natureview

Natureview Farms Case Analysis

MBA 623 – Dr. JajuChoi, Pham, Neibyu, Shilawat, Teja, Winter

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

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

• 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

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

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

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

8-oz. cups and smaller74%

Children’s multipacks9%

32-oz. cups8%

Other9%

The Yogurt Market

Market Topology

Supermarket97%

Natural Foods Channel3%

Channel Market Share

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

Distribution Channels

Natural Foods Channel

Manufacturer

Wholesaler

Distributors

Retailer

Customer

Supermarket Channel

Manufacturer

Wholesaler

Retailer

Customer

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

OPTIONS for Resolving the crisis

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

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

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%

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



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%

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



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%

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%

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

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


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


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


• 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

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


Cannibalization Sensitivity for 2001

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


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


Growth 20%Growth 15%Growth 10%Growth 5%Growth 0%


Reve

nue


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


Growth 15%Growth 10%Growth 5%Growth 0%


Reve

nue

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

Decision ???

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

natureview

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