On the Case: How Sweet Is This, Really?

When Steve Parkhill marked his first anniversary as CEO of Rogers’ Chocolates in March, he could look back on 12 months of positive change. Sales at the Victoria-based maker and retailer of premium sweets were recovering after the slowdown in tourism from the U.S. that began with the appreciation of the Canadian dollar. The factory was producing according to forecast, minimizing inventory shortages. And the company’s new flagship store on Government Street - one in its network of 12 stores centred around B.C.‘s west coast - was doing very well. But this was no time for Parkhill to rest on his laurels. Rogers’ owners, a small consortium of investors, had hired Parkhill for his experience in manufacturing, sales and marketing, and he had been charged with developing growth strategies for the company.

Parkhill had been handed a tall order, but the good news was that he had options. For starters, he saw opportunities to expand Rogers store network, growing its retail footprint both within B.C. and beyond its borders. Rogers also ran a wholesale operation, which supplied a network of 600 clients across Canada. Investing resources in that arm of the business held the promise of increased production that would allow Rogers to add a second shift at its factory. In the long run, Rogers wanted to follow through on both strategies. But being a small company with $13 million in annual sales it could only focus on one option at this time. The question was, which choice would deliver the most meaningful results in the shortest time?

If Parkhill knew one thing going forward, it was that Rogers’ had a strong brand, and that brand had room to grow. “When I first started, I asked everyone I knew if they like chocolate and if they knew of Rogers,” he says. “I found that most people like chocolate. Many call themselves ‘chocoholics.’” When it came to knowledge of Rogers, the response was polarized. “It was either ‘never heard of them,’ or an outpouring of memories linked with our chocolates. Some told me about time they spent in Victoria and how they discovered our stores. Others remembered their grandparents buying them chocolate treats. Without fail, those who knew of us loved our products.”

Even if Rogers wasn’t the most famous brand, it was certainly iconic. Founded in 1885 by Charles “Candy” Rogers, it was the oldest chocolate company in Canada and, in addition to high-quality chocolates, produced premium ice cream in 25 flavours. The company’s brand image, meanwhile, was synonymous with Victoria’s turn-of-the-century grace, featuring individual chocolates wrapped in pink or brown gingham, tin boxes decorated with old-fashioned illustrations of floral arrangements, cornucopias, or paintings, and an original store, also on Government Street, that had received a heritage site designation from Parks Canada. If anything, Rogers was highly skilled in “experiential retailing,” a key consideration in developing premium brands.

When Parkhill joined Rogers in 2007, it had already been through several years of growth. The investor group that owned the firm - having bought it in the mid-1980s - had increased revenue nine-fold. It had expanded its store network (Rogers had only one store until 1983), purchased a successful deli restaurant in Victoria and developed wholesale and online sales channel.

Retailing accounted for about for half of Rogers’ revenue, Parkhill felt it was a prime candidate for the focus of the next growth phase, especially considering that the Canadian market for premium chocolate was worth about $170 million in 2007 and had been growing at annual rate of 20% in recent years. What’s more, expanding the store network would give Rogers fresh opportunities to develop and promote complementary product lines, such as its ice cream. “Most people don’t know we manufacture ice cream,” Parkhill said.

But Parkhill also knew that developing retail networks would be challenging, especially for a firm like Rogers, which designed its stores carefully to reflect its heritage identity. The company would need to keep adding to its ability to scout new locations, oversee store build-outs and hire and manage retail employees. Results could also be slow to arrive. Rogers two Vancouver stores, for example, had been underperforming since opening earlier in the year.

Parkhill’s main alternative would be to focus on developing Rogers’ wholesale network. The margins were smaller in wholesale than retail, but money would show up sooner on the company’s bottom line. The downside was that Rogers would have to start hiring full-time sales representatives across the country, and the management team would need to add to its expertise in distribution. One idea under consideration for developing the wholesale network was the creation of a turnkey store-within-a-store setup that would allow wholesale clients with a retail presence - such as department stores - to add a mini-Rogers store in their shop. This approach would establish Rogers’ identity with the wholesale client’s customers, supporting the development of the Rogers brand in new markets. It would also cost less than opening new stores. But wholesale margins would still be lower than retail margins, and Parkhill was concerned about how his company could ensure consistency in Rogers’ all-important customer experience when product was bought in someone else’s store.

The choice between a retail or a wholesale focus had been debated at the highest levels of the company for a few months, but a solution was slow to materialize. The problem, Parkhill acknowledged, was that the company’s two main revenue streams, while closely connected, required their own strategies. “And we need to determine where to invest our time and efforts,” he said. “Do we invest in retail stores, double the size of the store network, or do we grow through a continued focus on the wholesale channel?”

The Expert View

Larry Rosen, Chairman and CEO, Harry Rosen Inc.

Rogers is a premium brand, and everything about its product speaks to a premium experience. The best way to control the premium experience is to control the distribution. That’s why, in my view, Rogers should invest all its efforts into expanding its own retail presence. To best understand this, we need only look around us. Would a Starbucks latte taste as good if it were sold at a corner store and not a Starbucks outlet? No. The whole experience is the brand. It is not just the product. It is the store decor, the music, the cups, the sense of community, and so on. Rogers has established such a feeling in its stores. So, the best way to ensure the long-term growth is to focus on becoming an excellent experiential retailer.

I would recommend the development of one market at a time. Don’t open a store in Calgary, one in Edmonton and one in Winnipeg. Rather, open three stores in one city, develop the brand presence in that market and then move on to the next. I would also focus on the online business as a complement to the retail business, to support clients who don’t live near a retail location. Expansion of wholesale selling can wait. In time, that will become easy once the brand gains value in various markets.

A direct-ownership approach of own-store clustering in a market may not maximize chocolate production in the short run, but over time it will as it will maintain the Rogers premium brand equity through experiential retailing. Leveraging this skill set will distinguish this business from competitors and ensure long-term growth of top and bottom line.

Tim Staffen, Retail Consultant, TS Consulting

IN CHOOSING BETWEEN retail and wholesale development, it’s important to note that 50% of Rogers’ sales come from the 12 company-owned stores, while it takes 600 wholesale accounts, a deli and the Internet to gain the rest. Clearly, Rogers’ retail channel is its strongest, and should remain its focus. Driving sales and profits through wholesale is a difficult proposition for a regional brand as major national retailers rarely touch your product until it gains national recognition.

Parkhill’s first priority should be to focus on getting Rogers’ new Vancouver retail sites up to speed. This is an opportunity to refine the retail model and to put some strong marketing and execution into it. This local spending and building on the strength of the Rogers brand makes business sense. There are a number of other areas within Vancouver that should be able to support the firm’s retail concept as well as other B.C. mainland markets such as Vernon, Kamloops and Abbotsford.

With retail, go-slow makes sense until you have research data that totally supports your model. Parkhill should get Rogers’ next two stores off the ground, then speed up the rollout. Two new stores a year will add about 9% to Rogers’ top line. With organic growth from the other stores and channels, the company should achieve close to 15% annual sales growth. An opportunity also worth exploring is franchising. Rogers’ growth is limited by its ability to generate capital. Franchising significantly reduces the capital costs and allows companies to grow top-line sales and profits.

The Outcome

Parkhill and Rogers’ management chose to focus on expanding the company’s retail network. Parkhill won’t comment on details of the strategy, but says the company is “mining” for retail space in Vancouver and on Vancouver Island, and plans to open several new stores in British Columbia over the next two to four years. Parkhill says that Rogers will also continue to develop its wholesale channel, but will be selective in choosing partners who fit the company’s brand. “Our foundation is retail,” he says. “It’s the ‘Wow!’ experience that customers get when they walk into our stores, are greeted and are handed a free sample of our chocolates. From this customer experience comes success in other things that we do such as wholesale and online sales.”

To further develop its reputation in the province, Rogers has entered into a joint venture with Purdy’s Chocolates, another B.C.-based chocolate company, to supply product to the 2010 Winter Olympics, to be held in Vancouver.

This case study was prepared by Financial Post Magazine and the Pierre L. Morrissette Institute for Entrepreneurship at the Richard Ivey School of Business (University of Western Ontario). The case method is a key learning tool in the cross-enterprise leadership approach used at Ivey. The views represented here are solely those of the case authors. Some details may have been changed to protect privacy.