natureview farm - hbr case study

Case Study

Published By:Harvard Business Review

Natureview Farm

Analyzed And Presented By

Shomik Biswas

Jadavpur University

Brief History

Brief History

Founded in 1989 in Cabot, Vermont.

Brief History

Founded in 1989 in Cabot, Vermont.

Manufactures and markets refrigerated cup yogurt.

Brief History

Founded in 1989 in Cabot, Vermont

Manufactures and markets refrigerated cup yogurt.

Carved a niche using natural ingredients and special processes.

Current Situation 2000


In 10 years its revenues had grown from $10,000 to $13 Million.



Grew from 2 cup sizes and 2 flavors to 3 cup sizes, multipacks and 12 flavors.



Grew from 2 cup sizes and 2 flavors to 3 cup sizes, multipacks and 12 flavors.

Has strong relationship with the leading natural foods retailers, including the chains Whole Foods and Wildoats.

HOW IS IT DIFFEREN

T

HOW IS IT DIFFEREN

T

Natural Ing.; special process; give yogurt its uniqueness; no artificial

thickeners.

HOW IS IT DIFFEREN

T

Uses milk from cows untreated

with rGBH.


thickeners.

HOW IS IT DIFFEREN

T

Hence, has a larger shelf

life.


with rGBH.


thickeners.

HOW IS IT DIFFEREN

T


life.


with rGBH.


thickeners.

Emphasizes on Natural Ingredients.

HOW IS IT DIFFEREN

T


life.


with rGBH.


thickeners.


Strong Reputation for high quality and great taste.

HOW IS IT DIFFEREN

T


life.


with rGBH.


thickeners.



The company grew quickly to national distribution

HOW IS IT DIFFEREN

T


life.


with rGBH.


thickeners.




And shared leadership

HOW IS IT DIFFEREN

T


life.


with rGBH.


thickeners.




And shared leadership

Aided by ‘Guerilla

Marketing’

Challenges

Challenges

Strategize how to grow revenues by over 50% before the end of 2001.

Challenges

Strategize how to grow revenues by over 50% before the end of 2001.

Should Natureview Farm expand into the Supermarket Channel in order to meet its revenue goal.

Why ?

Despite its growth since 1989, the company struggled to maintain a consistent level of profitability.

Why ?


Jim Wagner (CFO) had developed financial controls to bring steady profitability.

Why ?



In ‘97, an equity infusion with a

VC firm was arranged

Why ?





VC Firm cashed out

Why ?





VC Firm cashed out

Now, the management

had to find another investor

Why ?





VC Firm cashed out

Now, the management

had to find another investor

Or position itself for acquisition

Hence, increasing revenues was critical in order to attain the highest possible valuation


So, Jim proposed the management that the revenue needed to grow


So, Jim proposed the management that the revenue needed to grow

From $13 Million to $20 Million by 2002

Barry Landers (CEO) made the management aware that this immediate pressure would eventually help Natureview Farm


To get to the size that it aspires to reach



The unconventional route taken thus far was the key to their future growth



The unconventional route taken thus far was the key to their future growth

As this strategy resonated with the customers, suppliers and the distribution partners

The refrigerated yogurt category

The refrigerated yogurt category

And The Yogurt market

Yogurt Sales Distribution Channels

Dominant Channels Other channels



97

3

%Sales

Super-marketsNatural Food Stores



97

3

%Sales

Super-marketsNatural Food Stores

Warehouse Clubs

Drug Stores

Mass Merchandisers

Convenience Stores

Natureview Farm didn’t enter these channels as they offered limited revenue generation potential


Its products were not a strong fit



For the narrow product offering afforded to consumers through these channels



For the narrow product offering afforded to consumers through these channels

Volume requirements were prohibitive in certain channels

Supe

rmark

ets

Natural

Food

Store

s0

1020304050

4625 29

Organic Food Con-sumers Bought From

Organic Food Con-sumers Bought From

020406080

7429

Organic Dairy Products Bought By

Organic Dairy Prod-ucts Bought By

020406080

67 58 44

Consumer And Household Survey

Consumer And Household Survey

Factors which affect

yogurt purchase

Factors which affect

yogurt purchaseIngredients

Price

Flavor

Taste

Package Type/Size

Organic or Not

Freshness

74

98 9

Distribution Accord-ing To Cup Size

8 oz. or SmallerKid Mul-tipack32 oz.4th Qtr

26

2225

27

Market Share By Region

NortheastMidwestSoutheastWest

Consumer Distribution

6, 8 oz. Pack Kid Pack 32 oz. Pack



Targeted at Women

All flavors is favorable



Targeted at Women


Targeted Kids and Moms

Contains 6-4oz., 8-2 oz.

cups




Targeted at Women


Targeted Kids and Moms

Contains 6-4oz., 8-2 oz.

cups


For Heavy Consumer

Used for various dish preparations

Plain and Vanilla favorable

The sales and Distribution process

The sales and Distribution process

Supermarket channel V. Natural Food store

Supermarket

Channels

Supermarket

Channels

If Natureview chose to expand into the supermarket channel, it would depend on its Broker’s knowledge of promotional and merchandising requirements.

Supermarket

Channels

If Natureview chose to expand into the supermarket channel, it would depend on its Broker’s knowledge of promotional and merchandising requirements.

These influential brokers, representing several brands of consumer products used their relationships to arrange discussions b/w retail chains, wholesalers and manufacturers.

The channel monitors sales trends especially of new items by region, area and store using sophisticated scanner technology.

Relatively streamlined distribution systems allows to maintain lower prices.


Relatively streamlined distribution systems allows to maintain lower prices.


Markup on each product by intermediaries. Typical Distribution Margin – 15% and Retailer Margin – 27%.

Additional Costs

Additional Costs

Refrigerated yogurt, slotting fee averaged - $10,000 per SKU per retail chain. For 8 diff. flavors in 8 oz. packs - $80,000/retail chain.

NE, MW and SE of the US, ads - $7500. In the West, same ads - $15,000 per ad per retailer.

Nationally, they cost $8000 on average.

33

2423

5 15

Market Share By Brand (Supermarket)

DannonYoplaitOthersColumboPrivate Label

Natural Foods

Channels

Natural Foods

Channels

Typically charge higher retail prices for the same products in Supermarkets.

Natural Foods

Channels


Distributors deliver product to individual stores, sometimes stock the shelves and track paperwork.

Natural Foods

Channels


Distributors deliver product to individual stores, sometimes stock the shelves and track paperwork.

Intermediaries ‘Break Cases’. Typical natural foods Wholesaler Margin – 7%, Distributor Margin – 9%, Retailer Margin – 35%.

Additional Costs

Additional Costs

No slotting fees charged by natural food stores.

Require a 1-time allotment of 1 Free Case of product for every new SKU authorized for distribution in its 1st year.

Minimal ad fee (all region).

24

15197

35

Market Share By Brand (Nat-ural Food Store)

Natureview FarmBrown CowHorizzon OrganicWhite Wave Others

Analysis of the senior management team’s

Analysis of the senior management team’s

3 options

Option

By Walter Bellini (VP of Sales)

Expand 6 SKUs of the 8 oz. product line into one or two

selected supermarket channel regions.

pros

8 oz. cups represent largest dollar and unit share of market. Other natural food brands have successfully expanded to supermarkets.

Supermarkets may authorize only one organic yogurt manufacturer.

Advantage in being the first organic yogurt to move to supermarket.

cons

Highest level of competition amongst all the product lines of yogurt.

Increase in ad cost and SG&A expenses. Little experience in dealing with supermarket chains.

High potential, but high risk and cost.

Option

By Jack Gottlieb (VP of Operations)

Expand 4 SKUs of the 32 oz. size nationally.

pros

32 oz. cup generates an above average gross profit margin (43.6% Vs. 36% for 8 oz. product line).

Fewer competitive offerings in this size. Competitive advantage due to longer shelf size.

Lower promotional expenses.

cons

Higher slotting fees due to national distribution.

National distribution will be challenging within 12 months.

Promotion and lower price at supermarkets may hurt the brand.

Option

By Kelly Riley (Assistant Marketing Dir.)

Introduce 2 SKUs of a children’s multipack into the natural foods

channel.

pros

8 oz. cups represent largest dollar and unit share of market. Other natural food brands have successfully expanded to supermarkets.

Supermarkets may authorize only one organic yogurt manufacturer.

Advantage in being the first organic yogurt to move to supermarket.

cons

Have to prolong venturing into supermarkets.

May not reach the target revenue of $20 Million by the end 2001.

Competitors have already expanded to supermarkets.

Total Fixed Cost is the same for all the 3 Options.

Total Fixed Cost is the same for all the 3 Options.

Total Cost = Total Fixed Cost + Ad Cost + Promotion Costs + SKU.

Differences

Option - 1 Option - 2 Option - 3

Differences


SG&A expenses increases by $320,000/yr.

$1.2 Mil/region/yr ad costs. 35 incremental

sales unit.

SKU costs.

Differences




sales unit.


SKU costs.

Substantially less ad budget (32 oz. promoted

only 2 times/yr).

5.5 Mil. incremental units. SKU costs.

Differences




sales unit.


SG&A expenses increase - $0.

Marketing expenses were estimated at

$250,000

SKU costs.

Substantially less ad budget (32 oz. promoted

only 2 times/yr).

1.8 Mil. Incremental

costs. No SKU costs.

5.5 Mil. incremental units. SKU costs.

Best Strategical Option

Best Strategical OptionOption - 1

Best Strategical OptionOption - 1

Higher revenue generated

Lower slotting fee (only 2 supermarkets)

Transition to supermarkets

Advantage over competitors by expanding into supermarkets.

Personal recommendations


Instead of just introducing 8 oz. cups, 32 oz. cups should also be introduced in supermarkets as we’ll get :-



More shelf coverage Better gross profit margin

No competition for 32 oz. cups



More shelf coverage Better gross profit margin

No competition for 32 oz. cups

Which ends up combining advantages of both the product lines.

Thank You

Disclaimer

This Presentation was created by Shomik Biswas

During an Internship on Marketing Management Under

Prof. Sameer Mathur, IIM Lucknow

natureview farm - hbr case study

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