natureview case analysis
TRANSCRIPT
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