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