natureview case analysis

Natureview Farm:Growing Revenues By 50%

NATUREVIEW FARM:A SMALL YOGURT MANUFACTURER

NATUREVIEW FARM

Began in 1989

Key to success was unique recipe used which included natural ingredients increasing shelf life upto 50 days

Revenue grew from less than $100,000 in 1989 to $13 million in 1989

KEY PEOPLE INVOLVED….• Christine Walker:Vice President of

Marketing• Barry Landers:CEO• Walter Bellini:Vice President,Sales• Kelly Riley• Jack Gottlieb:Vice President,Operations

NEW CHALLENGE

• TO GROW REVENUES BY 50% BEFORE THE END OF 2001

AFTER DISCUSSIONS

CHRISTINE WALKER SUMMARIZED 3 OPTIONS

Option:1

• Expand 6 SKU’s of 8-oz product line into one or two selected supermarket channel regions

• Advocated by Walter Bellini

Option:2

• Expand 4 SKUs of 32-oz size nationally• Advocated by Jack Gottlieb

Option:3

• Introduce 2 SKUs of a children’s multi-pack into natural foods channel.

• Advocated by Kelly Riley

NATUREVIEW FARM INCOME STATEMENT,1999

REVENUES $13,000,000 100% REVENUES

COST OF SOLD GOODS

$8,190,000 63%

GROSS PROFIT $4,810,000 37%

EXPENSES

ADMINISTRATION $2,210,00 17%

SALES $1,560,000 12%

MARKETING $390,000 3%

RESEARCH&DEVELOPMENT

$390,000$260,000

3%2%

NET INCOME

Yogurt Market Share by Packaging Segment,1999(supermarket channel,in

%US DollarsDOLLAR SHARE DOLLAR SHARE

CHANGE vs. PRIOR YEAR

8-oz cups&smaller 74% +3%

Children’s multipacks 9% +12.5%

32-oz cups 8% +2%

Other 9% NC

Yogurt Market Share by Packaging Segment,1999(Supermarket channel,in

%U.S. DollarsDOLLAR SHARE Number of Retailers in

the Region

Northeast 26% 25

Midwest 22% 30

Southeast 25% 33

West 27% 17

2 DOMINANT SALES CHANNELS IN 1999

SUPERMARKETS• Sold 97% of total yogurt sold by

these 2 channels

NATURAL FOOD STORES• Sold rest 3% of total yogurt

consumed by these 2 channels

SUPERMARKET• One of the 2 major distribution channels in

1999• Comprised 97% of the total sales of 2 major

channels• Typical retailer margin was 27% and

distributor’s margin was 15%• Companies need to pay one time slotting fee

for each SKU• For refrigerated yogurt slotting fee averaged

$10,000 per SKU per retail chain

SUPERMARKET CHANNEL

• MANUFACTURER

• DISTRIBUTOR

• RETAILER

• CUSTOMERS

NATURAL FOODS CHANNEL

• MANUFACTURER

• WHOLESALER

• DISTRIBUTOR

• RETAILER

• CUSTOMERS

YOGURT PRODUCTION COSTS AND RETAIL PRICE OF SUPERMARKETS

SUPERMARKET FOOD CHANNEL AVERAGE RETAIL PRICE

8-oz cup $0.88

32-oz cup $3.19

4-oz cup multipack $3.35

YOGURT PRODUCTION COSTS AND RETAIL PRICE OF NATURAL FOODS

CHANNELNATURAL FOODS CHANNEL AVERAGE RETAIL PRICE

8-oz cup $0.74

32-oz cup $2.70

4-oz cup multipack $2.85

Revenue in 1999:$13

MillionTarget:$20

Million by the End Of 2001

ANALYSIS OF 3 OPTIONS

PREREQUISITE DATAOPTION ACTION ANTICIPATED

INCREAMENTAL UNIT SALES

1 Expand 6 SKUs of the 8-oz. size into eastern and western supermarket regions

35,000,000

2 Expand 4 SKUs of the 32-oz. size nationally into supermarket channel

5,500,000

3 Introduce 2 children’s multipacks into natural foods channel

1,800,000

OPTION 1-1/4• ANTICIPATED INCREAMENTAL RETAIL UNIT

SALES:35,000,000CURRENT REVENUE:$13,000,000GROWTH RATE OF YOGURT SALES THROUGH SUPERMARKETS:3%REVENUE AT THE END OF YEAR 20000:$16,500,000+REVENUE THROUGH OTHER YOGURT TYPES AND REST OF 2 SKUs OF 8-oz SIZE(MIN.-20%OF14% OF 13,000,000)=$16,500,000+$364,000=$16,864,000

OPTION1-2/4• IN YEAR 2001..• SALES=$16,864,000+$1,092,000+

$35,000,000(MINIMUM)=$52,956,000>2000,0000

• EXTRA EXPENDITURE• SLOTTING PRICE-$60,000• ADVERTISEMENTS

COST=$(22,500+15,000)=$37,500• BROKER

CHARGE=$4281210(MINIMUM)

OPTION1-3/4

• PROs-It provides a huge upside opportunity for Natureview to increase sales exploiting huge market share of supermarkets• It also gives it edge over competitors who

will or are planning to enter supermarket channel

Option1-4/4

• CONS-• Risk of loosing market share due to

attraction of less price sensitive cnsumers• It would require meaningful marketing

budget since this size faces most competition

OPTION2:1/3

• Anticipated increamental retail unit sales:$5,500,000

• Sales at the end of year 2000=$18,500,000

• Growth rate=2%• Sales at the end of year

2001=$18,610,000(minimum)

OPTION2:2/3• PROs• Gross profit margin is 43.6%,more than 9-

oz line• Strong competitive advantage,sonce less

competitor offerings are in this line• Less promotional fees,since it needs to be

promoted twice a year only

OPTION2:3/3• CONs• Growth rate of 32-oz product line is very low• Market share of 32-oz product line is also not

very high• More slotting fees will be required for national

distribution• Increased SG&A by $160,000• Uncertainity of achieving targetsof full

distribution in 12 months• Uncertainity of new consumers entering this

product line

• i

OPTION3:1/3

• Anticipated Increamental Retail Unit Sales:$1,800,000

• Sales at the end of year 2000=$13,000,000+$1,800,000=148000,000

• Sales at the end of year 2001(minimum)=$14,8000,000+(8%0f2% of$13,000,000)=$148,020,800

OPTION3:2/3• PROsStrong relationship of Natureview with leading Natural Food channelsSales team was confident to achieve distribution target Gross profit was 37.6%Natural food channel was growing faster than supermarket channel,thus it will be productive in longer runNo additional SG&A cost or R&D expenditure would be required

OPTION3:3/3• CONs• It would not achieve target in time frame• It can fall prey to competitors expanding

into supermarket channels• During marketing turbulence it woul loose

shares since people can switch over to supermarkets during turbulence due to low price offerings

Disclaimer

conclusionOption 1 provides the attainment of target’s probablity most.However, profit margin is less in that option but it can be compensated easily with huge sales volume.There is a risk of inability to handle supermarket channel but,Natureview can find a solutionMaking itself vulnerable can result in more sales,otherwise it would be stagnant and may start declining after sometime

DISCLAIMERCreated during Marketing Management Internship

• CREATOR• Ankit Raj• Jadavpur University

• MENTOR• Prof. Sameer Mathur• IIM,Lucknow