natureview case study
TRANSCRIPT
Natureview Farm Case Study
1989
• Founded and manufactured in Cabot, Vermont• First enter market 8-oz and 32-oz with plain and vanilla
flavor• Use natural ingredient with longer average shelf-life of
50 days
1999• Company revenue growth from $ 100,000 to $13 million• Fruit on the bottom yogurt
2000• Expand to 12 yogurt flavors & multipack yogurt (for
children)
About Natureview
Issues
VC needed to cash out of its
investment
Need to find a path to grow revenues by over 50% before the end of
2001 ($20 mil)
Should Natureview Farm expand into
supermarket channel?
•Natural yogurt (organic)•8 –oz. size with 12 flavors
•32-oz. size with 4 flavors
•Affordable according to it’s channel
•Natural food channel•Wholesale club•National retailer channel•Convenience and drug store
• It’s natural flavor with high quality and great taste growth in the national distribution and natural food channel
•Low-cost guerilla marketing
86%
14%
Revenues 2000
8-oz32-oz
Start exploring kid multipack yogurt product (4-oz)
• 12 YOGURT FLAVOURS IN 8-OZ• 4 YOGURT FLAVOURS IN 32-OZ
Product
• Strong brand• Low cost• No artificial
thickeners used• Unique, smooth
and creamy texture of yogurt
• Usage of natural ingredients
• Longer shelf life
• No alternative financing available
• Lacks potential of taking higher risks and costs
• Doubt on sales team’s ability
• Strong relationships with leading natural foods retailers
• Accumulation of cash by Horizon from IPO
• Being dropped out of traditional channel
Market Trend
Packaging
type/size
Taste
Flavor
Price
Freshness
Ingredient
Organic or not
74%
9%
8%
9% 8-oz. cup smaller
Children's multipacks
32-oz. cups
Others
YOGURT MARKET SHARE BY PACKAGING SEGMENT
26%
22%25%
27%Northwest
Midwest
Southwest
West
YOGURT MARKET SHARE BY REGION
97%
3% Distribution Channel
SupermarketsNatural food stores
Yogurt Distribution Channel
LENGTH OF CHANNEL TO
MARKETSupermarket Channel Natural Foods Channel
Manufacturer
Distributor
Retailer
Customer
Manufacturer
Natural Foods Wholesaler
Natural Foods Distributor
Retailer
Customer
15%
27% 35%
9%
7%
YOGURT MARKET SHARE BY BRAND
Dannon33%
Yoplait24%
Others23%
Pri-vate Label15%
Columbo5%
Supermarket Channel
Na-tureview Farm24%
Brown
Cow15%Horizon
Organic19%
White Wave
7%
Others35%
Natural Foods Channel
RETAIL PRICES BY CHANNEL
Natural Food
Channel
Supermarket Food
Channel
Manufacturing Cost
8-oz. cup $ 0.88 $ 0.74 $0.31
32-oz. cup $ 3.19 $ 2.70 $0.99
4-oz. cup multipack
$ 3.35 $ 2.85 $1.15
OPTIONS AND DILEMMA
OPTION 1• Expand in
Northeast and West supermarket region
• Bring in the 6 SKUs of the 8-oz. size
OPTION 2• Expand in
supermarket nationally
• Bring in the 4SKUs of the 32-oz. size
OPTION 3• Stay in natural
food channel• Introduce 2
children’s multipack
OPTION 1: Expand 6 SKUs of the 8-oz into eastern and western supermarket regions
PROs
• 8-oz have highest incremental demand• High potential to increase revenue• First mover as organic yogurt brand to enter
supermarket channel
CONs
• High risk & high cost (marketing)• Require quarterly trade promotions• Advertising plan would cost $1.2 million per
region per year• SG&A expenses increase by $320,000 annually • Need to pay one time slotting fee
Supermarket channel margin analysis
Channel Selling price
Margin Cost price
Retailer $2.70 27% $2.70 x 73% = $1.97
Distributor $1.97 15% $0.54 x 85% = $1.67
Natureview
$1.67 ($1.67/$0.99)/$1.67 =41%
$0.99
Projection income statement
2000 2001Unit sales 5,500,000 5,500,000Revenues growth 550000 x 2.70 =
14,850,000 14,850,000
Projected revenue 14850000 + 13000000 = 27,850,000
27,850,000
Cost 5500000 x 0.99 = 5445000
5445000
Gross profit 9,405,000 22,405,000Expense:Slotting fee 4 x 10000 x 64 =
2,560,000 0
SG & A 160,000 160,000Marketing 120000 x 4 = 480000 480,000Broker's fee (4% revenues)
367,400 367,400
Net profit 18,837,600 21,397,600
OPTION 2:Expand 4 SKUs of the 32-oz size nationally into supermarket regions
PROs • Generate higher profit margin than 8-oz size• Strong competitive advantage: longer shelf life• Lower promotion expenses
CONs• Doubt on claim of new users would readily “enter
the brand” via a multi-use size • Doubt on sales team’s ability to achieve full national
distribution in 12 months• Needs to hire sales personnel and establish
relationships with supermarket brokers• The 32-oz. expansion option would increase SG&A
expense by $160,000
Supermarket channel margin analysisChannel Selling
priceMargin Cost price
Retailer $2.70 27% $2.70 x 73% = $0.1.97
Distributor $1.97 15% $0.54 x 85% = $1.67
Natureview $1.67 ($1.67/$0..99)/$1.67 =41%
$0.99
Projection income statement
2000 2001Unit sales 1,800,000 1,800,000 x 1.15 =
2,070,000
Revenue growth 1,800,000 x 3.35 = 6,030,000
2,070,000 x 3.35 = 6,934,500
Revenue projection 6,030,000 + 13,000,000 = 19,030,000
6,934,500 + 13,000,000 = 19,934,500
Cost 1,800,000 x 1.15 = 2,070,000
2,070,000 x 1.15 = 2,380,500
Gross profit 16,960,000 17,554,000Expense:Marketing 250,000 250,000Complementary cases
6,030,000 x 2.5% = 150,750
6,934,500 x 2.5% = 173,363
Net profit 16,559,250 17,130,637
OPTION 3:Introduce two SKUs of a children multipack into the natural foods channel
PROs • The sales team was confident that they could
achieve distribution for the two SKUs.• The financial potential was very attractive.• It would yield the strongest profit contribution of all
the strategies under consideration.• The natural foods channel was growing almost seven
times faster than the supermarket.
CONs • There were many potential conflicts and other
uncertain factors that the manager could not determine.
• Can not achieve the target objective of Natureview farm
Nature Food Channel Margin Analysischannel Selling
PriceMargin Cost Price
Retailer $3.35 35% $3.35 x 65% = $2.18
Distributor $2.18 9% $2.18 x 91% = $1.98
Nature foods wholesalers
$1.98 7% $1.98 x 93% = $1.84
Natureview $1.84 ($1.84 - $1.15) / $1.84
=38%$1.15
Projection income statement
2000 2001Unit sales 1,800,000 1,800,000 x 1.15 =
2,070,000
Revenue growth 1,800,000 x 3.35 = 6,030,000
2,070,000 x 3.35 = 6,934,500
Revenue projection 6,030,000 + 13,000,000 = 19,030,000
6,934,500 + 13,000,000 = 19,934,500
Cost 1,800,000 x 1.15 = 2,070,000
2,070,000 x 1.15 = 2,380,500
Gross profit 16,960,000 17,554,000Expense:Marketing 250,000 250,000Complementary cases
6,030,000 x 2.5% = 150,750
6,934,500 x 2.5% = 173,363
Net profit 16,559,250 17,130,637
What should we choose??
Comparison of Options for Year 2001
Option Option 1 Option 2 Option 3Gross Margin 33% 41% 38%Unit sales 42, 000 000 5,500,000 2,070,000Revenue projection 44, 080 000 27,850,000 19,934,500Cost $ 13 020 000 $ 5 445 000 $ 2,380,500Gross profit $ 31, 060 000 22,405,000 17,554,000Expense:SG & A $ 640, 000 160,000 0Marketing $ 2, 400, 000 480,000 250,000Broker's fee (4% revenues)
$ 772, 800 367,400 0
Complementary cases 0 0 173,363Net profit $ 27, 247, 200 $ 21,397,600 $ 17,130,637
`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 Matrix
Possible Conclusion: If we really hard press to answer the $20 million question, then it’s fairly simple answer. Go with option 1.We recommend Nature view to expand the multi pack into supermarket channel in Northeast and West
BenefitsThe benefits would include the following :• High growth (more than 12% from last year)• Minimized channel conflicts : Through this expansion, Nature view can make it’s revenue goal by 2001• No cannibalization or alienation• New target customers : Supermarket will be selling these multi packs relatively cheap• Higher expected annual demand.
Final Decision Go for option 1
• Reach beyond the target objective of 20 million revenue by end of 2001 with projected of $31,060,000
• 8 –oz yogurt is the highest demand • In supermarket, can expose to more range of
customers• Will have the first mover advantages of natural
product to enter supermarket• A bit risky but in a long term will generate
revenues of 200% (as looking at two other competitors)
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DisclaimerCreated by Abhishek Goyal of IIT Kanpur during a Marketing Internship by Prof. Sameer Mathur, IIM Lucknow.