Download - Natureview farm-A Hbr Case Study
Natureview farm
A HBR Case Study
WHAT WAS NATUREVIEWFARM?WHAT WERE PROBLEMS ASSOCIATED?
NATUREVIEW FARM
Founded in 1989,Natureview Farmmanufactured and marketed refrigeratedcup yogurt under the Natureview Farm brand name.
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BACKGROUND
Enters market with 8oz and 32oz cup sizes in plain and vanilla flavor.
Company’s revenue growth from $ 100,000 to $13 million with strong brand image.
Expansion to 12 flavor in 8oz cups(86% revenue) and 4 in 32oz cups(14% revenue).
1989
1999
2000
Some Names• Christine Walker - Vice President,Marketing• Jim Wagner - Chief Finance Officer•Walter Bellini - Vice President,Sales• Jack Gottlieb - Vice President,Operations
What was the TARGET?
To growRevenue from $13 MILLION TO
$20 MILLION
ISSUESNature view
has to arrange for an
equity infusion from a VC to fund
strategic Investments.
Natureview has to find
new Investors,or
position itself for acquisition and grow its
revenues.
What distribution
channel should be preferred without
denting its Image?
The 3 P’sNatural Yogurt(organic)
in 8oz (12 flavors)and 32oz(4 flavors) cup sizes.
Natural food channel- Wholesale club, Retailer
Channel and drug stores. High quality and great taste gave
them growth inI Natural Food Channel, Low cost-
Guerilla Marketing.
PRODUCT
PLACE
PROMOTION
1 ANALYZE YOGURT MARKET &DIFFERENT DISTRIBUTION
2 WHICH DISRTIBUTION CHANNEL?
LENGTH OF CHAIN TO MARKETSUPERMARKET CHANNEL NATURAL FOODS CHANNEL
MANUFACTURER
DISTRIBUTOR
RETAILER
MANUFACTURER
NATURAL FOODS WHOLESALER
NATURAL FOODS DISTRIBUTOR
RETAILER
CUSTOMER
CUSTOMER
The U.S.A.’s
YOGURT
MARKET
Revenues 2000
32oz 8oz
86%
14%
REVENUE DISTRIBUTION OF NATUREVIEW
Starts exploring kid’s
multipack
yogurt product(4oz)
MARKET SHARE CHANNEL WISE
97%
3%
Distribution Channel
SupermarketsNatural Food Stores
MARKET SHARE BY PACKAGING SEGMENT
74%
9%
6%
11%
8-oz cupsChildren's multipack 32-oz cupsOthers
Dannon33%
Yoplait24%
Columbo5%
Private Label15%
Others23%
Supermarket Channel
Dannon Yoplait Columbo Private Label Others
24%
15%
7%19%
35%
Natural Foods Channel
Natureview Farm Brown Cow White waveHorizon Organic Others
MARKET SHARE BY BRAND
MARKET SHARE REGION WISE
26%
22%25%
27%
Sales
NorthwestMidwestSouthwestWest
3 DISTRIBUTIONCHANNEL
PRODUCTION COST AND RETAIL PRICES BY CHANNEL
NATURAL FOODCHANNEL
SUPERMARKETFOOD CHANNEL
MANU-FACTURING
COST
8 oz. cup $0.88 0.74 $0.31
32 oz. cup $3.19 $2.70 $0.99
4 oz. cupmultipacks
$3.35 $2.85 $1.15
OPTION 1•Expand 6 SKUs of 8 oz. product line into one or two selected supermarket channel region.•Proposed by Walter Bellini, VP of sales.
OPTION 1
•Great Upside Potential.•Unit volume growth of Organic Yogurt at supermarkets at 20% per year from 2001 to 2006.•It has the highest Incremental Demand.
BENEFITS
OPTION 1
• Supporting 8-oz cup size would require quarterly trade promotions and a meaningful marketing budget.• Advertising plan would cost $ 1.2 million per region per year in additional to promotional ads expenses.• SG&A expenses would increase by $320,000 annually.• This option creates direct competition with national yogurt brands.
RISKS
OPTION 1Supermarket Channel Margin Analysis
CHANNEL SELLING PRICE
MARGIN COST PRICE
Retailer $0.74 27% $0.74X73%=$0.54
Distributor $0.54 15% $0.54X85%=$0.46
Natureview $0.46 (0.46/0.31)/0.46=33%
$0.31
OPTION 1 : Income Projection2000 2001
Unit Sales 35 000 000 35 000 000 X (1+20%)=42 000 000
Revenue Growth $35 000 000 X $0.74=$25 900 000 42 000 000 X )0.74= $ 31 080 000
Projected Revenue $13 000 000+$25 900 000= $ 38 900 000
$ 13 000 000 + $31 080 000 = $44 080 000
Cost 35 000 000 X $0.31= $10 850 000 42 000 000 X 0.31 = $ 13 020 000
Gross Profit $ 28 050 000 $ 31 060 000
ExpensesAdvertisement $ 1 200 000 X 2 region=$2 400 000 $2 400 000
SG&A $320 000 $ 640 000
Slotting Fee 6 X $ 10 000X 20 retails=$1 200 000
Broker’s Fee $16 100 000x 0.04=$6 400 000 $ 19 320 000x0.04=$ 772 800
Net Profit $ 23 486 000 $ 24 247 200
OPTION 11•Expand 4 SKUs of 32-oz. size nationally.
•Proposed by Jack Gottlieb,VP of Operations.
OPTION 11
•Potentially gives higher average gross profit margin than 8-oz size.•Lower promotion expenses.•It also has stronger competitive advantage like longer shelf life and low Marketing expenses.
BENEFITS
OPTION 11•Doubts on claim of new users would readily “enter the brand” via a multi-use size.•Doubt on sales' team ability to achieve full national distribution in 12 months.•Need to hire sale personnel and establish relationship with supermarket brokers.•The 32oz expansion would increase SG&A.
RISKS
OPTION 11Supermarket Channel Margin Analysis
CHANNEL SELLING PRICE
MARGIN COST PRICE
Retailer $2.70 27% $2.70X73% =$1.97
Distributor $1.97 15% $1.97X85%=$1.67
Natureview $1.67 41% $0.99
OPTION 11 : Income Projection2000 2001
Unit Sales 5,500,000 5,500,000
Revenue Growth $5,500,000 X 2.70=$14 850 000 $14 850 000
Projected Revenue $14 850 000+$13 000 000= $27 850 000
$27 850 000
Cost $5,500,000x0.99=$5,445,000 $5,445,000
Gross Profit $9,405,000 $ 22,405,000
ExpensesSlotting Fee 4x 10000x64=2,560,000 0
SG&A 160,000 160,000
Marketing 120,000x4=480,000 480,000
Broker’s Fee 367,400 367,400
Net Profit $ 18 837 600 $ 21,397,000
OPTION 111•Introduce 2 SKUs of Children’s multipack into the Natural Foods Channel.•Proposed by Kelley Riley, the Assistant Marketing Director.
OPTION 111
•Established leader in this Channel.•Perfect positioning for new multipack product.•Long term financial potential very attaractive.
BENEFITS
OPTION 111Supermarket Channel Margin Analysis
CHANNEL SELLING PRICE
MARGIN COST PRICE
Retailer $3.35 35% $3.35X65% =$2.18
Distributor $2.18 9% $2.18X91%=$1.98
Nature Foods wholesaler
$1.98 7% $1.98X93%=$1.84
Natureview $1.84 38% $1.15
OPTION 111 : Income Projection2000 2001
Unit Sales 1,800,000 2,070,000
Revenue Growth $1,800,000 X 3.35=$6,030,000 $6,934,500
Projected Revenue $6,030,000+$13 000 000= $19,030, 000
$19,934,500
Cost $1,800,000x1.15=$2,070,000 $2,380,500
Gross Profit $16,960,000 $ 17,554,000
ExpensesMarketing 250,000 250,000
Complementary cases 6,030,000x2.5%=150,750 173,363
Net Profit $ 16,559,250 $ 17,130,637
So ,What is the SOLUTION?
Projection Comparison MatrixOption 1 Option 11 Option
111Gross Margin 33% 41% 38%
Unit Sales 42,000,000 5,500,000 2,070,000
Revenue Projection 44,080,000 27,850,000 19,934,500
Cost 13,020000 54,445,000 23,805,000
Gross Profit 31,060,000 22,405,000 17,554,000
Expense:
SG&A 640,000 160,000 0
Marketing 2,400,000 480,000 250,000
Broker’s fees(4% revenues)
772,800 36,7400 0
Complementary cases
0 0 173363
Net Profit $27,247,200 $21,397,600 $17,130,637
Decision MatrixDecision parameter Option 1 Option 11 Option 111
Revenue Objective
Exceeds Exceeds Falls Short
Channel Partners Highly Alienating Alienating Enhancing
Competitive Response
Very Risky Risky Low
Cost to Induce Trial
High Very High Low
Brand Equity Dilution
Possible Possible No
Organization Capabilities
Low Low High
POSSIBLE STRATEGY• If we really press hard to answer the $20 million question, then its fairly simple answer.
Go with Option 1.•We recommend Natureview to expand the multi pack into supermarket channel in Northeast and West
Benefits of the strategy•High growth(more than 12%) from last year.•Minimized channels conflicts : Through this expansion ,Nature view can make it’s revenue expansion by 2001.•No cannibalization or alienation.•New target customers : Supermarket will be selling these multipacks relatively cheap.
THANK YOU
-Prashant Kumar Ojha Summer Intern, IIM Lucknow