natureview
TRANSCRIPT
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Natureview Farms Case Analysis
MBA 623 – Dr. JajuChoi, Pham, Neibyu, Shilawat, Teja, Winter
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Agenda
• 5 C’s, Problem Definition – 5 min• Market Analysis – 5 min• Possible Marketing Strategies – 10 min• Financials Summary with Sensitivities – 5 min• Worst Case Scenarios - 5 min• Conclusion – 5 min• Q and A
– Feel free to ask your questions during presentation
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1989 - Founded– Revenue $100 K. Yogurt products . Introduced 2 Flavors
1996 – Jim Wagner Hired to steady profits
1997 - CFO Jim Wagner got VC capital Infused capital
Today Feb 2000. Annual Revenue was $13 million in 1999. Total 12 Flavors in 8 Oz and 4 Flavors 32 Oz
VC to cash out at the end of 2001. Revenue needs to grow to 20 million
Company Background
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• Emphasis on natural ingredients and its strong reputation for quality and great taste
• No artificial thickeners and rGBH mixed milk• Comparing to the other products’ 30 days shelf life,
Natureview’s yogurts will remain fresh for 50 days• 8 Oz has 12 Flavors and 32 Oz 4 Flavors.
Product Profile
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Customer• Brand Sensitive• Natural Foods Customer • Taste savvy• Less Price Sensitive• Woman (Single and with
Kids) take 74% Market Share
• Customer loves Natureview Yogurt
Competition• Main competitor
Horizon• Recent IPO• Flush with Cash• Bigger than Natureview• Already uses
supermarket channel
Customer and Competetion
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Strengths Major and trusted brand in natural foodsProduct Quality Strong relationships in natural food market Channel leaderRelatively Rapid revenue growthLonger product shelf Life
WeaknessOwns Small portion of the yogurt marketNot ventured into supermarket channel High dependence on brokers for distribution and promotion.Inefficient nature foods distribution channel
OpportunitySupermarket channel provides significant potential of growthNatural food’s sales expected to grow by 20%Opportunity for lowering customer cost
ThreatsLack of CapitalMain competitor(Horizon) is getting strongerNo expertise in supermarket channelCompany may have to repositionRisk Inter Product cannibalization
SWOT
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Natureview Crisis – Feb 2000
VC to cash out at the end of 2001
2001 – Revenue
needs to rise to $20 Million
1999 – Rev $13 Million
Problem DefinitionNatureviews problem is that they have to make strategic marketing decisions to grow revenues to $20,000,000 from their current $13,000,000 before the end of the 2001fiscal year
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8-oz. cups and smaller74%
Children’s multipacks9%
32-oz. cups8%
Other9%
The Yogurt Market
Market Topology
Supermarket97%
Natural Foods Channel3%
Channel Market Share
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Natureview Farm 24%
Brown Cow 15%
Horizon Organic 19%
White Wave
7%
Others 35%
Natural Foods Channel
Dannon33%
Yoplait24%
Others23%
Private Label15%
Columbo5%
Supermarket Channel
Distribution Channels
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Distribution Channels
Natural Foods Channel
Manufacturer
Wholesaler
Distributors
Retailer
Customer
Supermarket Channel
Manufacturer
Wholesaler
Retailer
Customer
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Channel Margin Analysis
Natural Foods Supermarket
Unit Cost Margin Selling Price Margin % Mark-up Unit Cost Margin Selling Price Margin % Mark-up
8 OzManufr. 0.31 36% 0.48 0.17 56% 0.31 33% 0.46 0.15 49%Wholesalers 0.48 7% 0.52 0.04 8% 0.46 15% 0.54 0.08 18%Distributor 0.52 9% 0.57 0.05 10% 0.54 0% 0.54 0.00 0%Retailer 0.57 35% 0.88 0.31 54% 0.54 27% 0.74 0.20 37%Customer 0.88 0.74
32 Oz
Manufr. 0.99 44% 1.75 0.76 77% 0.99 41% 1.68 0.69 69%Wholesalers 1.75 7% 1.89 0.13 8% 1.68 15% 1.97 0.30 18%Distributor 1.89 9% 2.07 0.19 10% 1.97 0% 1.97 0.00 0%Retailer 2.07 35% 3.19 1.12 54% 1.97 27% 2.70 0.73 37%Customer 3.19 2.70
Multipack
Manufr. 1.12 39% 1.84 0.72 64% 1.12 37% 1.77 0.65 57%Wholesalers 1.84 7% 1.98 0.14 8% 1.77 15% 2.08 0.31 18%Distributor 1.98 9% 2.18 0.20 10% 2.08 0% 2.08 0.00 0%Retailer 2.18 35% 3.35 1.17 54% 2.08 27% 2.85 0.77 37%Customer 3.35 2.85
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OPTIONS for Resolving the crisis
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Expand 6 SKUs of the 8-oz. product line into one or two selected supermarket channel regionsProposed by Walter Bellini VP Sales
Option 1 Option II
Introduce 2 SKUs of a Children’s Multi-Pack into the Natural Foods ChannelProposed by Kelly Riley, the assistant marketing director
Option III
Choices for Christine Walker, VP Marketing
Expand 4 SKUs of the 32-oz. size nationallyProposed by Jack Gottlieb, vice president of operations
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Walter BelliniOPTION 2 OPTION 3
Benefits1. Great Upside Potential2. For supermarket adding these products would attract higher-
income less price-sensitive customers3. Unit volume growth of organic yogurt at supermarkets of 20% per
year from 2001 to 20064. This option also has the highest incremental demand
Risks1. Supporting 8-oz cup size would require quarterly trade promotions
and a meaningful marketing budget2. Advertising plan would cost $1.2 million per region per year in
addition to the promotional ads expenses3. SG&A expenses would increase by $320,000 annually 4. This option creates direct competition with national yogurt brands
Option 1 - Expand 6 SKUs of the 8-oz. product line into one or two selected supermarket channel regions
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Option 1 – Income Forecast
Year 2000 Year 2001 Year 2002 Year 2003
Revenue $ 29,070,950 $ 32,285,140 $ 36,142,168 $ 40,770,602 Costs of Good Sold $ (19,040,000) $ (21,210,000) $ (23,814,000) $ (26,938,800) Gross Profit $ 10,030,950 $ 11,075,140 $ 12,328,168 $ 13,831,802 Admin / Freight $ (2,210,000) $ (2,210,000) $ (2,210,000) $ (2,210,000) Sales $ (1,880,000) $ (1,880,000) $ (1,880,000) $ (1,880,000) Marketing $ (3,660,000) $ (3,660,000) $ (3,660,000) $ (3,660,000) R&D $ (390,000) $ (390,000) $ (390,000) $ (390,000) One-Time Slotting Fee $ (1,200,000)
-
-
-
Brokers' Fee @ 4% $ (642,838) $ (771,406) $ (925,687) $ (1,110,824) Total Expense $ (9,982,838) $ (8,911,406) $ (9,065,687) $ (9,250,824) Net Income $ 48,112 $ 2,163,734 $ 3,262,481 $ 4,580,978 Profit Margin 0.17% 6.70% 9.03% 11.24%
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OPTION 1 OPTION 3
Benefits1. Potentially give higher average gross profit margin than 8-oz size2. It also has stronger competitive advantage like longer shelf life and
lower marketing expenses
Risks1. Doubt on claim of new users would readily “enter the brand” via a
multi-use size 2. Doubt on sales team’s ability to achieve full national distribution in
12 months3. Needs to hire sales personnel and establish relationships with
supermarket brokers4. The 32-oz. expansion option would increase SG&A expense by
$160,000
Option 2 – Expand 4 SKUs of the 32-oz. size nationally
Jack Gottleib
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Option 2 – Income Forecast
Year 2000 Year 2001 Year 2002 Year 2003
Revenue $ 22,214,425 $ 24,057,310 $ 26,268,772 $ 28,922,526 Costs of Good Sold $ (13,635,000) $ (14,724,000) $ (16,030,800) $ (17,598,960) Gross Profit $ 8,579,425 $ 9,333,310 $ 10,237,972 $ 11,323,566 Admin / Freight $ (2,210,000) $ (2,210,000) $ (2,210,000) $ (2,210,000) Sales $ (1,720,000) $ (1,720,000) $ (1,720,000) $ (1,720,000) Marketing $ (1,894,000) $ (1,894,000) $ (1,894,000) $ (1,894,000) R&D $ (390,000) $ (390,000) $ (390,000) $ (390,000) One-Time Slotting Fee $ (2,560,000) - - - Brokers' Fee @ 4% $ (368,577) $ (442,292) $ (530,751) $ (636,901) Total Expense $ (9,142,577) $ (6,656,292) $ (6,744,751) $ (6,850,901) Net Income $ (563,152) $ 2,677,018 $ 3,493,221 $ 4,472,665 Profit Margin -2.54% 11.13% 13.30% 15.46%
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OPTION 1 OPTION 3
Benefits1. Established leader in this channel2. Perfect positioning for new multi-pack product3. Long term the financial potential was very attractive
Risks1. Established leader in this channel2. Perfect positioning for new multi-pack product3. Long term the financial potential was very attractive
Option 3 – Introduce 2 SKUs of a Children’s Multi-Pack into the Natural Foods Channel
Kelly Riley
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Option 3 – Income Forecast
Year 2000 Year 2001 Year 2002 Year 2003
Revenue $ 16,317,073 $ 16,383,414 $ 16,451,083 $ 16,520,104 Costs of Good Sold $ (10,260,000) $ (10,007,640) $ (10,043,993) $ (10,081,073) Gross Profit $ 6,057,073 $ 6,375,774 $ 6,407,090 $ 6,439,032 Admin / Freight $ (2,210,000) $ (2,210,000) $ (2,210,000) $ (2,210,000) Sales $ (1,560,000) $ (1,560,000) $ (1,560,000) $ (1,560,000) Marketing $ (640,000) $ (640,000) $ (640,000) $ (640,000) R&D $ (390,000) $ (390,000) $ (390,000) $ (390,000) One-Time Slotting Fee $ (82,927) - - - Brokers' Fee @ 4% $ (132,683) $ (135,337) $ (138,043) $ (140,804) Total Expense $ (5,015,610) $ (4,935,337) $ (4,938,043) $ (4,940,804) Net Income $ 1,041,463 $ 1,440,438 $ 1,469,046 $ 1,498,227 Profit Margin 6.38% 8.79% 8.93% 9.07%
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Financials Summary 2000 2001 2002 2003 2004
OPTION 1
Revenue $ 29,070,950.00 $ 32,285,140.00 $ 36,142,168.00 $ 40,770,601.60 $ 46,324,721.92
Gross Profit $ 10,030,950.00 $ 11,075,140.00 $ 12,328,168.00 $ 13,831,801.60 $ 15,636,161.92
Net Income $ 48,112.00 $ 2,163,734.40 $ 3,262,481.28 $ 4,580,977.54 $ 6,163,173.04
Profit Margin 0% 7% 9% 11% 13%
Profit Growth 0% 4397% 51% 40% 35%
OPTION 2
Revenue $ 22,214,425.00 $ 24,057,310.00 $ 26,268,772.00 $ 28,922,526.40 $ 32,107,031.68
Gross Profit $ 8,579,425.00 $ 9,333,310.00 $ 10,237,972.00 $ 11,323,566.40 $ 12,626,279.68
Net Income $ (563,152.00) $ 2,677,017.60 $ 3,493,222.12 $ 4,472,667.34 $ 5,648,001.41
Profit Margin -3% 11% 13% 15% 18%
Profit Growth 0% 575% 30% 28% 26%
OPTION 3
Revenue $ 16,317,072.85 $ 16,814,633.78 $ 17,386,828.84 $ 18,044,853.17 $ 18,801,581.15
Gross Profit $ 6,057,072.85 $ 6,575,333.78 $ 6,840,133.84 $ 7,144,653.92 $ 7,494,852.01
Net Income $ 1,041,463.11 $ 1,622,748.43 $ 1,864,660.69 $ 2,142,859.79 $ 2,462,788.76
Profit Margin 6% 10% 11% 12% 13%
Profit Growth 0% 56% 15% 15% 15%
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2000 2001 2002 2003 2004$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
$45,000,000
$50,000,000
Option 1Option 2Option 3
Revenue
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Profits
2000 2001 2002 2003 2004$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
Option 1Option 2Option 2
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Demand Sensitivity for 2001
100% 95% 90% 85% 80% 75% 70% 65% 60% 55%$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
Option 1Option 2Option 3
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Growth Sensitivity for 2001
20% 18% 16% 14% 12% 10% 8% 6% 4% 2%$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
Option 1Option 2Option 3
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• There will be a horizontal channel conflict with supermarkets
• It is possible the current channel partners may be alienated
• This may end up having 3 way impact– We discussed Product Demand, Revenue Growth – Now we need to test Product Cannibalization– All forecasts need to be stress tested for sensitivity
Channel Conflict and Cannibalization
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1 2 3 4 5 6 7$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
Option 1Option 2Option 3
Cannibalization Sensitivity for 2001
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WORST Case Scenarios
0,100 0,90 0,80 5,100 5,90 5,80 10,100 10,90 10,80 $-
$5,000,000.00
$10,000,000.00
$15,000,000.00
$20,000,000.00
$25,000,000.00
$30,000,000.00
$35,000,000.00
Option 1 - Scenarios
Growth 20%Growth 15%Growth 10%Growth 5%Growth 0%
Cannabalization, Demand
Reve
nue
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WORST Case Scenarios
0,100 0,90 0,80 5,100 5,90 5,80 10,100 10,90 10,80 $-
$5,000,000.00
$10,000,000.00
$15,000,000.00
$20,000,000.00
$25,000,000.00
$30,000,000.00
Option 2 - Scenarios
Growth 20%Growth 15%Growth 10%Growth 5%Growth 0%
Cannabalization, Demand
Reve
nue
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WORST Case Scenarios
0,100 0,90 0,80 $-
$2,000,000.00
$4,000,000.00
$6,000,000.00
$8,000,000.00
$10,000,000.00
$12,000,000.00
$14,000,000.00
$16,000,000.00
$18,000,000.00
Option 3 - Scenarios
Growth 15%Growth 10%Growth 5%Growth 0%
Cannabalization, Demand
Reve
nue
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Decision Matrix
Decision Parameter Option 1 Option 2 Option 3 Revenue Objective Exceeds Exceeds Falls Short Short Term Profits No No Gain Long Term Profits High High Low 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 Organizational capabilities Low Low High
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Decision ???
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Possible Conclusion
• If we really hard pressed to answer the $20 Million question, then it is fairly simple answer. Go with option 1.
• We recommend Natureview to Expand the multi-pack into supermarket channel in Northeast and West
• The benefits of this decision will include the follow. – High growth (12% changes from last year):– Minimized channel conflicts: Through this expansion, Natureview can make its
revenue goal by 2001 • no cannibalization/alienation
– New target customers: Supermarket will be selling these multi-packs relatively cheap.
– Higher expected annual demand