Nature view farm case study group submited1
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Natureview Farm is a yogurt manufacturer seeking to expand its business. It is currently considering three expansion options: 1) Expand its 8-oz yogurt flavors into supermarket channels in the Northeast and West, 2) Expand its 32-oz yogurt sizes nationally in supermarkets, or 3) Introduce new children's multipacks in the natural foods channel. Option 1 has the highest projected revenue growth but also the highest costs and risks. Option 2 has attractive profit margins but uncertainty around distribution. Option 3 fits the natural foods channel growth but may not meet revenue targets. After comparing the financial projections, Natureview decides to pursue Option 1 to maximize revenue potential despite the risks.
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Nature view farm case study group submited1
- 1. NATUREVIEW FARM CASE STUDY NUSAIBAH ROSLAN MMJ 141005 SHARIFAH RADHIAH SYED AZMAN MMJ 141003 SITI AISAH MUHAMMAD MMJ 141013 Master of Technology & Innovation Management MMJT 1043 Marketing of Technology & Innovative Products
- 2. BACKGROUND 1989 • Founded and manufactured in Cabot,Vermont • First enter market 8-oz and 32-oz with plain and vanilla flavor • Use natural ingredient with longer average shelf-life of 50 days 1999 • Company revenue growth from $ 100,000 to $13 million • Fruit on the bottom yogurt 2000 • Expand to 12 yogurt flavors & multipack yogurt (for children)
- 3. ISSUES VC needed to cash out of its investment Need to find a path to grow revenues by over 50% before the end of 2001 ($20 mil) Should Natureview Farm expand into supermarket channel?
- 4. THE 4PSPRODUCT • Natural yogurt (organic) • 8 –oz. size with 12 flavors • 32-oz. size with 4 flavors PRICE • Affordable according to it’s channel PLACE • Natural food channel • Wholesale club • National retailer channel • Convenienc e and drug store PROMOTION • It’s natural flavor with high quality and great taste growth in the national distribution and natural food channel • Low-cost guerilla marketing
- 5. PRODUCT 12 yogurt flavors in 8-oz 4 yogurt flavors in 32-oz 86% 14% Revenues 2000 8-oz 32-oz Start exploring kid multipack yogurt product (4-oz)
- 6. SWOT ANALYSIS STRENGTH WEAKNESS Strong brand Low cost No artificial thickeners used Unique, smooth and creamy texture of yogurt Usage of natural ingredients Longer shelf life No alternative financing available Lacks potential of taking higher risks and costs Doubt on sales team’s ability OPPORTUNITY THREATS Strong relationships with leading natural foods retailers Accumulation of cash by Horizon from IPO Being dropped out of traditional channel
- 7. MARKET TREND FOR YOGURT PRODUCT Packaging type/size Taste Flavor Price Freshness Ingredient Organic or not
- 8. YOGURT MARKET SHARE BY PACKAGING SEGMENT 74% 9% 8% 9% 8-oz. cup smaller Children's multipacks 32-oz. cups Others
- 9. YOGURT MARKET SHARE BY REGION 26% 22% 25% 27% Northwest Midwest Southwest West
- 10. YOGURT DISTRIBUTION CHANNEL 97% 3% Distribution Channel Supermarkets Natural food stores
- 11. LENGTH OF CHANNEL TO MARKET Supermarket Channel Natural Foods Channel Manufacturer Distributor Retailer Customer Manufacturer Natural Foods Wholesaler Natural Foods Distributor Retailer Customer 15% 27% 35% 9% 7%
- 12. YOGURT MARKET SHARE BY BRAND Dannon 33% Yoplait 24% Others 23% Private Label 15% Columb o 5% Supermarket Channel Naturevi ew Farm 24% Brown Cow 15% Horizon Organic 19% White Wave 7% Others 35% Natural Foods Channel
- 13. YOGURT PRODUCTION COSTS AND RETAIL PRICES BY CHANNEL Natural Food Channel Supermarket Food Channel Manufacturing Cost 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
- 14. OPTIONS & DILEMMA OPTION 1 • Expand in Northeast andWest supermarket region • Bring in the 6 SKUs of the 8-oz. size OPTION 2 • Expand in supermarket nationally • Bring in the 4SKUs of the 32-oz. size OPTION 3 • Stay in natural food channel • Introduce 2 children’s multipack
- 15. OPTION 1: EXPAND 6 SKUS OFTHE 8-OZ INTO EASTERN AND WESTERN SUPERMARKET REGIONS PROs 8-oz have highest incremental demand High potential to increase revenue First mover as organic yogurt brand to enter supermarket channel CONs High risk & high cost (marketing) Require quarterly trade promotions Advertising plan would cost $1.2 million per region per year SG&A expenses increase by $320,000 annually Need to pay one time slotting fee
- 16. SUPERMARKET CHANNEL MARGIN ANALYSIS Channel Selling price Margin Cost price Retailer $0.74 27% $0.74 x 73% = $0.54 Distributor $0.54 15% $0.54 x 85% = $0.46 Natureview $0.46 ($0.46/$0.31)/$0.46 =33% $0.31
- 17. PROJECTION INCOME STATEMENT 2000 2001 Unit Sales 35 000 000 35 000 000 x (1+20%) = 42 000 000 Revenue Growth $ 35 000 000 x $ 0.74 = $ 25 900 000 42 000 000 x 0.74 = $ 31 080 000 Projected Revenue $ 13 000 000 + 25 900 000 = $ 38, 900 000 $ 13 000 000 + 31 080 000 = $ 44, 080 000 Cost 35 000 000 x $ 0.31 = $ 10 850 000 42 000 000 x 0.31 = $ 13 020 000 Gross Profit $ 28, 050 000 $ 31, 060 000 Expenses Advertisement $ 1 200 000 x 2 region = $ 2,400 000 $ 2,400 000 SG&A $ 320 000 $ 640 000 Slotting Fee 6 x $ 10 000 x 20 retails = 1200 000 Broker’s Fee $ 16 100 000 x 0.04 = $ 644 000 $ 19 320 000 x 0.04 = $ 772 800 Net Profit $ 23, 486 000 $ 27, 247 200
- 18. OPTION 2: EXPAND 4 SKUS OFTHE 32-OZ SIZE NATIONALLY INTO SUPERMARKET REGIONS PROs Generate higher profit margin than 8-oz size Strong competitive advantage: longer shelf life Lower promotion expenses CONs Doubt on claim of new users would readily “enter the brand” via a multi-use size Doubt on sales team’s ability to achieve full national distribution in 12 months Needs to hire sales personnel and establish relationships with supermarket brokers The 32-oz. expansion option would increase SG&A expense by $160,000
- 19. SUPERMARKET CHANNEL MARGIN ANALYSIS Channel Selling price Margin Cost price Retailer $2.70 27% $2.70 x 73% = $0.1.97 Distributor $1.97 15% $0.54 x 85% = $1.67 Natureview $1.67 ($1.67/$0..99)/$1.67 =41% $0.99
- 20. PROJECTION INCOME STATEMENT 2000 2001 Unit sales 5,500,000 5,500,000 Revenues growth 550000 x 2.70 = 14,850,000 14,850,000 Projected revenue 14850000 + 13000000 = 27,850,000 27,850,000 Cost 5500000 x 0.99 = 5445000 5445000 Gross profit 9,405,000 22,405,000 Expense: Slotting fee 4 x 10000 x 64 = 2,560,000 0 SG & A 160,000 160,000 Marketing 120000 x 4 = 480000 480,000 Broker's fee (4% revenues) 367,400 367,400 Net profit 18,837,600 21,397,600
- 21. PROs The sales team was confident that they could achieve distribution for the two SKUs. The financial potential was very attractive. It would yield the strongest profit contribution of all the strategies under consideration. The natural foods channel was growing almost seven times faster than the supermarket. CONs There were many potential conflicts and other uncertain factors that the manager could not determine. Can not achieve the target objective of Natureview farm OPTION 3: INTRODUCETWO SKUS OF A CHILDREN MULTIPACK INTOTHE NATURAL FOODS CHANNEL
- 22. NATURE FOOD CHANNEL MARGIN ANALYSIS channel Selling Price Margin Cost Price Retailer $3.35 35% $3.35 x 65% = $2.18 Distributor $2.18 9% $2.18 x 91% = $1.98 Nature foods wholesalers $1.98 7% $1.98 x 93% = $1.84 Natureview $1.84 ($1.84 - $1.15) / $1.84 =38% $1.15
- 23. PROJECTION INCOME STATEMENT 2000 2001 Unit sales 1,800,000 1,800,000 x 1.15 = 2,070,000 Revenue growth 1,800,000 x 3.35 = 6,030,000 2,070,000 x 3.35 = 6,934,500 Revenue projection 6,030,000 + 13,000,000 = 19,030,000 6,934,500 + 13,000,000 = 19,934,500 Cost 1,800,000 x 1.15 = 2,070,000 2,070,000 x 1.15 = 2,380,500 Gross profit 16,960,000 17,554,000 Expense: Marketing 250,000 250,000 Complementary cases 6,030,000 x 2.5% = 150,750 6,934,500 x 2.5% = 173,363 Net profit 16,559,250 17,130,637
- 24. WHICH ONE TO CHOOSE?
- 25. COMPARISON OF OPTIONS FOR YEAR 2001 Option Option 1 Option 2 Option 3 Gross Margin 33% 41% 38% Unit sales 42, 000 000 5,500,000 2,070,000 Revenue projection 44, 080 000 27,850,000 19,934,500 Cost $ 13 020 000 $ 5 445 000 $ 2,380,500 Gross profit $ 31, 060 000 22,405,000 17,554,000 Expense: SG & A $ 640, 000 160,000 0 Marketing $ 2, 400, 000 480,000 250,000 Broker's fee (4% revenues) $ 772, 800 367,400 0 Complementary cases 0 0 173,363 Net profit $ 27, 247, 200 $ 21,397,600 $ 17,130,637
- 26. DECISION Go for option 1 Reach beyond the target objective of 20 million revenue by end of 2001 with projected of $31 060 000 8 –oz yogurt is the highest demand In supermarket, can expose to more range of customers Will have the first mover advantages of natural product to enter supermarket A bit risky but in a long term will generate revenues of 200% (as looking at two other competitors)
- 27. THANK YOU