Natureview Farm Case
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Natureview Farm produces yogurt using natural ingredients. In 2001, it needed to grow revenue over 50% to $20 million for its VC investors. It considered three options: 1) Expanding 6 8-oz yogurt SKUs in eastern and western supermarkets, 2) Expanding 4 32-oz SKU nationally in supermarkets, or 3) Introducing 2 children's multipacks in natural food stores. Option 1 was chosen as it could exceed the revenue target, 8-oz yogurt had highest demand, and it allowed exposure to more supermarket customers as the first natural yogurt brand, though it carried higher risks.
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Natureview Farm Case
- 2. 1989 • Entered as a manufacturer of refrigerated cup yogurt • 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) OVERVIEW
- 3. 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? ISSUES
- 4. THE 4Ps PRICE • Affordable according to it’s channel PLACE • Natural food channel • Wholesale club • National retailer channel • Convenience 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
- 6. SWOT ANALYSIS STRENGTH WEAKNESS Strong brand No artificial thickeners used 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. Packaging type/size Taste Flavor Price Freshness Ingredient Organic or not Market Trend For Yogurt Product
- 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% Column1 Northwest Midwest Southwest West
- 10. Yogurt Distribution Channel 97% 3% Distribution Channel Supermarkets Natural food stores
- 11. Manufacturer Natural foods wholesaler Natural foods distributor Retailer Customer Manufacturer Distributor Retailer Customer Length of Channel to Market Supermarket Channel Natural Foods Channel
- 12. Yogurt Market Share by Brand Danno n 33% Yoplait 24% Others 23% Private Label 15% Colum bo 5% Supermarket Channel Nature view Farm 24% Brown Cow 15% Horizo n Organi c 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 AND DILEMMA OPTION 1 • Expand in Northeast and West 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 of the 8-oz into eastern and western supermarket regions • 8-oz have highest incremental demand • High potential to increase revenue • First mover as organic yogurt brand to enter supermarket channel PROs • 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 CONs
- 16. Channel Selling Price Margin Cost price Retailer $0.74 27% $0.74/1.27 = $0.58 Distributor $0.58 15% 0.58/1.15 = $0.51 Natureview $0.51 64.5% $0.31 Supermarket Channel Margin Analysis
- 17. 2000 2001 Unit Sales 35 000 000 35 000 000 x (1+20%) = 42 000 000 Revenue 35 000 000 x $ 0.51 = $17 850 000 42 000 000 x 0.51 = $ 21 420 000 Cost of goods sold 35 000 000 x $ 0.31 = $ 10 850 000 42 000 000 x 0.31 = $ 13 020 000 Gross Profit $ 7 000 000 $ 8 400 000 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 = $1 200 000 $0 Broker’s Fee $ 17 850 000 x 0.04 = $ 714 000 $ 21 420 000 x 0.04 = $ 856 800 Net Profit $ 2 366 000 $ 4 503 200 Projection Income Statement
- 18. OPTION 2: Expand 4 SKUs of the 32-oz size nationally into supermarket regions • Generate higher profit margin than 8-oz size • Strong competitive advantage: longer shelf life • Lower promotion expenses PROs • 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 CONs
- 19. Supermarket channel margin analysis Channel Selling Price Margin Cost price Retailer $2.70 27% $2.70 / 1.27 = $2.13 Distributor $2.13 15% $2.13 / 1.15 = $1.85 Natureview $1.85 ($1.85-$0..99)/$1.85 =87% $0.99
- 20. Projection income statement 2000 2001 Unit sales 5 500 000 5 500 000 Revenues growth 550000 x 1.85 = 10 175 000 10 175 000 Cost of Goods sold 5500000 x 0.99 = 5 445 000 5 445 000 Gross profit 4 730 000 4 730 000 Expense: Slotting fee 4 x 10000 x 64 = 2 560 000 0 SG & A 160 000 160 000 Advertising cost 120000 x 4 = 480 000 480 000 Broker's fee (4% revenues) 407 000 367 400 Net profit 1 123 000 3 722 600
- 21. • 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. • The financial potential was very attractive. • The sales team was confident that they could achieve distribution for the two SKUs. PROs • There were many potential conflicts and other uncertain factors that the manager could not determine. CONs OPTION 3: Introduce two SKUs of a children multipack into the natural foods channel
- 22. Nature Food Channel Margin Analysis Channel Selling Price Margin Cost Price Retailer $3.35 35% $3.35 /1.35 = $2.48 Distributor $2.48 9% $2.48 /1.09 = $2.28 Nature foods wholesalers $2.28 7% $2.28 /1.07 = $2.13 Natureview $2.13 ($2.13 - $1.15) / $1.15 =85% $1.15
- 23. 2000 2001 Unit sales 1 800 000 1 800 000 x 1.15 = 2 070 000 Revenue growth 1 800 000 x 2.13 = 3 834 000 2,070,000 x 2.13 = 4 409 100 Cost Of Goods sold 1,800,000 x 1.15 = 2 070 000 2,070,000 x 1.15 = 2 380 500 Gross profit 1 764 000 20 28 600 Expense: Marketing 250 000 250,000 Complementary cases 3 834 000 x 2.5% = 95 850 4409100 x 2.5% = 11 02 28 Net profit 1 418 150 1 668 372 Projection Income Statement
- 24. WHICH ONE TO CHOOSE? OPTION 1 OPTION 2 OPTION 3
- 25. Comparison of Options for Year 2001 Option Option 1 Option 2 Option 3 Gross Margin 64.5% 87% 85% Unit sales 42 000 000 5 500 000 2 070 000 Revenue Growth 21 420 000 $10 175 000 $ 4 409 100 Cost $ 13 020 000 $ 5 445 000 $ 2 380 500 Gross profit $ 8 400 000 $ 4 730 000 $ 17 554 000 Expense: SG & A $ 640 000 $ 160 000 0 Marketing $ 2 400 000 $ 480 000 $ 250000 Broker's fee (4% revenues) $ 856 800 $ 367 400 0 Complementary cases 0 0 $173 363 Net profit $ 4 503 200 $ 3 722 600 $ 1 668 372
- 26. DECISION Go for option 1 Reach beyond the target objective of 20 million revenue by end of 2001 with projected of $21 420 000 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. These slides were created by SWAPNIL GOYAL (IIT KANPUR) as part of an internship under the guidance of Prof. SAMEER MATHUR (IIM Lucknow)