natureview harvard business case

Natureview

farm

HARVARD BUSSINESS SCHOOL CASE

Natureview

What does Natureview Farm do

Natureviewmanufactures and markets

refrigerated cup

YOGURT

Little History

Started in 1989, it manufactured cup Yogurt in its production facility in Cabot, Vermont.

Income in the beginning – below $100,000

Current Income (2000) - $13 million

Natureview’s TEAM

BARRY LANDERSCEO

Jack GottliebVP (operations)

Walter BelliniVP (sales)

Christine WalkerVP (marketing)

JIM WAGNERCFO

Kelly RileyAss. Marketing director

Special secret recipe

The key to

Natureview yogurt’s unique

smooth, creamy texture is the

family yogurt recipe developed by its

Founder

Other special factors

Cows untreated with

rGBH

Average shelf life

50 daysOther company’s shelf life

30 days

Current situation of Natureview

Channel : Natural foods stores

Yogurt Market Share, 1999 Natural foods channel

Natureview Farm 24%

Brown Cow 15%

Horizon Organic 19%

White Wave 7%

Others 35%

Current situation of Natureview

Natureview Products : Different sizes & their revenue

SIZENumber of flavours

Revenue generated

In a case

8-oz 12 86% 12 cups

32-oz 4 14% 6 cups

Current situation of Natureview

Income statement : Natureview, 1999

Revenues $13,000,000

Cost of Goods sold $8,190,000

Expenses

Administration $2,210,000

Sales $1,560,000

Marketing $390,000

R&D $390,000

Net income $260,000

Current situation of Natureview

Difficulties : Investor (VC firm) cashed out

What

Get a new investor

How

Attain max. possible valuation

So

IncreaseRevenues

$20million

revenue by

2001

GOAL

yogurt

Yogurt and its customers

Yogurtis a dairy productIt is a good source

of Calciumand improves

digestion

Yogurt and its customers

In 1999

US retail sales

$1.8 billion

2.3 billion units

CHANNEL SALESAVG SALES GROWTH

PER YEAR

Super markets 97% 3%

Natural food stores less than 3% 20%

Others minute -

Yogurt and its customers

Organic food customers

Supermarkets

46%

Natural food stores

29%

Health stores

25%

Organic dairy products

74% of

Heavy organic food buyers

29% of

Light organic food buyers

Yogurt and its customers

Yogurtwas purchased by

40% of US

population in

which over 70%are women

Yogurt and its customers

Yogurt market share : 1999, Supermarket channel

Package (size)Dollar

share (USD)

Dollar sales

change vs prior

year

8-oz cups & smaller 74% +3%

Children's multipacks 9% +12.5%

32-oz cups 8% +2%

Other 9% No change

channels

Sales and distribution process

Yogurtis largely distributed through

2channels

1Natural foods store

People’s favorite

2Supermarket

Obviously more powerful

Cost of yogurt

SIZE

AVERAGE RETAIL PRICE

NATUREVIEW'S

MANUFACTURING

COSTSNATURAL

FOODS

CHANNEL

SUPER

MARKET

CHANNEL

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

Yogurt Production costs & retail prices

Sales and distribution process

Natureview’sexpenses while passing through these

2channels

Supermarket expenses - 1

Retailer

27%

Distributor

15%

Customer

Broker

4%

Manufacturer

Supermarket expenses - 2

Introduction of products : Into Supermarket channel

$10,000 per

SKU (Stock Keeping Unit)

per retail chain

$80,000 to introduce 8 flavors of 8-oz cup for each supermarket

Supermarket expenses - 3

Promotion : Every 3 months

Average cost of

Advertising

$8,000 per region

Natural foods stores expenses - 1

Retailer

35%

Natural foods

distributor

15%

Customer

Natural foods

wholesaler

7%

Manufacturer

Natural foods stores expenses - 2

Nothing extra except…

1 free caseof each product

in its 1st year

solution

Solution..

A meeting with

Senior management teamgave rise to

3 solutions

3 proposals

Walter Bellini

Expand into

1 or 2 selectedsupermarkets with

6 SKUs of 8-oz cups

Option 1 – KEY POINTS

8-oz cups have more Dollar share

Few companies have successfully entered and increased their revenue 200%

Supermarkets will only authorize one brand (for yogurt). Better to enter first

1

2

3

Option 1 – Sales Increment

According to Walter increment in annual sales would be 35 million units

Revenue = 35 million * $0.74Revenue Generated - $25.9MILLION

well over the

$20 million goal

Option 1 – GROSS PROFIT

Manufacturing costs = 35 million * $0.31

= $10,850,000

Gross profit = $15,050,000

Option 1 – Fees

Broker fee = 4% of sales = $1,036,000

Total = $7,357,000

Distributor margin = 15% = $2,257,500

Retailer margin = 27% = $4,063,500

Option 1 – COSTS (1/4)

Advertising costs $1.2 million per region per year

2 supermarkets = 2 regions

TOTAL COSTS - $2.4MILLION

Option 1 – COSTS (2/4)

Launching costs $10,000 per SKU per supermarket

2 supermarkets & 6 SKUs

TOTAL COSTS - $120,000

Option 1 – COSTS (3/4)

Promotion costs $8,000 per region, every 3 months

2 supermarkets & 4 times

TOTAL COSTS - $64,000

Option 1 – COSTS (4/4)

SG&A expenses $200,000 for sales staff & $120,000 for additional marketing

Sales, General & Administrative

TOTAL COSTS - $320,000

Option 1 – TOTAL EXTRA COSTS

$320,000

$2,400,000

$64,000

$120,000

$2,904,000

Option 1 – Net Income

Extra costs = $2,904,000

Revenue = $25,900,000

Fee = $7,357,000

Manufacturing costs = $10,850,000

NET INCOME = $4,789,000

Option 1 - Report

There is a high income and revenues, also

Greater risks (8-oz competitors)

Potential natural foods market of

Natureview can be lost.

Jack Gottlieb

Expand into

64 selectedsupermarkets with

4 SKUs of 32-oz cups

Option 2 – KEY POINTS

32-oz cups have generated above average Gross-profit margin

Fewer competitors have long shelf-life. So, Natureview will be at advantage

Promotion for 32-oz is done only twice a year, by supermarkets

1

2

3

Option 2 – Sales Increment

According to Jack increment in annual sales would be 5.5 million units

Revenue = 5.5 million * $2.70Revenue Generated - $14.85MILLION

well over the

$20 million goal with the current $13 million

Option 2 – GROSS PROFIT

Manufacturing costs = 5.5 million * $0.99

= $5,455,000

Gross profit = $9,395,000

Option 2 – Fees

Broker fee = 4% of sales = $594,000

Total = $4,539,900

Distributor margin = 15% = $1,409,250

Retailer margin = 27% = $2,536,650

Option 2 – COSTS (1/4)

Advertising costs $120,000 per region per year

64 supermarkets = 4 regions

TOTAL COSTS - $480,000

Option 2 – COSTS (2/4)

Launching costs $10,000 per SKU per supermarket

64 supermarkets & 4 SKUs

TOTAL COSTS - $2,560,000

Option 2 – COSTS (3/4)

Promotion costs $8,000 per region, every 6 months

64 supermarkets & 2 times

TOTAL COSTS - $1,024,000

Option 2 – COSTS (4/4)

SG&A expenses $160,000 for sales staff

Sales, General & Administrative

TOTAL COSTS - $160,000

Option 2 – TOTAL EXTRA COSTS

$1,024,000

$480,000

$160,000

$2,560,000

$4,224,000

Option 2 – Net Income

Extra costs = $4,224,000

Revenue = $14,850,000

Fee = $4,539,900

Manufacturing costs = $5,455,000

NET INCOME = $631,100

Option 2 – Report

There is a high revenues, also risks

Potential natural foods market of

Natureview can be lost.

Also distributionis difficult to achieve

Kelly Riley

IntroduceNatural food stores

2 SKUs of children multipacks

Option 3 – KEY POINTS

Already have a strong relationship with natural foods stores

Natural foods channel is growing 7 times faster than supermarket

Financial potential is very attractive. Gross profitability of the line would be 37.6%

1

2

3

Option 3 – Sales Increment

According to Kelly increment in annual sales would be 1.8 million units

Revenue = 1.8 million * $3.35Revenue Generated - $6,030,000

It is only above

$19 million with the current $13 million

In addition to that..

Natural foods stores has

sales increase of

20% annually.

That adds up to the remaining

1 million

Option 3 – GROSS PROFIT

Manufacturing costs = 1.8 million * $1.15

= $2,700,000

Gross profit = $3,960,000

Option 3 – Fees

Wholesaler margin = 7% = $277,200

Total = $2,019,600

Distributor margin = 9% = $356,400

Retailer margin = 35% = $1,386,000

Option 3 – COSTS

Complimentary cases 2.5% of manufacturer sales

= 2.5% of $6,030,000

Extra costs = $400,750

Marketing costs = $250,000

Option 3 – Net Income

Extra costs = $400,750

Revenue = $6,030,000

Fee = $2,019,600

Manufacturing costs = $2,700,000

NET INCOME = $909,650

Option 3 - Report

Best option with

lowest risks

Also good possibility of achieving the

$20 million goal

conclusion

Yogurt and its customers

After this heavy analysis,

Kelly Riley’s proposal seems to be more

profitable & healthy

Natural food stores

rules

DISCLAIMER

These slides are made by Adidala Yashwanthduring an internship under Prof Sameer Mathur, IIM Lucknow