what you're looking at here. This is like raw product that is typically shipped to a store, and it's sold in a glass cabinet. But we also put that same product in a box, which everyone, when you walk out of here today, you'll get that. Not all of it lends itself to being put in a package.
Some of it, we put in a tote. Some of it, you can really only buy in the store. And then if you go to one of our stores, you'll see at the store, we also sell store-made products, which primarily is an apple. This is Granny Smith? Yeah, it was mostly Granny Smith. And there was a time when there were, we were short on Granny Smiths around the country, so we tried other apples, and the feedback was like, oh, you got to get back to Granny Smiths. It wasn't our issue. It was, like, the apple grower's issue. But and those we dip in caramel, and then we put all sorts of stuff on it, and there's no limit to what you can put on these.
If you haven't had one, I was a big naysayer, like, I would never eat an apple, and I tried one, I'm like, oh, this stuff is good, especially with what they put on top. The apples are really good. In the stores, we also make fudge in different flavors. We also dip a lot of other products. They all have to be dipped with Guittard. This is a really important point, and it's going to come up again a little bit later. The franchisees, now bear in mind, I said we have, like, a hundred and four, hundred and five unique franchisees. Some franchisees, like, Robin, her brother Jason, run a couple stores. We have a handful of franchisees that are multi-unit operators, which is important for us. I look at it, and I say we have...
In round numbers, we have a hundred and fifty stores, so I have a hundred and fifty petri dishes out there. These are guys that are experimenting with what they can make, and we give them really good product. But part of the appeal of us as a franchisee or as a franchisor, I could say to someone like Robin, "You want to be in business, you can go to McDonald's. They're going to tell you everything to do all day long." But I've heard from the franchisees, listened to them. There's an element of fun, there's an element of creativity, there's an element of innovation that really gets our franchisees excited to get up and come to work every day, and I don't want to diminish that. It's really important.
So when we did a pivot here maybe six-eight weeks ago, and I said, instead of us discouraging the stores from making their own products, we're doing a one eighty. We're going to encourage you. And I said, the petri dish. I said, I got a hundred and fifty R&D departments out there, but these guys are making product. Why wouldn't we, as a company, want to say, "If you can think of a really cool product, send it over here. I'll create nutritionals, I'll create an ingredient list, and I'm going to give you the blessing to sell that in your store." Every once in a while, we're going to have, like, this rock star product that gets developed out in the field at one of our stores. Why wouldn't we do that? Previously, we said, "No, we got an R&D department.
We, we know everything." So it was again a cultural, it was a complete shift. And then we... So we created a Franchise Product Innovation Group, which we call the FIG. We have five people on it now, and again, these are five people that are volunteering their time, and I'm really, really grateful for that. But they'll come, they'll come on, and I brought my R&D guys in. I said, "Okay, guys," and Justin's in the back, so he can attest to this. "Listen up. You're going to get some really good ideas from the field. These are, these are people that are selling to the end consumer. They're going to tell you what they want." So again, a cultural shift.
It's been a big one for us, a lot of adjustment inside, because, like, "Well, we've never done it that way." I said, "Trust me, let's try this for a while." And so far, the feedback's been good. You guys agree on the FIG? Yeah. Yeah, Steve, too. Yeah. Good. But that's new for us. But so if you think about that, again, I've got these 105 people out there that are, they all come from some careers. Some people, like Robin's, been doing this for 20 years, and Jeannie and Steve have been doing it for 20 years, but we have some newer people that have come in, and I've talked to them one by one, but say, "Well, you know, I used to be in marketing. I used to be in advertising.
I've done social media." So I called Kelsey up the other day. I said, "Hey, what if we did something like the FIG and called it, like, the Social Media Development Group that could..." Again, I've got four or five guys who are willing to volunteer their time every month, so I feel like I got these extra employees out here for free. And then I get Kelsey and our internal guys to say, "Hey, share what you're seeing." And so we don't have to develop, we don't have to do all the heavy intellectual here. Let other people help us out on it, and the cost is zero, and we can reject the ideas, so I see zero downside of it. But if you got the innovation group, you got a social media group, the possibilities are unlimited.
As the group of franchisees grow from a hundred and five to something larger, which it will, if we, if we execute our strategy, we're going to bring in a lot of talent. I might even say that Kara over here, who's excellent in developing new franchisees, she's really, really good at it. I got to give her credit for that. I might say to her someday, "Carrie, what we need in a new franchisee is a guy that or gal that does X, Y, or Z." So part of the profile of the new franchisee should fill in the blank for where we as a corporation have a weakness, or we have a kink in our armor that we could fill in at no cost and get outside support. So. I know some of this is new to everybody.
It's a little bit experimental, and I appreciate them going along with it. Any questions on that so far? Yes, sir.
You, the former CEO made a big point of going around and seeing all the franchisees during his short tenure. And it seems like you're putting out geographically dispersed consultants to see them. What's behind that strategy?
Yeah, it's a good question. Let me answer it two ways. The business consultants have always been out there in the field, so Donna's team has existed forever. And in fact, we'll talk a little bit later about the royalty, but the royalty payment, in my mind, is the fee for service for us to put a business consultant inside of a store twice a year and provide a host of other issues. To answer. So that's going on. When Rob was here, he wanted to go see 50 stores in 50 weeks or something like that, and he did, to his credit. And it was that was hard. When I showed up, I said, "You know what? I'm going to work inside out. I've got to make sure I've got financial stability.
I've got the data." As I mentioned, I had to get the mothership fixed. So that was number one. Number two, then I had to get all the people that worked here to buy into where we're going, because it's one thing for me to say it, it's another thing for everyone to start shaking their heads and say, "uh-huh." And I was working seven days. I still do. I just, I mean, it's just like, this is a full-time job, and I can't visit with these guys, you know, and I get. I come in at six, six thirty. As soon as they start showing up, I'm walking around the office and meeting and talking to them and saying, "Here are the critical issues," because it's, I'm trying to get buy-in.
Once I got that, and I think I do, right? I said, "Okay, now it's time to go out. Now I got to go visit my customer." But I wasn't just gonna run around and see fifty guys. During that, the first four months, I probably established, like, telephone relationships with twenty, thirty people, and I've encouraged everybody, and this is new. I've encouraged all the franchisees on either the franchise advisory call, and we also have a business advisory call once a month, which everybody's invited to. I've encouraged everybody, "Here's my phone number. You have a problem, you got a question, call me anytime." I can't go see all of you all the time, but I want to have the dialogue.
My strategy was, let's go inside out, and we only have a couple of franchisees here today, but my experience to date, and I'd ask maybe Starlette and Charles and some other people that interface, Kara interfaces, I think we're hearing really positive feedback from the franchisees, and they haven't seen me, but they've heard me, and they've heard the message. They've seen the changes we're making, and we're making changes as recently as this morning. The way that the franchisees order really needed to be reviewed, and we implemented that. Today is Thursday.
Wednesday morning, 8:00 to 9:00 A.M., we took that site down, we brought it back up, and for the first time since I don't know when, we said, "If there's a product that's out of stock and you go to the online ordering, you can no longer order it." In the past, we allowed that to be ordered, and then we said, "And if it's out of stock," shame on us, we should have all of them in stock, but it happens, "we're going to put the estimated date of when it will be back in stock." And then, Rob, Robin was saying, "Wow, that's revolutionary." I'm like, "This just seems to me to be basic business," and then also, to top it off, we said, "And if you want, put your email address in here, and we'll send you an email to let you know when it's back in stock." So that's a little thing.
Believe it or not, that was a huge lift. It took a lot of time and effort. Gene was sitting in the back. Just raise your hand, Gene. He's done a huge help with this, and he's totally owned it. He's like, "I'm accountable for this," which is great, and that's kind of the culture here, where I'm saying to the guys, "Who's responsible for this? It really matters." So, any other questions? Hey, Linsey. All right. So then the next thing I want to talk about is how do we deliver and who's our customer and who's the consumer? This is a little bit of a nuance. Our customer is the franchisee. Their customer is the person that shows up in the store. That person that shows up in the store is a consumer, but they're not my customer.
My customer is the franchisee, so I've got to make sure that I take care of my customer, and then they'll take care of their customer, which is our consumer. Now, routinely, when we sell product through a franchise store, that's our relationship. But we also have this underdeveloped e-commerce, and the e-commerce gives us an opportunity to go direct to consumer. At that point, I'm potentially selling product directly to one of my franchisee's customers, and I'm--we're really sensitive to that, and it's been a little bit of a pushing point. So it was... And the talk, the FAC, this is where we have the push and tug. I said, "Guys, it's 2024. We have to be online." It's a critical part of our strategy, that we only do $1 million of $30 million, needs to get corrected.
We could pretty easily, in my mind, and this will be forward-looking, so don't hold me to this, we could pretty easily do $10 million of e-com business, and it, it's not a huge lift for us. We have the, we have the capacity, we have the infrastructure. There are a lot of things we could do, but the challenge will be to say to Robin, our franchisee, "If your customer comes and buys on my site and I feel like I'm running around you, can we work something out?" And so what we, what we've developed and we're still thinking about is, is there a way that we can have a revenue share so that if your customer, as defined by, like, a geographic area, shows up on our site and we sell the product, I'm going to share the revenue with you.
It's not perfect, but it's at least an acknowledgment that I'm selling product directly to your customer. The other would be, if your customer, who's part of your loyalty program, shows up on my site, I'm going to share revenue, but at a much higher level. And you say, "Why the differentiation?" Because I think only twenty-one of our stores, some small number of our stores, have a loyalty program. The evidence suggests if you have loyalty programs, you sell more product. So I want to create a carrot that says to the stores, "Put a loyalty program in place." They might say, "Well, we've never done it that way." I said, "You don't have to, but if you do, and your loyalty customer shows up on our site, you get a much bigger slice of the pie." And I think most everyone's probably saying, "Oh, really?
How do we get a loyalty program in place?" Robin's store has thirty-two thousand customers in the... Is that right? Thirty-two thousand loyalty. That's real. And if they happen to show up at our - on our website, she's not doing anything. She has zero risk here other than having shared the loyalty information with us. They're getting money. So this is a win-win because we can deliver on e-com, and I'm stealing Dylan - Dylan's going to talk a little bit later about e-com, but it's an important source of revenue for us, and we haven't really developed that very well. I want to go back to the stores, though. We have a hundred and forty-seven stores today, which includes two company-owned stores. One is right down here, Durango, one's over in Corpus Christi, Texas.
145 franchise stores, three of which are out of the country, in the Philippines. I'm not really sure how that was developed, but the fact that we've got guys in the Philippines means there is a way that we can develop this concept on a global basis. Now, to be clear, plenty of white space in the United States. I'm not feeling like I got to go to the Philippines or somewhere else to grow the business, but the fact that it's working, and I just confirmed the other day... Lindsay, you're here, right? I just confirmed with Lindsay the other day, customer service, we ship product to them. Not that often, but we do, and they sell it, and we collect a royalty, and not in KRW, we collect it in USD.
This is kind of an interesting concept, and Don and I have talked a little bit about how do we identify the unique opportunity on an international basis? And I don't want to spend too much time on that, but what I do want to talk about is this distribution network. And I said to the guys not long ago, "You know, someone called me up, wanted to buy the business." And I said, "What's your interest?" I said, "You don't sell anything that looks like chocolate." They said, "We want the distribution." I said, "Oh, that's interesting, and you're willing to pay us for it?" He said, "You bet." So and I said, "We're not for sale, at least not under those terms." But here's the interesting thing.
If we have 150 locations, and I'm sending a refrigerated truck out twice a month, every two weeks to all those stores across the country, and that has value. It has value because although we're putting chocolate in there today, there are other things we might put into that distribution network in the future, and it would be driven by brand continuity, but most importantly, margin. Is there a way that we can take the same truck, the same fuel, the same distribution, and drive more margin out of it by putting different product into it? And I don't know the answer to that, but I make that point because the network is worth something, and I'm going to suggest to you it's a hockey stick-like relationship.
If I go from one fifty to three hundred to six hundred to twelve hundred, that's not going to be a linear relationship. The value of our, of our network at twelve hundred stores versus a hundred and fifty is going to be infinitely larger. And I don't know the math. That's just Jeff thinking out loud, but I'm just sensing it would be. Now, Andy, who takes care of, procurement and logistics, has a map in his office, like you'd expect, and he's got all these, pins in it where all our stores are. And I said, "How did we ever open a store up here or way over here? There's not another store within three hundred miles of that." and I can't speak to past strategy, but what I said to Kara is, "Come into Andy's office, take a look at all those pins.
You can open stores anywhere you want, as long as it's between two pins, because I got a truck that already goes that way, but I do not want another store up here or down here because it's very expensive to send that truck off the beaten trail." Can we open... We're a hundred and fifty stores today, round numbers. Can we get to three hundred? Definitely. In two... I want to say two thousand and eight, Alicia, you might hold me accountable to this. I think in two thousand and eight, we were three hundred and thirty-six stores. We've shrunk since then. We only have one real competitor, a company that I would look at and say, these guys are, like, kind of a mirror image. They don't do it as well as us, but this is Kilwins. They're up in Michigan.
They're mostly east of the Mississippi, but about maybe a year, year and a half ago, they were bought out by a Southern California PE firm, which I embraced. I said, "Good, now we have real competition, someone that wants to grow and is going to challenge us." They're expanding, and they're expanding this way. They're opening up in Colorado Springs, I just found out. We're opening up in Charleston. I think we do we have a lease on that? So I'm sorry I'm stealing your thunder, but this is important. We're opening up in Charleston, which is where I live, and Kilwins is there, and every time I walk by, it just galls me because I know we can do much better. But they're going to go challenge us more in Charleston.
So I think the competition is going to be really good for us, and here's why. If you're a prospective franchisee, and you call on Kilwins, and you look at Kilwins' offering, you have to look at us, unless you're brain dead, and if you're brain dead, we don't want you as a franchisee. But you should look at us as an alternative, and I think we have a better offering, frankly. And part of that offering is how do we differentiate ourselves? Where I started. We're going to give you the opportunity to be a small business owner, and it's not paint by numbers. It's mostly paint by numbers, but we're going to give you the ability to have some fun, to be creative, to be innovative, and be part of a company, an organization that really values you as a franchisee.
We really want to listen to you, what you do, and your ideas. So, and I want to talk just for a second about the store locations, but more equally as important, and there are two parts to this. What makes a good store? Has to be a good location, we know that, but better, more importantly, we need good operators. And what's a good operator look like? This is Jeff speaking. Has to be financially sophisticated because you're running a business, has to be well-capitalized because I don't want a franchisee that can only open one store. I want a franchisee that can open five or 10 or 20 stores. And why is that? Because I love the 105 people I have. To double the business, I don't want to have to get to know another 105 people.
I'd rather just get to know, like, 10 or 15 people, and each own 10 or 20 stores, and then we can double the business, so for us, for me, the concept is, let's find really good operators. You got to have capital because, and, franchisees, plug your ears here, we can expand using other people's capital, so when you think about our business model, it is asset light. I can grow from 150 to 300 stores, and how much CapEx do I have? Virtually zero. All I've got to do is say to Tyson, "You got to be able to increase your production by 50, 100%," which we can do, but I don't own a lease, I don't have any inventory, I don't have any employees. It's kind of interesting, so we double the business, and where's our risk?
It's just, can we deliver to the, to our franchisees? So getting the right location is number one. Kara will talk about that a little later, but getting the right franchisees is, equally important. So that, that's our core business, and we generate revenue by opening stores. We get a, we get a fee. Selling product into the store, and there's some amount of margin when we sell chocolate, too. But the important part, the most important in my mind, and the most interesting piece of this is the, is the royalty, and this is a, a SaaS-like, software-as-a-service-like opportunity for us. Think about this for a second: I have a hundred and fifty stores, and we take in, I think, $6-7 million annually for royalties.
If I said to Donna and her group, "Go to that same group of stores and increase sales by 5%," and our revenue will go up by 5%. Our royalty revenue will go up by 5%. I would say to Donna, "How much more did that cost me?" She is going to say, "Nothing. I didn't have to hire anyone else. I didn't have to go to the other stores. I need zero extra." It turns out I was saying this to the guys. I said, "One of our most profitable lines of business here is our royalties. The margin on that's close to 50%." Everyone is like, "Really?" I said, "Yeah, and you know what? We can expand that."...
If we work really hard with the stores, so the business consultants, we shifted their whole mandate. I said, "Donna, when your business consultants go in the store, they've got two mandates here: increase sales and improve profitability." And she said, "Why?" I said, "Because if you increase sales, we're gonna get this increased royalty, and then I'll have more money to invest back in the business, which is eventually going to send you guys a dividend. But number two, increase profitability. How are we gonna do that? Better merchandising, better marketing, business planning." So I want my business consultants to go in the store and help the store owners have a strategy, have a business plan in place. And my supposition is, if these store owners start increasing sales and improving profitability and making more money, a couple things are gonna happen.
Either they're gonna call me up and say, "I want more. I want another store," or they're going to refer a friend to us and say, "I don't want another store myself, but I got a friend who wants a store." And by the way, the quality of their life is gonna improve because they're making more money running one of our stores, and I don't see any downside to that, and it really just takes Donna and our field team to go out and deploy a slightly different conversation with our franchisees.
We've talked about this a little bit, and it's kind of in its infancy in terms of how do we execute on this, but it's really a shift, again, culturally, in terms of how do we interface with our franchisee, and it's all in deference to the fact you're sending us a royalty. You should get something for it. It's not like this perpetual stream of income that we don't deliver to. Early on, when I came in, I sat down with Donna. I said, "Let's define the deliverable, and it has to be, we visit the stores twice a year. We have a mystery shopper in twice a year." That's someone that shows up, that's not identified at all. They have a little checklist of things that they look at.
They come back to Donna and her team and say, "Here's what we saw. No one knew we were there." It's really good feedback for us. It helps us keep our franchisees accountable because they don't know who that person is. And then we have 1% national marketing. So every once a year, 100% of 1% of our annual revenue, and I'll just give you round, kind of round numbers here. We have 150 stores. The average unit volume is about $600,000, and this is all public information, which means that back of the envelope, we generate about $90 million at retail, and that's not us. We're about $30 million, but retail is $90 million. But we get 1% of that.
That comes to Kelsey for national, but we also ask our franchisees to spend 1% local. So we have real opportunity to kind of leverage that marketing. And both Kara and Kelsey have talked a little bit about like our brand refresh and how we're thinking about store redesign and really interfacing with our customer and their consumer. All right. Any questions? And I know I'm going over a lot of stuff, and I'm really treating you guys... You're the business owner here. Just stop me at any point if you have questions. Yes, sir.
What's your timeframe for getting to three hundred stores and then maybe getting ahead of myself, but do you have a slide that shows when the franchisee contracts roll off?
I don't have that on a slide. I have that as data. I don't think we make that public. But generally, our franchisees sign a 10-year agreement with two 5-year renewals, and it's mutual. At the end of 10 years, they can either not renew, or I can elect not to renew them, which is pretty important here because we wanna make sure that we're bringing on guys who want to keep going along. I don't have any slides here. Sorry to disappoint you. I just wanted to have a conversation with you guys today. And what was the first part of your question? Oh, the 300 stores. We haven't said really, and I don't want to get out ahead of myself here.
In concept, we ran three hundred and thirty-six stores, so physically, I know we can provide product for that number of stores.
And then follow up.
Yes, sure.
What can you tell me how many franchisees have left in the last five years?
I don't know that number. No, I don't know, but it's probably part of our franchise disclosure document. Yeah, I just don't know that offhand. But it's... And what's your name? Are you Kevin?
Yeah.
Kevin, it's an important point. Assume that somewhere along the way, we might have had a franchisee. Are you with the Durango Herald?
No.
Oh, okay. Because I invited them to come over. I was expecting Tyson to show up, though. There are good locations, there are good operators, there are bad locations, there are bad operators. If we have a good location and a bad operator, I've said to Kara, "I want to create a, the Rocky Mountain franchisee marketplace." We've never done this before. I want to be the intermediary. I want to take an operator that wants out, that's got a good location, and they could be regardless of the operator. If they want out, and it's a good location, I want to keep that store, and I want to match them up with another good operator, someone I can bring in.
So early on, part of that mandate about drive revenue, number two on that list, and those weren't in order of importance because revenue is pretty important, but is if I can preserve a store, why not? So I'd rather not lose any stores. And the evidence that I'm gonna need to provide to every one of you as stockholders here, that our plan is working, is we actually have a year-over-year increase in store count. And I think for the last 10 years, we've probably every year, we've lost stores, so we've got to do a better job, and that's what ultimately, that's why I'm here, is we got to figure out how do we deliver a better product, a better service, and grow this.
And by the way, during that same ten-year period, Kilwins went from 50 to 150, and everyone gave me the excuse, "Oh, it was the economy, it was this, it was that." I said, "What about Kilwins? They were able to do it during, in the same environment, essentially the same product or the same format." So it can be done. We just have to try harder, and we will get that right. And you'll know it, and I'm not going to promise you, but you'll know because you'll look at our quarterly report, and you'll say, "Oh, store count's up." And once we, if we can get...
And I said to Kara, "All I want is positive store count, because if we can figure out how to stop the bleed and get the count going, that means we've unlocked the box." And if we can do that, I know she-- I know we have a really good offering here, and we can add 15, 20, 30 stores a year... I won't be here when that's happening, I assume, unless they really want me to stay on as interim. But so this is a multi-year project, but this business at scale is very profitable, and we're not too far away from scale here. And once we get way beyond scale, then the question is, in addition to making chocolate, the only other thing you make here is money. What are you gonna do with it? And, that'll be a different discussion.
We're not ready to have that today, but we will. Any other questions?
Can you elaborate a little more on your somewhat recent involvement with Al Harper and the train besides buying a significant, you know, share of stocks? Are they also selling product? What other involvement do they have?
Yeah, that's a good question, and I'm sorry, what's your name?
Jody.
Hi, Jody. Al and his son, John, run American Heritage Railways. They own a whole bunch of really interesting assets around the country. We know them mostly for the Durango and Silverton train. Very entrepreneurial. He'll tell you he's in the entertainment business, not the train business, and I think he's right about that. He called me shortly after I got here. Kelsey warned me. She said, "He's gonna wanna buy the business, but you should go have that breakfast with him anyway," which I did. And sure enough, I walked in, and he said, "Hi, I'm Al. I want to buy your business." I said, "Okay. It's nice to meet you.
We're not for sale, but we should talk anyway." And then the second question, and you may have come in after, the second question he said is, "Where do you live?" I said, "I live here." He says, "No, I mean, permanently." I said, "Well, no, I moved out here." He said, "Really? Because that's what this company's been lacking. We need boots on the ground here." He needed somebody to show up every day. By and by, I got to know Al pretty well. By and by, I knew we needed to raise equity. I called out to people that I knew that I thought would be interested in owning some equity here, and I had a list of really good, qualified potential investors. So then it was a question of, could I get the most strategic investor?
And given that they're in Durango and that we're a Durango company, and I've told the Herald explicitly, "We're Durango, we're staying." And the Herald said, "Well, you moved your operations up to Salt Lake City." I said, "Got it. We're staying." "You sold a piece of land over here." I said, "Got it. Non-core." "You sold off a bunch of your trucks." "Not my decision. We need trucks." And so I think I got the Herald understanding we're going to stay here. And that was music to Al's ears, too. He's like, "Good, because we think you guys can be an important part of the community." We're, and by the way, there are a couple of public companies in town. We're the only public company in town that's headquartered here, and we've never taken advantage of that.
And part of it is we've got to be better corporate citizens. So Al said, "Look, I'll introduce you to The Fort, I'll introduce you to Durango Herald, I'll introduce you to anybody else, and by the way, you're going to get calls from all sorts of nonprofits. When they call, let me know. I'll tell you which ones you should give to." So it's been a good relationship with him so far, and they own 13% of the business today. They're long term. They completely understand what we do. In fact, when I showed up there the first day, he said, "If you'd sell the company to me, I've already developed a business plan.
I know exactly what we'd do with it." "You and I should have breakfast more often because I'd love to understand what's in that plan." He said, "Well, we paid a lot of money for it," but eventually I'll get him to tell me what's in the plan. And he's a smart guy. He's a very creative guy, really is. He's a real entrepreneur. So does that answer your question about American Heritage?
Right.
Oh, yeah, yeah.
Operation or just to talk about?
We're talking about it, and they sell a lot of confections through their business. And I'm going to talk a little bit later about specialty markets, which is the third leg of the wheel. If we have the revenue from the store... That's key. E-com is second, third is specialty markets. The American Heritage would fall in the specialty markets. It's not our core business. We'd love to be able to sell product to them, but I'm always going to sell product to my franchisees first. And if you show up online, I'm going to sell it to you before I supply it to anybody else, which could be a Costco or a Williams-Sonoma or someone else. They got to be third in line because we're a franchise business, and we have to deliver to our franchisees.
But with that said, we've had some conversations about products that we might be able to supply for them. So thanks for the question, Jody. Any other questions? How are we doing on time here? It's 9:45 A.M. Why don't I go maybe another... let me just finish up my part, then we'll take a five- to ten-minute break. Does that sound all right? Okay. From the stores, about 60% of what gets sold in the stores is product that we make in Durango, which means the other 40% of that revenue at the store is either product the stores make themselves or product that they source from a third party. And I'll give you a good example. The stores want sugar-free. Sugar-free product is very cumbersome for us here. It's very expensive for us to make.
We happen to have a relationship with a guy out in Indy. I forget where they are. Somewhere out in the Midwest who makes really good sugar-free products, so we said to our franchisees, "If you want sugar-free in your store," and it's only like 2% of our store sales, so it's not meaningful, but it's important for a guy that walks in the store and says, "The only thing... I'm diabetic, you got to give me some sugar-free." And he or she brings all their kids, and they want to buy stuff. So it's important for us to recognize that, so we allow the stores to go to third parties to buy product, but only 60% of that comes from here.
I'm bringing that up because if we double from 150 to 300, it's not the. There's. I'm only obligated to 60% routinely of what gets sold in the store. So I've got a little bit of operating leverage there. Now, of course, I'd like it if the stores would buy more from us, but frankly, at the end of the day, it doesn't matter to us. We're going to collect a royalty. We're going to expand stores. We've got capacity downstairs. We'll fill up downstairs. At some point, we'll be full downstairs. So that's how we're going to grow on a forward basis. I mentioned to you earlier, this capital light model. Really, the only CapEx here, or capital expenditures, that we would have as a company is replacing stuff downstairs.
As you know, when Starla and I came in, we probably had maybe $3-4 million that had been committed in CapEx downstairs that we needed to pay for. We hadn't completely thought through how we were going to pay for it. We figured that out. That's part of the reason we sold the land and some other things, but we've got all that paid for. Tyson and I visited recently. He said, "I probably need another $1-1.5 million in the foreseeable future." Got to figure out how to pay for that. I'm assuming we'll be profitable, we'll be able to. But with that, we can take our productive capacity downstairs up by about 30%. But more importantly, the equipment that he's telling me we need to replace is pretty old.
And I can't afford to lose any equipment downstairs. I just can't afford to have stuff break down that produces product, and everything we sell out of here is pretty important. So, but that's our only CapEx. As we grow, that's all we have to think about funding. Recently, we changed our franchise agreement to an agreement where we get paid a royalty on 100% of the store sales, which will simplify things. We have our 1% national marketing fee, which I discussed a little bit earlier, and we're just wrapping up our investment in our consumer insights and brand repositioning, which is important because that's gonna unleash Kara to go out and sell more stores. It's helpful with Kelsey and some of our marketing efforts.
We haven't. I, I'd hoped by today we'd have something to share with you tangibly, but, the best laid plans, right? So we don't, but you'll see more of that in the future. And this isn't months off. This is, you know, full. Yeah, you know, days, like, weeks, four to six weeks from now, we should have a new product or new designs. And in fact, the guy in South Carolina, we have a guy in South Carolina that's already said, "Hey, give me the plans." So we've got that. We have a guy in down in Brandon, near Tampa. Yeah, we've got a kiosk that's going in. So we're pretty soon, we're gonna start to share with you we've got new stores going up, and I think that's proof positive.
I still have some stores I'm gonna lose, Kevin, to your point, some that I can't help. They're just bad locations that never should have been opened, but at some point all of those will be gone, and we'll be opening new stores, and the new store design that I've seen is really cool. I say it's really sexy. I'm not sure if that's sexist, but it's really a sexy look. It's like, oh, wow, I would want to go in there, and I think when that happens, people are gonna walk by and say, "Oh, wow, I want one of those, too," so we'll drive traffic. We'll drive average unit volume, royalties will go up, but more important, we'll expand stores.
and part of the consumer insights, and I might be stealing what you're gonna say later, Kelsey, is apparently premium chocolate is no longer, like, an indulgent treat. It is now an everyday snack, and, the demographic that we're targeting, everyday snacks three times a week, which I find to be very interesting because... So this chocolate is a snack. Yeah. Which means we have an opportunity to kind of engage with our consumer differently, because in the past, we said, like, this is a, you'll come in once or twice a year. Now we're conceivably saying we're going to see you three times a week. And that's paradoxical for us.
and I, the Rocky Pop, I said to the guys, "You know, when you walk by one of our stores and you smell that caramel, you smell our store before you see our store." It's like, "Oh, where's that coming from?" I wanted to do a kettle full of caramel when you walked in here today, and they said, "Oh, that's going to be really hard to do." I said, "How about the Rocky Pop? It was supposed to have this caramel aroma. It didn't." But that smell, you know, in terms of the senses, you can see, you can talk, you can hear, you can smell. The sense of smell is pretty powerful. We need to do better with that, with all the stores. And Ross is opening a store in Charleston, said, "I want a fan.
I just want to blow it out, the smell out onto the street," to bring people in. So there are a lot of cool things we can do here. As you can tell, I'm still pretty excited about what's going on. I've got a great team of people here. I wanted to turn it over so that you can hear from them. But why don't we do this? It's 9:52 A.M. We've been on 52 minutes. Why don't we take, like, eight to 10 minutes? The men's and ladies' room are down this way. If you just want to get up and stretch a little bit, feel free to. We'll be here if you want to ask us questions. We'll reconvene at the top of the hour. Thanks, guys.
Thank you, everyone, for being very attentive and for your good questions. Jody asked a good question. Jody, are you guys heading out? Before you leave. Yeah, Jody asked a good question, and that is about our bloomer sales, and that's where we take our imperfect product, and we sell it to the public at discounted prices, and it's very popular. The first time I showed up at the airport and said I was from Rocky Mountain, the guy at the Hertz desk said, "Oh, I love your bloomer sales." I said, "What's a bloomer sale?" From time to time, regrettably, and as part of manufacturing, you have product that's out of spec. It's not bad. I get a box of it every day, and it's good.
But Jody said, "When are you bringing the bloomer sale back?" And I go to the gym over here, so does my wife. She does yoga. The ladies say, "When are you bringing the bloomer sale back?" So I said to the guys, "This is. We got to do this. We should do it every month, and we should do it here." Historically, we did it once a year. We rented a place downtown. It was a nightmare. It was very logistically, it was very challenging. I said, "We have a building, we have a cash register, we have people, we have a parking lot, and a lot of people in Durango don't know we're here." When I say, "I work for Rocky Mountain," they say, "Oh, down here on Main Ave?" I say, "No, actually, up in Bodo Park," which is where we are. They're like, "Bodo Park?
You guys have a place up in Bodo Industrial Park?" I'm like, "Yeah, we do, actually." So we're going to do the Bloomer sale. We tentatively, don't hold me to it, is March. I want the snow to melt, and then we're going to set it up out here. We're going to and we'll put an ad in the paper. I already told the Herald, first time we'll do a full-page ad, second time a half page, third time we'll go to quarter pages, and we'll let everybody know the Bloomer sale is back. One day, limited quantities, drive up to the plant, and we'll sell you product. So that's coming back. So if you need to run, I understand, but I just wanted to address that. So moving on here. The question is, what makes Rocky Mountain special?
I'm going to ask Kelsey to jump in and talk about that. Kelsey?
This is the fun part of this.
Oh, yeah. It's good.
I want to talk about numbers. What makes us special? So who here is not familiar with how Rocky Mountain Chocolate Factory was founded? All right, so this gentleman's gonna give a history lesson, these two, that many of you have probably already heard. But Frank Crail, who's our founder, decided that he wanted to raise a family in a small town. He was living in Southern California. Said, "Kind of a hustle and bustle. I want to have a large family of children." He had a young daughter at the time, and so he did a tour of the West and landed on Durango. When he got here, he said, "I want to start a business because I want to get to know people." He was one of the most friendly, outgoing people you'll ever meet.
He loved getting to know anyone and everyone, and so he walked up and down Main Avenue. If you've been in Durango for a couple of hours, you've probably seen our quaint Main Avenue, and he asked people, "What kind of business do you need in this town? And if you're thinking a chocolate shop, you're wrong." They said, "Car wash." And Frank said, "I don't think that's maybe the business for me. What other kind of business would you like to start?" And eventually, it came out that we could use a candy shop. So Frank didn't know anything about making candy. He brought somebody from Southern California that he had known, who had run a candy shop in Southern California called Everett Seely. He had a company called Seeley's Candies, and he brought Everett in to help him learn how to make candy.
He worked sometimes with some professors at Fort Lewis, some chemistry professors, to learn some things about making fudge at altitude and making candy way up here. So we are the highest manufacturer of chocolate in the United States at this altitude. And that can actually create some challenges when we're shipping all over the U.S. to altitudes that are much lower. So it is an art form to create chocolate up here at this altitude. Frank went on to have seven children. Many of them have been involved in the business in various capacities over the years, being franchise owners, working on Donna's team, working for the corporate office, or doing a variety of different jobs here. And then, as you saw, we have a ton of history in the room and all the way down to our manufacturing floor.
So we have folks in the business, Bill, who have been here almost since the beginning, that trained with Everett, that trained with our master candy maker, Randy Pollock, that have been around and are continuing to produce our candies according to these generations-old recipes, the old-fashioned way. If you've ever been in our kitchen, we still do a ton of production here by hand. We are one of the few major manufacturers in the United States that is making candy at large scale by hand and not completely automated. So many people will have a machine where you pour ingredients in one end, and out the other end comes a hand wrap or a wrapped foiled piece of candy. We're not doing that.
There is a lot of artistry and craftsmanship that still goes into what we're making, and there is this legacy of that experience across generations. When Frank started making the business, he had or started the business, he had two business partners, and they quickly decided, "Maybe we want to own a business, too, like this." And so after some time, he said, "Well, we could open another store somewhere else." And so we started to franchise, and Robin's family had actually one of our very first franchises in the system in Colorado Springs, and the store still is open today. And we have many franchisees and many staff members who have multiple generations that have been involved in the business. So Robin's parents ran the business, and now Robin and her brother are running the business.
Steve and Jeannie's children have been involved in the business in various ways, either running stores, working in our field consultant team. And so this business, to us, feels similar to a family. There's some dysfunction in that at times. But mostly, we just really care about each other. For us, this community is our home, as Jeff mentioned. Many of us have grown up here in Durango. Many of us live, work, and play here because we love Durango. We're involved in a variety of different nonprofit capacities or philanthropic things in the community, and we take it very seriously that it is our responsibility to, from the lowest line-level worker up to the shareholders in this room, to steward this business in a responsible way and to show up in the community in a responsible way.
We have a really dedicated workforce here in the factory. It is sometimes a challenge for us because as you who arrived here today noticed, it's not easy to get here. If you don't live in Dallas, Phoenix, or Denver, you've got to go through somewhere else to get here. And it's a challenge because it's a pretty expensive, high-priced place to live. So Tyson will tell you a little bit about what we're doing to combat some of the labor challenges that we've experienced here. And as the Durango Herald kind of asked Jeff about moving to Salt Lake, it's simply our packaging department. At the holiday season, where we spike, the amount of people that we need to really make the packaging work is just a challenge in this area.
But the manufacturing, the assets that we have here in this building, and the importance of Durango and our heritage to the business are so core to who we are and so core to who the brand will be moving forward, that, as Jeff mentioned, we're not going anywhere, and I'm grateful 'cause I grew up here. Additionally, as he mentioned, we're the only publicly traded and headquartered company in Durango, and so we are gonna be taking that much more seriously in the way that we show up, in a philanthropic way and the ways that we support things in the region, and the things that matter most to the business moving forward. And then finally, I think there's been a bit of maybe tug and pull about this kind of perennial question of: Are you a franchisor or a manufacturer?
And with Jeff's leadership coming in, we've really clarified, as he said, that we are a franchisor. And if you look at old interviews with Frank, I've been going through a lot of historical footage that we've had, reading things, looking at video. Frank really believed that the function of the manufacturing facility was to support franchise retail expansion because he wanted to control the production of the product to make sure that the product quality remained intact, that we had traceability, that we were able to get things in and out of Durango, which is not where you'd put a plant today. So that's why we developed the transportation and infrastructure that we have in place to ensure that we had the best quality product going to our stores at all times. But he really says-
...The core of our business is franchise retail. So we're getting back to the heart of that right now, and we are working to reevaluate, you know, who our core customer and consumer are, and make sure that we're in alignment from top to bottom. So I have a tender heart in my place for the Crails. I grew up next door to their children and had candy club with them, which basically means we had a suitcase and a tree fork full of chocolate and candy. And this business, I think there's something very special when you're here in the building, when you're here in Durango, when you see the folks that are so invested in this business and our franchisees, there's something very, very special and magical about it.
I'm very grateful that you're all here today, that you're all here on this journey with us, and that you came to Durango. So thank you.
Thanks, Jody. I'm going to Kara. And, Dylan, are you out there?
I am. Can you hear me?
So, Kara, you want to just talk a little bit about where it goes after this?
Absolutely. So obviously, thank you guys so much for being here today. I'm super happy to see all these faces, new and old. To the franchisees, obviously, you guys mean the world to me, and we could not do it without you, so thank you guys so much. Obviously, there's a couple of things when I came into this role that were really important to me, really wanting to come into a business that was unique, and you know, what we're striving to do, obviously here, is be the franchisor of choice. So since Jeff has come on and this team has been here, we are evolving. There's some change that needs to happen. The other thing that we strive to be here is a confectioner of choice.
When I looked to take this opportunity, my husband actually blindfolded me and made me taste chocolates from all different brands. Every single one, I picked Rocky. Not kidding. And I was like: "Why is it so good? Why is this product so good? What is it?" So then when I, you know, I came, I met with them in person, and Rob, our former CEO, said to me, he's like, "Well," he goes, "both See's and us, we get our product from Guittard, but ours is a couple of grades higher." And he's like, "Ugh, it's the taste. I knew it. I'm not crazy here." So anyways, let's talk about the expansion. We have some target markets that we're looking at. We basically are planning to expand in Boston, New York, Charleston, Tampa, Chicago, Portland, and Seattle. We've already done some deals in Charleston.
We have a current franchisee who exists in our system, who's going to open a location on King Street, right where Jeff is from. So Jeff's really thrilled about that. They plan to open up that market. We're very successful already in North Carolina, but South Carolina is on top for us, so that's obviously very exciting for us. In addition to that, we're doing a deal in Chicago. We have an existing franchisee, Tyson Minnick, who is going to open on State Street. Just finished that deal yesterday, so feeling really good about it. And then also, we have Willie Zamora, who is in Tampa, who currently operates in the premium outlets. He's actually opening Brandon Mall, and it's a really, really great kiosk opportunity for him.
So those are actually three that we're doing. We actually are also currently about to open in Edmonds. We're actually ahead on our construction schedule, which is not normal. So I was very happy to hear that yesterday, and that is actually a new franchisee into our system. They currently are Cold Stone franchisees, but I'm not sure if you guys are familiar with that, but we are co-branded with Cold Stone. We have a little over about 104, 105 locations, and those are licensees for us. So that's another piece of the business that you may have seen out there. So it's a little bit different. But this particular situation, this franchisee was like: You know what, Kara? I really love this brand. I don't want to do a co-brand.
I just want to do Rocky. I want to bring it to Edmonds. Let's figure this out. And we found a really, really great site, so we're really excited about that. We are actually not only focused on street side, but also looking at non-traditional opportunities, airports, travel centers, power malls, premium outlets, lifestyle centers. Our target franchisee, as Jeff mentioned earlier, is a sophisticated operator, well-funded. Franchisees buy into a system. They thrive for consistency. As we analyze our business, we are using data to make decisions. It is so, so important that we're mindful of where we develop, who we develop to, and how we build this business. We take our vetting process seriously as we look to bring new folks into the system.
One thing that I always stress to the team and, you know, anybody coming into this, responsible franchising is really important. We have to make sure we make the right decisions, we find the right people to invest in our business. We ensure that the site selection process and unit level economics make sense. We are uber focused on those unit level economics to increase profitability. We also. The one thing that I really take pride in is we do have a low labor model. I've been in other systems where it's very, very hard, especially when you're getting into like... Okay, we'll use California, the QSRs right now. They have to pay $20 an hour. So we personally do not have to do that. We're not a QSR.
Franchisors, franchisees and franchisors are struggling with that because now they can't afford to pay their staffs. The thing that's unique about us is, as you guys know, most of our products are produced downstairs. Yes, they produce apples in stores. Yes, they produce the store-made. You know, Robin obviously is a great example of that. She's one of our innovators, you know, coming up with creative store-made products, and then obviously going through that approval process to get those things approved, to figure out, will this sell? Is this something that we want to bring and offer throughout the system? We'll also be using the data and analytics to market and drive traffic to our locations. From a site selection standpoint, we currently use SiteZeus.
That basically helps us make sure that we're pinpointing the right locations. We're looking at all the demographics, population, cell phone pings, anything and everything to make sure we're making the right choice. Like Jeff said earlier, we cannot make the wrong decision with real estate. If you have a bad location, you're not gonna succeed. Some of the franchisees get frustrated with me. I'm like: "No, you're not doing that site. We've got to keep looking. Wait, just be patient. We'll find the right location." It's very, very important. Another tool we are actually adding is a tool called Placer.ai, which will help both marketing and development to make informed decisions where we use our spend. For e-commerce, obviously, that's for Kelsey and her team, for also, you know, DoorDash spend.
A lot of our stores are on DoorDash, some are not. I'm like: "Guys, you got to get on DoorDash. It's a no-brainer. It either gets delivered for you or they just come and pick it up." Sales just skyrocket. A franchisee that recently purchased a location for us in Sacramento, the franchisee that originally had that store, guys, he was in our system for 40 years. It's just... He's like, "Kara, I'm too old, can't do DoorDash." She takes it over, she's doing $2,000 a month in DoorDash just by turning it on. That's it. You know, not rocket science. In addition to that, we want to be with their local store marketing. This tool is actually gonna show us from a zip code personality of these people are lapsed users, these people are coming in, these people are not.
So when they go to do their spend, our team can basically go in there and show them who they need to target, where we need to target, so we are not wasting those marketing dollars. We also will be using, as we develop, we've come through an extensive consumer insight study with LWM Payment and Design Well Spent, which we'll talk a little bit more later. Any questions for me on site selection or any of the expansion plans?
Dylan, you out there?
Yeah. Can you hear me?
Oh, we do hear you. Can you put him up here?
Uh, yeah.
Yeah. Thanks. Go right ahead, Dylan. We'll have your picture in a sec.
Okay.
And as you said, Dylan's been with the company six years. He's our marketing manager, works very closely with Kelsey. We'll have him talk a little bit about our e-commerce initiatives.
Thank you, Jeff. Thank you, everyone, for joining us today. E-commerce presents an exciting opportunity to serve our existing loyal customers and reach new customers who have yet to experience our brand. Our e-commerce platform is a crucial touch point for providing omni-channel delivery to our consumers and driving traffic to our stores. Remarkably, 60% of e-commerce sales come from customers within a 20-mile radius of our stores. The remaining 40% of sales come from areas without a nearby store. We have a clear opportunity, as Kara alluded to with this data, to focus on areas of high demand and strategically expand our store footprint to better serve emerging markets. Ultimately, our e-commerce strategy is designed to drive traffic to our stores.
Our franchisees are central to our customer relationships, and for customers to experience the in-store Rocky Mountain Chocolate Factory experience that so much of us have come to love with our brand. To support this, we are creating a revenue-sharing model with our franchisees, as Jeff alluded to earlier, based on customers' association with a specific store. This revenue-sharing model will link e-com purchases to a specific store based on ZIP code and through a new loyalty program. Additionally, we will be introducing a curated selection of seasonal items and gourmet caramel apples online, but with a strategic twist. We will feature select seasonal items in a four-pack of customer favorite caramel apples, while also promoting the full lineup of items available in-store only. This not only creates excitement online, but it drives foot traffic to our stores for customers to explore our complete offering of products.
Lastly, our e-commerce data provides valuable insights for future growth. We have a clear opportunity to utilize this data to pinpoint where our next store should be located based on customer demand. In summary, e-commerce is not merely a sales channel, it's a strategic asset that provides omni-channel delivery to our customers, promotes our stores and store visits, and leveraging data for planning our expansion. I thank you for your time, and I look forward to continuing to innovate and grow together. Back to you, Jeff.
I appreciate it. Any questions on e-com? Yes, ma'am.
Where are you located?
You're down in Indianapolis?
I am in Indianapolis.
Soon to be a proud father of his first child. Daughter?
Daughter, yep.
Yeah. Yeah.
Thank you, Jeff. I appreciate that.
Yeah, sure. Any other questions?
Is there a plan to make a push over holiday season for the e-commerce?
Dylan?
I'm sorry, I did not fully hear that question.
Ho-holiday plans?
Holiday plans. Yes, we will be launching a fall gift basket here that features some of our in-store only items in fall. We do have several email and marketing campaigns that will be going through our e-commerce subscription service that is promoting our in-store only items at our franchisee locations. And then we will be launching our holiday Christmas line in the middle of October, end of October.
And important to remember, Matt, that our first customer is a franchisee. To the extent we have excess product, we can lever up the e-com pretty quickly, but we got to make sure all our franchisees get their inventory first. Any other questions? Thanks, Dylan. Tyson, can I turn it over to you to talk about production, where we are with that? Thanks.
A lot of exciting stuff. So how are we going to execute it, right?
Yep.
That's where I come in. A lot of you have been on the floor. Who's been on the floor in here? The majority. I promise you, if you go on the floor today, completely different than the last time, even if you were here two weeks ago. Franchisees got nervous when they heard we're not going to be running production for a week. Last week, was it last week? It feels like a month ago. Shut the plant down. Had to turn the power off for 6-8 hours. Weren't cool in the building. Why'd we do that? Well, I had two chillers. One died last year, and the other one was about 12-14 years past its useful life.
That chiller goes down, not only do you guys cook in your offices, I got a lot of chocolate in the factory that I can't cool. It's a big problem. Kind of an afterthought, has nothing to do with production. Kind of does. I have two tunnels that cool the chocolate after the enrober based on that, so we had to invest $1 million, well, just under $1 million after some negotiation on two chillers. If you drive past Home Depot, they're actually sitting up, waiting for the slab report. We're on a temporary chiller right now. We're a month ahead of schedule, but right now, walk around the building. Is it a little cooler? Okay. Some of you are freezing, which I'm okay with. Sorry, Tracy. I'll get you a sweatshirt. Promise. It'll. We'll warm back up.
But also, electrical upgrade. So bringing in these new equipment and everything, the maintenance manager and I talked about it, and he's like: "Yeah, which one do you want to do?" It's like, well, the plan is to do all of them. He's like: "Pick one, because we don't have enough power." We're actually already tapping into our reserve. You have to have some reserves, so when you bring everything up, you pull more power than when you were just running consistently. So had to completely look at our entire electrical system that hasn't been touched in decades. All that was done last week with very little hiccup, and I actually, like I said, ahead of schedule. So now we can get into the fun of talking about a new bar line, new molding line, new Bear machine.
So how's the Bears consistency right now? Let me ask the franchisees.
It's better.
It's through gritted teeth. It is a known issue, and as Starla can tell you, one of the first piece of equipment I showed you downstairs was what we call our Bear machine. If you actually look at what it was originally designed for, we bought it from Hershey. It was an old Hershey Kiss machine that we've turned into what our Bear machine is today, and the way we repair it is we go to Home Depot, and we buy plumb fittings. That is how we are operating four of our top ten items, I think. So very, very important piece of equipment. It takes two to three people in the kitchen to put all these bears on trays.
They sit for a day or three to get to the right temperature and consistency, and then it takes three people to put it on a belt, one person to separate it, because we're putting it on the belt by hand, and then another two to three people to pack. That's how we make our bears. I presented to Jeff. There's a piece of equipment out there that other candy makers are using that automates all that. Kelsey talked about automation. We don't do that. I'm not completely taking away the artisan, but I'm allowing the bears to be more uniform, and they're, you know, not every nut is created equal, so it'll still have its own unique shape, each and every one.
But you'll have caramel, nuts go into a hopper, gets a nice bed that goes through its own cooling tunnel. Nuts are recuperated and goes through a vacuum system, and the uncoated bears go in, into the enrober, completely hands-free, where normally I would have had five to six hands touching it before. So does that mean I get to eliminate five or six heads? No, I just get to repurpose them, thank goodness, because to run my five lines, I need about 50 heads right now, because I have to cut the caramel by hand, I have to melt chocolate by hand, I have to dip haystacks by hand. So of those 50, how many am I currently employing? It changes day to day, I will be honest. I'm hoping, I can say I have 42 workers right now.
I'm hoping to have 42 come tomorrow morning. I was talking with Kevin earlier, where does, where's most of my workforce come from? Durango's population, I think, is 18,000. Very expensive place to work. My starting wage right now is $16.50. I'm not pulling a lot of labor from Durango. 60% or higher actually comes from New Mexico. So any piece of equipment that I bring in has to reduce labor. It's just the nature of the beast that where we are right now. When I first came, I was given a model on what we can produce, and it was a very large quantity number. I was like: Oh, great, well, we're extremely under capacity. How do we get that back up?
Did my own calculation, came within 5% of the actual number. I'm like, yeah, it looks great on paper. Once you start going down to the floor and you apply a little more, what I'll call... I don't want to be too insulting, but reality to, to-
Cost.
I wasn't going to say that. Logic, I'll say. The number doesn't make sense because I have a lot of people putting candy on a belt, taking candy off a belt, and that's 75%-80% of my workforce is just doing that. So we brought in a piece of equipment that was allowing us to take one of our lines from 24 inches to 36 inches. So I should get X number of more output, right? I still, I'm still hand dependent. I'm still body dependent. You can give me a 6-foot belt, I'm not producing anymore. So trying to get smarter on the equipment that we bring in, and trying to get away from when Kelsey wants a new product, I don't say no.
So I think when we sat together earlier this year, I was like: I won't say no to you. And I think I've held true to that so far, right? So, I mean, that's the worst thing in business, right? Is when manufacturing is telling sales no, because that's revenue and sales. So working a lot closer with sales, marketing, R&D, to not know, but what is it gonna need to take? Is it gonna take another piece of equipment, more bodies, maybe a change in cost product? Can the product be a little bigger? And Jeff's talking about expanding e-com, and when you buy stuff on e-com, it's a lot smaller, right? I wanna produce really large things 'cause it's much easier.
My pounds per man hour go up, so there has to be a happy medium, and so what piece of equipment can I accomplish all those things? So that's first and foremost, anything that I think about, including another afterthought, like the chillers, a dishwasher. I don't have an automatic dishwasher. I have people. And my sanitation crew is anywhere from 11 to 15 people, and when I looked at the turnover rate of all the department, the dishwasher title, we were hiring 15 people a year. I only ever employ 1 person, so I was turning that position over more than once a month. Thank goodness, right now, I have a rock star, and after about 2 weeks of him doing awesome, I was like: "Give him a raise.
I don't really care what it is, give him a raise." Because even if we give him a $5 raise, which is incredibly insane, which we didn't do, but he did get. He's out on paternity leave with his second child right now. It's cheaper keeping him on board with a raise than hiring his replacement in two weeks, and then hiring another person in three or four weeks. But we have a dishwasher coming from Switzerland, a Hildebrand, where now we can put stuff on a cart, put it in the dishwasher, pull it out in 12-15 minutes, completely clean. We're washing everything by hand right now. And when I talk about the bears, I did the math. On average, just to make our large bears, not even our small bears, we do about 50,000 trays a year.
Those trays are handled by the kitchen, then by production, then by sanitation, and a circle, and that's not taking into consideration caramels, marshmallows, small bears, creams. So we're washing hundreds of thousands of trays a year, so the dishwasher will greatly improve our efficiency, and actually can change production a little bit, 'cause now I don't have to wait an entire day for those to be returned back to production. I can wait a couple of hours, so it actually changes how we can schedule, which is exciting. So with that, I've been talking quickly because I don't actually know how much time. Jeff didn't give me a limit. I could stand up here and talk for hours about the exciting stuff going on. But any questions about anything I've shared?
What's your pound produced per head, say, five years ago, and what's it now, what's your goal?
When I came in, I was told that we could do 5 million lbs downstairs. On paper, I can show you that that's true, but it's heavily dependent on what I'm producing. That pail on there, or its giant cousin, I'd much rather produce the giant cousin, so that changes it. What line? We're doing about 180 right now, so if Jeff wants to go to, well, from 150 stores to 300, you just double it to 360, which, you know, it's not apples to apples. I told Jeff that's about at the top of my capacity. I feel about mid- to low-threes is my capacity here with my current equipment.
How about people? Same amount of people do that, or are you thinking, like, per head-wise?
So I mentioned that number, 50. The plan I presented to Jeff is, give me this capital and let me get more output, and I can reduce my head count to 40.
Forty.
So, yeah.
How much for the mid-threes do you think you'll need to head count?
Mid-threes? I mean, so somewhere in the forties, it's gonna be-
Still.
Still. Still.
Wow!
Same equipment, better out our-
Doubly out than the same.
Yeah, and just with the nature of how old some of this equipment is, the training is very, very intense sometimes. And back in the eighties and nineties, sanitation and maintenance was an afterthought when building equipment. That's, like, the first thing a vendor will tell you. This is why your sanitation department will love this. This is why your maintenance team will love this because they have better access, and also, this is why your operators, it's a lot user-friendly. So we have tempering units downstairs that are not on board with some of our enrobers. Some of them are, and one of my newer all-star operators, her name is Diana.
We moved her from one of the more challenging lines because she was so good to one of the new line, just so she could get familiar with it. And I asked her day three, how she was doing, and her comment was, she was bored. So, which I love. I was like: "All right, well, I can find something for you to do in the meantime," but that's a testament to what new equipment can do, but I just wanna make sure that my operators are happy and not bored, so gotta find some-
Yeah.
some other creative things, and we have a system called Redzone downstairs that tracks productivity on a minute-by-minute basis, and it's amazing how often they look to see if they're red, green, yellow, and what the line beside them are doing. So if the line beside them is green and they're red, they start squawking each other, "You know, we need to get this turned around." So some friendly competition is never a bad thing.
When was that put in?
Last September, and so it wasn't probably real impactful until November, and at that point, we were running around like chickens with our heads cut off. So really, January and February, really got to sit down and go through the communication tools. You can put quality specs in it. Now, if we have a quality issue, like, hey, this has been a concern, I'll go to someone, build that quality check, and I want that checked every half hour, and then alert them and blink to them, "Hey, are you checking your weights? Are you checking the bottoms?" Or, you know, very creative on what you can do with it.
Yeah. And shipping everything to be boxed in Salt Lake City is sufficient, and that works pretty well?
We're reevaluating that, for sure. Right now, it's a third party. We're talking internally, does it make more sense for us to have our own off-site facility that we manage, where we have more say, where we are the priority, and we know more of what's going on ground level, but chocolate and candy will always be made here. Do we put one line somewhere else where we can do something more challenging, like sugar-free or white or something that has more changeovers? Possibly.
Okay.
Yes, ma'am. Are you able to fill your workforce here from Durango? Order forms? No. Your workforce. Oh, workforce? Yes. I have to be more competitive with the likes of McDonald's and Walmart, which we're working on, which got with Carrie and Jeff and HR, and I'm actually going to be rolling something out that's very favorable to the people on the floor. I was going to announce it this morning. I'm holding off, probably get with them next week, but it's going to be more of a tiered system where it's a reward, because my number one turnover is, you can guess, is my new people. If I can keep people here for usually six to nine months, I have a really good chance of keeping them.
So you heard all of our tenure. It's very similar to the floor. I can think of five people off the top of my head downstairs that have been here for 15 years. And another one that's been here since the 1980s. I'd say three. But then I have a lot of what we call yellow hats. So we have different color hairnets, and you wear a yellow hairnet on the floor until you reach your 30 days. And so there are times you go down there and like, "Wow, that's a lot of yellow hairnets down there." And the visual aspect of it is nice because, like, why is there three yellow hairnets on that line and not on this line? Can we switch that?
So it helps us better train them, and so they're going to get a reward after 30 days, after 90 days, 180. And also, we have a training plan and kind of a buddy system that we're implementing. But then also I have leads and supervisors and operators. They have more responsibility and more skill, and they'll be on a different tier system. So it's very culturally different. When I started here, we had one supervisor for the entire floor. She was responsible for 70-plus people as a supervisor, not even a manager. She went on maternity leave, elevated an operator who was very competent, and in about 4 weeks, she was in my office in tears. It was just too much. And so I went down there on the floor and worked with her.
I was like, "How can I support you? Do I need to be hands here? Do I need to be making decisions here?" and after two weeks, I was like: How did Melissa do this? Was she superhuman or... so we've divided and conquered. Right now, I have a manager who has two supervisors under her, and then four to five leads under them, and they break up into teams and have different responsibilities on the floor.
It works out. Thanks, Tyson.
Yeah.
I appreciate it. Lindsay, you want to come up, and I'm going to have Lindsay talk a little bit about customer service.
Hello, everyone. I am Lindsay Parrish. I am the customer service manager here at Rocky Mountain Chocolate. I've been here for 12 years. I come from a little town just west of here, called Arizona. I went to school here at Fort Lewis, and I did an internship here at Rocky Mountain, and I decided to stay because I really enjoy the people that I work with, and most of all, I really enjoy the franchisees that I got to know over the years. In customer service, what we do is we handle any issues, feedback, you know, questions that franchisees have, or even our end customers. We receive that feedback through email, calls, and rmcf.com. Right now, how do our stores get our yummy chocolate into their stores?
What they do is they first go on our catalog site, and they place their biweekly, customer, order. We then arrange it to have it shipped on our trucks to their stores, and with that, they can either decide to have their orders shipped through our trucking system, or we can have it arranged to ship UPS or by FedEx. It really depends on what they would like. One of our most exciting changes that happened, and actually happened this week, is on our catalog site, we connected our items to show the on-hand inventory that we have. We haven't done this in the past, and this is just something that we did just two days ago, and this allows our franchisees to have the assurance that when they place an order for an item, it will show up on their order for the truck.
Vice versa, if we're out of an item, it will not ship on their truck, and they will know ahead of time. According to the website, they should also have an ETA of when that item gets back in stock, or they have the option to put their email, sign up for an email of when the item is back in stock. This will help us. It will help us with calls because most of the time we get calls from our franchisees, they're like: "When will this be out of stock or back in stock?" We have to reach out to production. But we're all working together as a team, and we keep this site maintained. The franchisees will know what we know.
...Another exciting change that will be coming up is we're going to start using Salesforce. It's a platform that will help us better communicate with our franchisees. It will also help us monitor any feedback or issues that franchisees have, and not only our franchisees, but our end customers as well. We're excited for these new changes, and we look for more positive change in the future. Do you guys have any questions?
Thank you. That's great.
All right.
And I'm going to do a little bit of a change of the playbook there to have Donna speak.
I'm like, another change? What?
No, no.
Hi, everybody. Welcome to Durango. If you forgot my name, I'm Donna Coupe. I oversee support and training for the company, and I'm just going to talk briefly. Jeff covered almost all my bullet points, but I'll reiterate them. My team is really excited because we're doing some different things in support this year. My team consists of four business consultants that are spread out across the United States. I'm getting ready to hire our fifth one that will be based on the East Coast. And their regions range anywhere from 27, our high right now is 35 stores, and so that will be with the fifth person. Okay? But we are looking at our store visits now with a dual mandate in mind.
What that means is we're going to be focused on upping store sales and increasing store profitability. Those are the things that we're really going to try to help the stores with. We're going to do that with a series of deliverables, like two physical visits from the field or the Business Consultant. I need a buzzer on me that you can just hit, Jeff. Business Consultant, physically, twice a year in your store. From there, we're going to go through a very in-depth business plan on the phone with the franchisees, going through the things that they're doing in the store, the things they are not doing, a deep dive into sales, where they want to be, how they're going to get there, and how we help.
We're all very excited about this, and we're going to start those calls next week. From that business plan call, quarterly, we will call to chart progress with the franchisee. They'll get three more calls from us, and we'll figure out how they're doing, where they might be falling behind, celebrate the successes, and we're excited about that as well. Then there'll be two mystery shops that will go out to the stores from our vendor, and we will call them when they receive it, and we will hopefully celebrate their 100%, or we will talk about why they got 20%, and how we can help them with that.
But my team's just really excited right now because Jeff's got a lot of exciting things going on, and we're just starting to institute some of them, and we're just, we're just happy. So can I answer anything for you? Yes.
What were they doing-
Go.
What were they doing before with business, and what was the difference again?
We've tried lots of different things. Before actually, Jeff got here, we were doing some. We would try to get to the stores once a year. We've tried on-demand visits. We've tried a series of things. This time, in all of the history I've been here, we've never hit stores twice, but we will. So that's very exciting. Yes.
I have two questions.
Sure.
This may be more appropriate for Kara, but, and I'm sorry if this is a look-back question.
Sure.
I'm trying to get educated about the business, but last year franchise costs were up 41%, and franchise fees and the royalty and marketing fees were down. How does that happen, and what's being done to fix it, then I have kind of a follow-on on the whole story.
Um-
How about this, Kevin, can I come back to you on that? Because I want to look at the numbers you just said and make sure we get them back with those.
Okay.
Anyone else who has questions, we'll follow up on that.
And then the Cold Stone relationship, do you have a contract with the parent company, and then you go hunt for co-branded stores? Or how does that work, and is there a term to it?
Yes. So we work with Kahala, but they are the franchisor. They license our Rocky Mountain Chocolate Factory name, so they really nicely do all the work, right? So we train them and get them set up, and then we train their people to train their franchisee.
So they're pushing their franchisees?
Yes.
Okay.
Yeah, and they have, as you know, like 17 different brands under their umbrella.
And from a development perspective, basically, they'll reach out to our team, to Ally back there. Say hi, everyone. This is Ally. She is my left and right arm. Amazing woman in the room. And on top of that, basically, we obviously will make sure there's no impact from a site selection process. And, you know, obviously, we don't want to cannibalize our current locations, so we really take that very seriously when, you know, deciding that. And, you know, Kahala is a very good partner. We really enjoy working with them. The great thing about it is, right now we're in what? A hundred and four, a hundred and five, I think. So it's just nice for us to have that.
For them, especially when they're in cold weather locations, it helps their sales when they suffer in those winter months, you know, in the Northeast, in, you know, Chicago, stuff like that. But they're actually all over the country. I mean, we have, you know, you could be in Phoenix, you could be, I mean, you could pretty much be anywhere. But we do like the partnership with them and we are continuing to develop.
How many Kahala stores are there in total in the U.S., and then, is there a term to that contract?
There are-
Yeah, you said Kahala, but it's Cold Stone Creamery, which is the brand, the-
...Go ahead.
Um,
Understood. Great. Go ahead.
I was going to say, just because I don't. Sorry, I interrupt. But the term of the co-brand license is in conjunction with their license, with their franchise agreement with Kahala. It's an amendment to their franchise agreement. So the term lasts the same amount of time as their franchise agreement, which I believe they're on five-year terms on?
They're on five, I believe, yes.
Okay. So they're on five-year terms. So if they transfer in between, it's the same sort of deal. They still come to training with Erica, usually, for co-brand training, or we see during them and all that. But, but yeah, they do most of the legwork on that, and we approve the agents, try our very best not to cannibalize our franchisees as our first customer.
So the contract with Kahala is in perpetuity?
Yes.
And they've got about nine hundred and ninety cultural credits around the country. We've about nine hundred and ninety, last count, and we have about a hundred and four or so. Anyway, thanks a lot.
You bet. Absolutely.
Appreciate it. Did you still talk about operational services? And operational services and other support to the franchises.
Yeah, I'll be pretty brief. I actually am one of those people that started out on the franchise side. My family were franchisees. They owned the two stores in the Denver International Airport when the airport relocated in ninety-four. So I started out as a clerk behind the counter, helped my family manage their two locations, and then made the jump over to the corporate office. That time was mostly spent in Donna Coupe franchise support area, doing a lot of, you know, store openings, store trainings, store visits, working directly with the franchisee. So this operational services is a new role, and the main purpose of that role is to really shore up a lot of the data that we're using to make decisions here at the factory. We're doing a lot of technology updates, and we're trying to shore up that our historical data is accurate.
And then going forward, use that data to do better business planning, performance evaluation and modeling for not only our franchise system, but other initiatives that we develop, and really support Kara and Donna in their strategic plan to grow the business. So that's what we're diving into, and it kind of covers lots of different areas, but over the next year, we're going to be really robust with it. So hopefully, we can spend less time trying to get at the data and more time making decisions about the data.
Thanks.
Thank you.
I'm going to jump over to Ryan, who's going to talk about some of our data and analytics.
Fun. Good morning, everybody. A ton of the teams talked about how do we know it, where do we know it, and the importance of data and analytics. In the past, and as Rocky Mountain's grown, we've had a mix of market systems and organically built tools. In this newest, call it in our newest phase, in our cultural shift, what we're bringing in are some bigger tool sets so that we can share data near real-time, make better decisions, and keep everybody informed. We're taking a three-pronged approach right now. One of them is our ERP. It's our corporate internal source of truth. It lets us measure and metrics manufacturing. It's where we track our financials. It's where we measure sales, take orders, and manage our customers. The second piece is the POS.
We traditionally, for probably the last seven, eight years, have had a mix of vendors in the POS market. We did that primarily to keep costs down, using competition to provide the benefit to franchisees. With retail changing, with customer expectations changing, how they get product, when they get product, we have found it's very valuable to have a consistent source of truth in the retail operation. So the POS lets us measure that. It gives us a consistent source of data. It's something we can have a conversation with the franchisees about, as well as inform the manufacturing teams and sales teams about what's going on. The third leg, Lindsay talked about it, was Salesforce. It's our CRM. It's how we're connecting the franchise relationship up with Donna's business consultants and with the corporate business. That's where we share data.
It's where we keep everybody informed. It's going to give us the opportunity in the future to really gather up all the insights, all the data that we have in one place and provide it out to the larger team super fast, but if anybody has questions, I'd love to take them.
Kevin?
Hey, Ryan, could you talk about when each of those three will be complete? And then follow on, what is the additional annual OpEx for each?
Good questions. So the ERP is in progress now. The lift is moving off a 30-year-old system. The anticipated go-live date will be first of next year. We recently-
Calendar?
Calendar year, right at the beginning of January. There's a balancing act from a data and financial standpoint. When you bring a system like that online, you can't just do it any day of the week. I've recently moved that project back, just the sheer volume of things that we need to check. We want to make sure we get it right. It's not something we can get wrong. So the ERP will be. I guess that's a—it's one of the bigger milestones. Salesforce is in process. It's been in place in one iteration or another for a couple of years. The latest version right now, we're pushing very hard on. POS just started this year.
We expect to have critical mass, I'd say, spring next year, but it will be ongoing as well. There's several of our operators for one operational challenge or another, can't convert right now, but the stores that can, we're helping them move over. We've got great partners in the mix.
... annual OpEx for us, corporately, we're looking at somewhere between $200,000-$300,000 in subscription fees and licensing for that.
For all three?
Yep. Yes. We don't, so most of the POS is funded through the franchise system, and support partners, and how we process credit card payments. The ERP and Salesforce are licensing contracts with those vendors.
Thank you. And I just add, the real cost of not having data is very high. The analytics-
Absolutely.
We've been back a few years, so this is specifically a booster for us, and also culturally, this is about having the information, pushing it down to the lowest level where people can use it to make real decisions, and that, that's been a big cultural shift, and it's always trust but verify, so even if the data is in there, I really impress people, some of it could be wrong, and if it doesn't look right, see in the back, those that do, you know, ask questions, and that's a cultural shift. Anyway, thanks a lot, Ryan. Carrie, can you talk a little bit about finance here?
Absolutely.
Thank you.
As Jeff said, I'm the newest member of the team. I've been here for just a little over a month, so it's like drinking from a fire hose. Learning as much as I can, as fast as I can, because it's very important that I get up to speed. We are operating on an old accounting system, as Ryan mentioned, and we are going through that conversion to the new ERP. I am a certified public accountant and spent 15 years in auditing, so that's one of my strengths. I will be digging through all the numbers so that we can get back to the data and analytics that have been mentioned as a very important part of what we're gonna be doing.
We need to grow our revenue so that we can reinvest back in the business, invest in our franchisees, and then get back to where our margins are expanding and our stock portfolio is healthy. And it's gonna be my job to make sure that we are actually complying with all the rules and regulations that we need to, and keep everything operating the way it should. So with that, if there's anything else that you guys want to know about, I'll be happy to answer any questions. We knew Kevin would have a question.
Sure. How does Wells Fargo remind us through September thirtieth? You can get in place by September thirtieth, and where, where will that emanate from?
We actually expect to have that in place. We are working with a lender to negotiate a contract now. It is not finalized, but we do expect that, to have that done. I'm not sure whether we've released that, publicly or not.
No. All we said publicly is we intend to release it.
Yeah.
I'll get another disclosure, but we'll look before September thirtieth.
Mm-hmm.
That's likely to be secured debt?
Yes.
Will Wells Fargo extend beyond September thirtieth?
Wells Fargo is very extreme into the future, but I think under the circumstance, we're probably better served by a non-money center lender.
Good question.
Yeah.
I mean, the Wells Fargo, if you're not set by September thirtieth with a non-money center.
Oh, yeah.
Will they extend beyond September thirtieth?
We haven't talked about it. We have a good relationship with them. I have a regular dialogue, and we keep them abreast. It's our expectation we'll have that line, our finance in place September thirtieth, and if it goes, we continue on that, we're not comfortable.
Thank you. Yes. Thanks, Carrie.
Mm-hmm.
Guys, it's, we're just about two hours. I have just some short closing comments that I'd like to make. I see it looks like you got a little bit weary. You good for another five, ten minutes?
Yes.
Yes. Okay, and the last part of this is really, is what's next? We plan to grow. We put together a three-year business plan. We'll update that on a really regular basis, so we'll have it on a rolling forward basis. The company today generates round numbers, about $30 million in sales. We peaked at $40 million, and this is probably the last six, seven years. We have 147 Rocky Mountain stores, 115 co-branded. 104 of those are Cold Stone Creamery. The other 11 are a combination of a U-Swirl or Yogurtini or one of the previous yogurt brands that we still do business with. We operate in 36 states in the Philippines. We have one production facility with substantial capacity to increase.
I think, Tyson, when he talked about where we were today and how we could expand, we're budgeting like a million two-ish in the next 12-18 months. That should bring us to, we think, about 4.5 million pounds, that is. So, and we'll do this in lockstep with some minimal amount of CapEx. We've got a terrific group of employees, some who are here almost 40 years, and not just one or two. There are a bunch of people who've been around here 35, 40 years. They're excited, they're motivated, and I think everyone's really eager and ready to see the company grow. I've had more than one person come in and say, "It's really refreshing to actually have a vision that looks out a couple of years." It's not mine alone.
It's definitely been collaborative, and as I said earlier, it's important that we get everybody to buy in. Remarkably, we have an extraordinarily loyal group of franchisees, and I say remarkably because I think we've given them every opportunity to walk away, and they've hung in there with us, and for that, I'm really grateful. And I want to deliver for you guys. So, we'll do our best to make this a really good experience again. We have a distribution system that begs for additional growth and efficiencies. Most importantly, I think we got a great product. And please, I see a lot of products on the table. You can take a box when you go home, but if this doesn't get picked up, feel free to throw it in a bag and take it with you.
We have opportunities to expand our store count. We've updated the franchise agreement, which I think is far more economically attractive, and being a finance guy, I look at the agreement and say: "What would I be willing to sign?" The agreement that we have out there today, I'd sign in a minute. I think it's very fair. We have a new and appealing store design. We're repositioning our brand, and Kelsey talked on it a little bit, and in deference to time, I cut part of her presentation out, but more to follow on that as it becomes available. We have a logistics network that begs to be filled in. In other words, we're sending those trucks out; if I can stop three places instead of one place between here and Charlotte, why not?
We have available plant capacity. We're continuing to evolve our product offering, as I discussed a little bit earlier with the innovation group. And Kevin, you asked about how quickly we can get to 300 stores. I don't know yet, but when we put those numbers out there, I'll let you know. And it'll be iterative. We'll go 150 to 175 to 225, and so on. But we're gonna continue to evolve as a company. My view on this, and probably some of the financial guys near Global Value or Abernathy, I think at scale, we have 10-12% EBITDA margins. I think we have 15% return on equity. We've done that in the past, so I'm not telling you anything that we haven't done historically.
I think we have a more disciplined group of people. I think we're putting a culture in place that's gonna allow us to grow in a very disciplined and methodical way. Most importantly, we're building a leadership team in Durango, and I've—since the day I've shown up, I said, "Hey, I'm moving to Durango. I'm gonna work here. I have expectations, and most everyone else that needs to is gonna be up here," and it's made a big difference being able to walk around the plant every day. I'll just close by saying I really appreciate the support of all the stockholders. I know a lot of you have been really, really patient with us over the years. It hasn't been a good ride. We peaked at $15. We troughed recently, I think, at $1.50.
The stock might be trading between $1.75 and $2 right now. But what I would say as an experienced guy from Wall Street is stock price follows performance. I'm gonna concentrate on getting the performance right. We'll communicate with our stockholders. We'll report out quarterly, but we're gonna drive really hard to make this a very profitable business. And when we do, your stock price will go up. And if we get it really right, your stock price will go up a lot, and I expect to get it really right here. So thanks for your time and interest in the company, your continued support. Buy stock if you're so inclined. And we'll be happy to answer any last questions. I think we're probably just after 11:00 A.M.
We had planned to go do a Q&A, but it looked like we're, some of you were getting a little drowsy, so I thought we'd wrap it up sooner. So any closing questions?
How many shareholders do you have now?
That's a good question, Charlie. Do you know offhand?
Tracy.
No, Tracy, I don't know. My guess, probably. It depends if you're in a fund versus someone that reports out separately. My guess, we're probably about five hundred unique shareholders. Although Fidelity was a shareholder at one point, if we were in their small cap fund, they'd have fifteen, you know, hundred fifty thousand or something. But we routinely. I routinely talk to maybe five, six investors who track us pretty closely. Some of our investors are index funds, so that, you know, it doesn't matter.
No analysts covering you.
No, we don't. At some point, we will, and I could call up three guys tomorrow and say, "Cover us," but we got to get our story straight, and then we'll do that. So there's the element of how do we interface with Wall Street versus how do we just run the business? We'll get the business fixed, then we'll go tell Wall Street our great story. We'll ring the bell on the Nasdaq. We'll have them put our ticker symbol up at, in Times Square, all that good, fun stuff. We got a lot of work to do before that happens. So, yeah. Any other questions? Yes, Kevin?
I just wanted to ask the, with our franchisees in the room, maybe I, I got my facts wrong, but I thought you, you took a 15% increase in price June 1. Was that across the board?
Yes, it was.
Was that, what's the impact of that? What was the reaction to that?
Yeah, is that your question? Just want to make sure. Yeah. We did. On June 1, we put a 15% price hike in. Well, there's great elasticity of demand. Remember, I'm an economist, so I'll talk about that a little bit. If you can raise your price, when do you start to cannibalize your demand? We have a high elasticity of demand. I don't think we saw. From my perspective, I saw, like, zero impact on demand. Other than, well, some of the alert franchisees saw that coming because we had to notify them 30 days in advance, so they bought forward. So we had a little bit of a, like, a rat in a python here and a little bit of a lull here, but when we came out of that, I haven't seen any impact. You guys? No.
Which kind of begs, well, maybe we should raise the price a little bit more, but, we won't. Okay. Was that-
I just had a follow on it. It's kind of a wild question, but have you heard anything from the franchisees about the Ozpic effect, about cutting back on, you know, your product because of that?
Oh.
Can I answer that?
Please, yeah.
Because we just finished going through our consumer insight studies, and we completed those both in-store with consumers as well as through our online database of consumers. So we had a pretty robust study. And then the target audience and our positioning is really focused on this younger, female millennial consumer who is really using chocolate to reward herself on a regular basis. She is buying across categories from lower-level chocolate, like Hershey's and Mars, all the way up to very high premium, bean-to-bar chocolates, and she's purchasing them pretty much standardly every week, all week long. She usually has three different categories of chocolate in her home at all times. So target consumer is really not the person who is living in the Ozempic world. And we are gonna be leaning into that further.
I haven't heard, but maybe Jeannie or Steve or Robin could comment, but we have not experienced that our position in the indulgence reward space is being really affected by that. We're not playing into the health-conscious space.
Matt, do you have any questions?
Yeah, just I was wondering if there's an opportunity to see the floor today for those of us that haven't seen it, or there's not?
Let's talk about that afterwards.
Okay.
Yeah. Any other questions?
Just have a follow-up on the delisting letter.
Yes.
I need to be educated on this. I know, I think with the new investment, you're over the 10 million shareholder equity mark.
That's true.
Do you have to meet any of the other requirements that were mentioned in your filing to?
No. No, we don't, and we've submitted a plan to the Nasdaq, and they like what we had to say, so we should be good there.
We are.
Yeah. We need to concentrate on making money to keep that equity higher, a lot higher. So, ladies and gentlemen, thanks so much for joining us today. We'll do this again in the future. I hope it was valuable, and at any time, if you have questions, feel free to reach out to the company directly, and I'm always available. So thank you.