case study natureview farm

Natureview Farm Case Analysis

Started in 1989

Sells Yogurt using family yogurt recipe

Uses natural ingredients , sells through natural food channels

12 flavors in8 oz cupand 4 flavors in 32 oz cup

Average shelf life of 50 days , 20 more than the average

NatureviewFarm

Growth from $100,000 to$13,000,000 in 10 years

1997

2000(present)

By 2001

Increase revenue to 20 million dollars to attract another investor

Got funding from a venture capitalist

Venture Capitalist decides to cash out

How to increase revenue to $20,000,000 by 2001?

Revenue $13,000,000 100 %

COGS $8,190,000 63%

Gross Profit $4,810,000 37%

Expenses

Administration $2,210,000 17%

Sales $1,560,000 12%

Marketing $390,000 3%

Research & Development

$390,000 3%

Net Income $260,000 2%

Natureview Farm Income Statement, 1999

86% of profits is from 8 oz while 14% is from 32 oz. Mathematically-Gross Profit Margin = 0.86*36%+0.14*43.2%=37%

Projected GrowthSegment Percentage Growth (In % US

Dollars)

8-oz. cups and smaller 3%

Children’s multipacks 12.5%

32-oz. cups 2%

Channel Percentage Growth in Yogurt sales

Supermarket 3%

Natural Foods 20%

Channels Unit Cost %Margin Selling Price

Manufacturer $0.31 36% $0.48

Distributor $0.48 7% $0.52

Wholesaler $0.52 9% $0.57

Retailer $0.57 35% $0.88

Customer $0.88

Natural Foods Channel , 8 oz

Channels Unit Cost %Margin Selling Price

Manufacturer $0.99 43.2% $1.74

Distributor $1.74 7% $1.87

Wholesaler $1.87 9% $2.05

Retailer $2.05 35% $3.16

Customer $3.16

Natural Foods Channel , 32 oz

Channels Unit Cost %Margin Selling Price

Manufacturer $1.15 37.6% $1.84

Distributor $1.84 7% $1.97

Wholesaler $1.97 9% $2.17

Retailer $2.17 35% $3.35

Customer $3.35

Natural Foods Channel , Children Multipack

Channels Unit Cost %Margin Selling Price

Manufacturer $0.31 32.5% $0.46

Distributor $0.46 15% $0.54

Retailer $0.54 27% $0.74

Customer $0.74

Supermarket Channel , 8 oz

Channels Unit Cost %Margin Selling Price

Manufacturer $0.99 41% $1.74

Distributor $1.74 15% $2.04

Retailer $2.04 27% $2.7

Customer $2.7

Supermarket Channel , 32 oz

Segmentation

Yogurt Market Share by Packaging Segment, 1999

Yogurt Market Share by Brand (Supermarket channel), 1999

Yogurt Market Share by Brand (Natural Foods channel), 1999

Yogurt Market Share by region in % US dollars (Supermarket channel), 1999

Expand six stock keeping units (SKUs) of the 8-oz. product line into one or two selected supermarketchannel regions

Benefits1-Significant Revenue Potential

2-Other natural food brands increased revenues by over 200% within two years of entering supermarkets

3-Highest Incremental Demand

4-First Mover Advantage- Supermarket retailers would likely authorize only one organic yogurt brand

Risks

Benefits1-Requires quarterly trade promotions and a huge marketing budget

2-Creates direct competition with national brands

3-Possible channel conflict

4-Promotions and lower price can hurt the premier brand image

5-Little experience in dealing with supermarket channels

Risks

Expenses Calculation

Slotting fees of $60,000 X 20 (Retailers) =$1,200,000

Broker fees @ 4% of sales

Added $320,000

SG&A expenses

Advertising expenseand quarterly trade promotions ad costs

$390,000+$2400000 +$7500*4*11+$15000*4*9=$3,660,000

Year 2000 2001 2002Incremental Units Sold (20% growth per year)

35,000,000 42,000,000 50,400,000

Total Revenue $13,000,000 + 35,000,000*$0.46 = $29,100,000

$13,000,000 + 42,000,000*$0.46 = $32,320,000

$13,000,000 + 50,400,000*$0.46 = $36,184,000

COGS $19,040,000 $21,210,000 $23,814,000

Gross Profit $10,060,000 $11,110,000 $12,370,000

ExpensesAdministration $2,210,000 $2,210,000 $2,210,000

Sales $1,880,000 $1,880,000 $1,880,000Marketing $3,660,000 $3,660,000 $3,660,000Research & Development $390,000 $390,000 $390,000

Slotting Fees $1,200,000

Broker fees $644,000 $772,800 $927,360

Net Income $76,000 $2,197,200 $3,302,640

Profit Margin 0.26% 6.79% 9.127%

Expand four SKUs of the 32-oz size nationally through supermarket channel

Benefits

1- 32 oz generates an above average profit margin

2-Lesser competition in this size

3-Lower promotional expenses than option 1

4-Longer Shelf life

Risks

Benefits1-Achieving national distribution will be challenging in 12 months

2-New users would not readily “enter the brand” via a multi-use size

3-Possible channel conflict

4-Little experience in dealing with supermarket channels

Risks

Expenses Calculation

Slotting fees of $40,000 X 64 (Retailers) =$2,560,000

Broker fees @ 4% of sales

Added $160,000

SG&A expenses

Advertising expenseand quarterly trade promotions ad costs

$390,000+$480,000 +$8000*2*64=$1,894,000

Year 2000 2001 2002Incremental Units Sold (20% growth per year)

5,500,000 6,600,000 7,92,000

Total Revenue $13,000,000 + 5,500,000*$1.74 = $22,570,000

$13,000,000 + 6,600,000*$1.74 = $24,484,000

$13,000,000 + 7,920,000*$1.74 = $26,780,000

COGS $13,635,000 $14,724,000 $16,030,800

Gross Profit $8,935,000 $9,760,000 $10,749,200

ExpensesAdministration $2,210,000 $2,210,000 $2,210,000

Sales $1,720,000 $1,720,000 $1,720,000Marketing $1,894,000 $1,894,000 $1,894,000Research & Development $390,000 $390,000 $390,000

Slotting Fees $2,560,000

Broker fees $382,800 $459,360 $551,232

Net Income -$221,800 $3,086,640 $3,983,968

Profit Margin -0.98% 12.6% 14.88%

Introduce two SKUs of a children’s multi-pack into the natural foods channel

Benefits1-Lower sales and marketing expenses

2-Avoid possible channel conflict and brand dilution

3-Perfectly positioned to launch this option as it has strong relationships with the leading natural foods channel

4-Natural foods channel was growing almost seven times faster than the supermarketchannel

Risks

Benefits1-Lowest incremental demand

2-Natural foods channel could soon start making the same demands as the supermarket channels

3-Miss the chance to enter the supermarket channel before competitors

4-Fall short of the $20,000,000 revenue target by 2001

Risks

Expenses Calculation

Complimentarycases @ 2.5% of sales

Added $250,000 marketin

g expenses

Year 2000 2001 2002Incremental Units Sold (15% growth per year)

1,800,000 2,070,000 2,380,500

Total Revenue $13,000,000 + 1,800,000 *$1.84 = $16,312,000

$13,000,000 + 2,070,000*$1.84 = $16,808,800

$13,000,000 + 2,380,500*$1.84 = $17,380,120

COGS $10,260,000 $10,570,500 $10,927,575

Gross Profit $6,052,000 $6,238,300 $6,452,545

ExpensesAdministration $2,210,000 $2,210,000 $2,210,000

Sales $1,560,000 $1,560,000 $1,560,000Marketing $640,000 $640,000 $640,000Research & Development $390,000 $390,000 $390,000

Complimentary Case Fees

$66,240 $76,176 $87,602.4

Net Income $1,185,760 $1,362,124 $1,564,943

Profit Margin 7.27% 8.1% 9%

BestMediumWorst

Parameter Option 1 Option 2 Option 3RevenueShort Term ProfitLong Term ProfitChannel conflictCompetition

Ranking based on various parameters

Option 2Meets the revenue objective of $20,000,000

Highest long term profit growth

Avoids direct competition with the top brands

High future growth potential

Created by Tishya Kapoor, IIT

Delhi during a marketing

internship under Prof. Sameer

Mathur , IIM Lucknow