The Thomas Kron Affair

Chocolatier Kron makes a sweet chocolate-covered cherry but is learning the hard way just how fast a franchise deal can sour.

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Macadamia nuts," mutters Thomas Kron, checking on the daily shipment that has just arrived from Hawaii. Then, white lab coat flapping, he marches to the mixing area. Satisfied with the temperature and texture of a vat of velvety liquid chocolate, he announces, "Everyone on cherries." Immediately two white-coated assistants hand-feed cognac-soaked cherries to a conveyor belt. Chocolate flows down a funnel, covering the rows of passing fruit. From the main floor comes the faint crunching of pleated paper cups, as women pack the fresh chocolates into handmade wooden crates, the distinctive packaging, of Kron Chocolatier Inc.

Thomas Kron's passion is to make and sell fine chocolates, using techniques and recipes he says were handed down through five generations of his family in Hungary. If the 35-year-old chocolate maker's craftsmanship stems from his old-world heritage, however, the method he has used to expand his business has been all-American.

Kron has relied on franchising to build a nationwide chain of chic confectionary boutiques. In 12 major markets, these shops bear Kron's name and sell only his products -- all made in his Manhattan factory and shipped daily to each outlet. He hasn't had to invest a penny to set up this retail network; aside from some accounting and legal fees, all the capital was provided by investors eager to own and run a Kron Chocolatier.

Kron, however, has made some serious blunders in setting up his franchise operation, some of which have come back to haunt him. They occurred perhaps because his concern for his craft outweighed his business acumen. The result is an approach to franchising that at least one expert has characterized as a throwback to the 1950s, when franchisors were still refining their operations through a costly trial-and-error process.

But for now the system runs profitably. Last year, his 15-employee, semiautomated manufacturing operation generated an estimated $3 million in revenues. His sales have increased sevenfold in 10 years. And by leaving retailing and local promotion to his network of owner-managers, says Kron, he has been able to keep his own business a family-style operation. And he can concentrate on what he loves best -- making and packaging his chocolates.

The Kron family name was synonymous with the fine chocolates for more than a hundred years, until the disruption of the Nazi occupation and the later Communist takeover of Budapest. The family emigrated to the United States during the 1956 Hungarian uprising, when Tom was 10 and his brother, Andras, was 8. Their father set up a small chocolate shop, but with his poor command of English and a lack of familiarity with American retailing methods the business soon folded.

In 1972, after three years of medical school convinced him he didn't want to be a doctor, Tom took up the family calling. Although he had only $200 in capital, he did have the Kron recipes -- and the conviction that Americans would respond eagerly if they were offered something better than the heavily sugared, artificially flavored chocolate being mass-produced at the time.

Kron insisted on locating in New York's fashionable Upper East Side, even though it meant setting up both a manufacturing facility and a retail outlet in a tiny unfinished basement. He is proud to say that he priced his chocolates at five times the cost of most American chocolates. (His confections currently go for as much as $25 a pound.) But Kron was convinced his product was worth it. "I've always given may customers the best," he says. "No oils. No artificial anything. I use pure cocoa butter and the world's finest cocoa beans."

The choice of location and pricing strategy paid off. "From day one, we were crowded," he says. Such early customers as television journalist Barbara Walters, an East Side neighbor, helped spread the word. Kron confections soon attracted such other famous chocolate fanciers as Elizabeth Taylor. "She loves our chocolate-covered strawberries," says Kron.

Inspired by the response, Kron began to make imaginative specialty items. Customers took chocolate golf balls and tennis rackets away on weekends or presented friends with chocolate magnums of champagne or chocolate telephones. One rock star had himself sculpted in chocolate. For special occasions, customers could order chocolate-dipped fresh strawberries nestled together in chocolate baskets, or greeting cards with personal messages inscribed in colored icing. Kron staples included life-size female torsos and a life-size gartered leg.

Kron sold $250,000 worth of chocolate his first year and was sure he would do even better if he could only move to classier quarters and expand his manufacturing operation. Proud of his growing volume and profits, he was flabbergasted when commercial loan officers seemed unimpressed by his major assets -- the secret recipes and a tradition of European craftsmanship. "Banks just weren't receptive," he says.

Finally, Kron connected with a loan officer named John Whaley at Morgan Guaranty Trust Co. "Usually we didn't even see people who wanted less than $50,000," says Whaley. "But Tom was so persistent, and my portfolio was solid, so I finally lent him $25,000 to get rid of him. He opened on Madison Avenue and paid back the whole loan three months later."

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