NATUREVIEW FARMS CASE ANALYSIS

Background

1989 - Founded– Revenue $100 K. Yogurt products . Introduced 2 Flavors

1996 – Jim Wagner Hired to steady profits

1997 - CFO Jim Wagner got VC capital Infused capital

Today Feb 2000. Annual Revenue was $13 million in 1999. Total 12 Flavors in 8 Oz and 4 Flavors 32 Oz

VC to cash out at the end of 2001. Revenue needs to grow to 20 million

Best Option to grow Natureview?

Natureview and the Product◦Natural Ingredients

◦No artificial growth hormones

◦50 days shelf life

◦Different flavors and different sizes

◦High quality◦Great taste

SWOTStrengths

• Major and trusted brand in natural foods

• Product Quality • Strong relationships in natural food

market • Channel leader

• Relatively Rapid revenue growth• Longer product shelf Life

Weakness

• Owns Small portion of the yogurt market

• Not entered into supermarket channel

• High dependence on brokers for distribution and promotion.

• Inefficient nature foods distribution channel

SWOTOpportunity

• Supermarket channel provides significant potential of growth

• Natural food’s sales expected to grow by 20%

• Opportunity for lowering customer cost

Threats

• Lack of Capital• Main competitor(Horizon) is getting

stronger• No expertise in supermarket

channel• Company may have to reposition• Risk Inter Product cannibalization

Market

8-oz. cups and

smaller74%

Chil-dren’s mul-

tipacks

9%

32-oz. cups8% Other

9%

The Yogurt Market

Supermarket97%

Natural Foods Channel

3%

Channel Market Share

Channels

Natureview Farm 24%

Brown Cow 15%

Horizon Organic 19%

White Wave 7%

Others 35%

Natural Foods Channel

Dannon33%

Yoplait24%

Others23%

Private Label15%

Columbo5%

Supermarket Channel

Length of Channels to Market Natural Foods Channel

ManufacturerWholesalerDistributors

RetailerCustomer

Supermarket Channel

Manufacturer

Wholesaler

Retailer

Customer

Nature view's Dilemma◦Grow Nature view's revenues to $20 million by the end of 2001

◦Supermarket distribution - a potential solution

◦Core value of Natureview - Natural food channels

◦ Three options to attain the target

◦Careful evaluation is needed

Expand 4 SKUs of the 32-oz. size nationallyProposed by Jack Gottlieb, vice president of operations

Expand 6 SKUs of the 8-oz. product line into one or two selected supermarket channel regionsProposed by Walter Bellini VP Sales

Option 1 Option IIIntroduce 2 Children’s SKUs of a Multi-Pack into the Natural Foods ChannelProposed by Kelly Riley, the assistant marketing director

Option III

Option 1-Expand 6 SKUs of the 8-oz. product line into one or two selected supermarket channel regions

Advantages

1. Great Potential to increase revenue

2. For supermarket adding these products would attract higher-income less price-sensitive customers

3. Unit volume growth of organic yogurt at supermarkets of 20% per year from 2001 to 2006

4. This option also has the highest incremental demand

Dis-Advantages

1. High slot fee

2. Advertising plan would cost $1.2 million per region per year in addition to the promotional ads expenses

3. SG&A expenses would increase by $320,000 annually

4. More competition

5. Might lose trust of natural retailers

Cost Year 2000 Year 1999 COMbined %ChangeTotal expected Sales $35,000,000.00

Revenue (of 8oz ) $25,900,000.00$13,000,000.0

0 $38,900,000.00 199.23% Costs of Good Sold $10,850,000.00 $8,190,000.00 $19,040,000.00 132.48%

Gross Profit $15,050,000.00$4,810,000.0

0 $19,860,000.00 312.89%Expenses Adv / Freight $2,400,000.00 $2,210,000.00 $4,610,000.00 108.60% Sales $200,000.00 $1,560,000.00 $1,760,000.00 12.82% Marketing $120,000.00 $390,000.00 $510,000.00 30.77% R&D $0.00 $390,000.00 $390,000.00 0.00% One-Time Slotting Fee $1,200,000.00 $0.00 $1,200,000.00 Brokers' Fee @ 4% $1,036,000.00 $0.00 $1,036,000.00Promotions $3,480,000.00 $0.00 $3,480,000.00

Total Expense $8,436,000.00$4,550,000.0

0 $12,986,000.00 185.41% Net Income $6,614,000.00 $260,000.00 $6,874,000.00 2543.85%

Option 2- Expand 4 SKUs of the 32-oz. size nationally

Advantages1. Higher average gross profit

margin than 8-oz size2. Fewer competition3. Stronger competitive

advantage like longer shelf life4. Lower promotion charges

Dis-Advantages1. Doubt on claim of new users

would readily “enter the brand” via a multi-use size

2. Doubt on sales team’s ability to achieve full national distribution in 12 months

3. Needs to hire sales personnel and establish relationships with supermarket brokers

4. Increase in SG&A expense by $160,000

5. Risk of same product launched by supermarket

Cost Year 2000 Year 1999 COMbined %ChangeTotal expected Sales $5,500,000.00

Revenue (of 8oz ) $14,850,000.00$13,000,000.0

0 $27,850,000.00 114.23% Costs of Good Sold $5,445,000.00 $8,190,000.00 $13,635,000.00 66.48%

Gross Profit $9,405,000.00$4,810,000.0

0 $14,215,000.00 195.53%Expenses Adv / Freight $0.00 $2,210,000.00 $2,210,000.00 0.00% Sales $160,000.00 $1,560,000.00 $1,720,000.00 10.26% Marketing $120,000.00 $390,000.00 $510,000.00 30.77% R&D $0.00 $390,000.00 $390,000.00 0.00% One-Time Slotting Fee $2,560,000.00 $0.00 $2,560,000.00 Brokers' Fee @ 4% $594,000.00 $0.00 $594,000.00Promotions $4,096,000.00 $0.00 $4,096,000.00

Total Expense $7,530,000.00$4,550,000.0

0 $12,080,000.00 165.49% Net Income $1,875,000.00 $260,000.00 $2,135,000.00 721.15%

Option 3-Introduce 2 Children’s SKUs of a Multi-Pack into the Natural Foods Channel

Advantages◦Perfect relations with natural

food channels◦Can escape extra efforts and

skills required for supermarket◦Perfectly positioned◦High growth possibility◦Low cost◦Low risk factors

Dis-Advantages◦Low expected revenue◦Highly dependent on marketing◦Extra R&D might be needed◦Skeptical growth

Cost Year 2000 Year 1999 COMbined %ChangeTotal expected Sales $1,800,000.00

Revenue (of 8oz ) $6,030,000.00$13,000,000.0

0 $19,030,000.00 46.38% Costs of Good Sold $2,070,000.00 $8,190,000.00 $10,260,000.00 25.27%

Gross Profit $3,960,000.00$4,810,000.0

0 $8,770,000.00 82.33%Expenses 0.00% Adv / Freight $0.00 $2,210,000.00 $2,210,000.00 0.00% Sales $0.00 $1,560,000.00 $1,560,000.00 0.00% Marketing $250,000.00 $390,000.00 $640,000.00 64.10% R&D $0.00 $390,000.00 $390,000.00 0.00% One-Time Slotting Fee $0.00 $0.00 $0.00 0.00% Brokers' Fee @ 4% $241,200.00 $0.00 $241,200.00 0.00%Cases $150,750.00 $0.00 $150,750.00 0.00%

Total Expense $641,950.00$4,550,000.0

0 $5,191,950.00 14.11% Net Income $3,318,050.00 $260,000.00 $3,578,050.00 1276.17%

Analysis◦Advantages, Disadvantages and financial outcome of all options◦Option 1 – High revenue – More risk◦Major risk to lose trust of customers and natural retailers

◦Option 2 – Moderate revenue – Moderate risk◦Gives good revenue but success chances are highly skeptical due to

extra efforts

◦Option 3 – Low revenue – Low risk◦Gives $1 Billion less than targeted revenue but least risk and least

investment

Hypothesis◦Option 2 is a better option given it gives the required revenue and is

relatively less risky than other two options

◦Option 2 reduces the risk of Naturesview of losing trust among its consumers and retailers

◦Success of NW depends upon the effective working of its Brokers as well.

◦So by option 2 NW can retain its core values as well increase it’s revenue above the target

◦NW will not lose much by this option since it is an extension of its one product in overall market without hampering other products who are performing well

Proof of Action and Alternatives◦Option 1 will increase revenues of NW a lot but it comes with a lot risks of

losing its core consumers and brokers

◦Option 3 is on safe side which lags on revenue generation. It will not hurt NW much if it fails but then NW will fail to achieve its revenue target

◦So NW can not lose its core values on one side while can not lose share in Yoghurt market overall

ActionGiven all the circumstances Natureview farm should go ahead with option 2 of Expanding 4 SKUs of the 32-oz. size nationally

Disclaimer Created by Pankaj Kumar, IIT Madras, during a marketing Internship under Professor Sameer Mathur, IIM Lucknow