CASE STUDY OF

NATUREVIEW FARM

WHAT WAS NATUREVIEW FARM?

WHAT WAS THE PROBLEM?

background1989

• 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• Strong Brand image in Natural Yogurt Market

2000

• Expand to 12 flavor in 8-oz cups(86% revenues), 4 in 32-oz cups(14% revenues)

• Exploring 4-oz children’s cup and 2-oz yogurt tube

Important Names• CHRISTINE WALKER - Vice President, Marketing

• JIM WAGNER - Chief Finance Officer

•WALTER BELLINI - Vice President, Sales

• Jack Gottlieb - Vice President, Operations

WHAT IS THE GOAL?

To grow Revenues from $13 MILLION to

$20 MILLION

ISSUESNatureview to arrange for an equity infusion from a Venture Capital(VC) to Fund Strategic Investments

Natureview has to find new investors, or position itself for acquisition and grow its revenues

What distribution channel should be preferred without denting its image?

THE 3P’sPR

OD

UCT

• Natural yogurt (organic)

• 8 –oz. size with 12 flavors

• 32-oz. size with 4 flavors

PLAC

E • Natural food channel

• Wholesale club

• National retailer channel

• Convenience and drug store

PRO

MO

TIO

N • High quality and great taste gave them growth in natural food channel

• Low-cost guerilla marketing

WHAT ARE OUROBJECTIVES?

OBJECTIVE1ANALYZE YOGURT MARKET AND DIFFERENT

DISTRIBUTION CHANNELS?

Objective

WHICH DISTRIBUTION CHANNEL?

2

Manufacturer

Distributor

Retailer

Customer

Manufacturer

Customer

Natural Foods

Wholesaler

Retailer

Natural Foods

Distributor

27%

15%

35%

9%

7%

Supermarket Channel Natural Foods Channel LENGTH OF CHAIN TO MARKET

The u.s.a.’S

YOGURT MARKET

revenue distribution of natureview

0.86

0.14

Revenues 2000

8-oz32-oz

Start exploring kid multipack yogurt product (4-oz)

market share channel wise

97%

3%Distribution Channel

Supermarkets Natural food stores

Market Share by Packaging Segment

74%

9%

8%9%

8-oz. cup smaller Children's multipacks 32-oz. cups Others

market share by brand

Dannon33%

Yoplait24%

Others23%

Private Label15%

Columbo5%

Supermarket Channel

Dannon Yoplait OthersPrivate Label Columbo

Natureview Farm24%

Brown Cow15%

Horizon Organic19%

White Wave7%

Others35%

Natural Foods Channel

Natureview Farm Brown Cow Horizon OrganicWhite Wave Others

market share region wise

26%

22%25%

27%

NorthwestMidwestSouthwestWest

3 DISTRIBUTION CHANNELS

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

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

• Proposed by Walter Bellini ,VP of Sales

OPTION 1BENEFITS• Great Upside Potential

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

• Has the highest incremental demand

OPTION 1RISKS• Supporting 8-oz cup size would require quarterly trade

promotions and a meaningful marketing budget

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

• SG&A expenses would increase by $320,000 annually • This option creates direct competition with national yogurt

brands

OPTION 1

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

Supermarket Channel Margin Analysis

OPTION 1: Income projection2000 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

ExpensesAdvertisement $ 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

OPTION 2• Expand 4 SKUs of the 32-oz.

size nationally

• Proposed by Jack Gottlieb, VP of Operations

OPTION 2Benefits• Potentially give higher average gross profit margin than

8-oz size

• Lower promotion expenses

• It also has stronger competitive advantage like longer shelf life and lower marketing expenses

OPTION 2Risks• 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

OPTION 2

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

Supermarket Channel Margin Analysis

OPTION 2: Income Projection2000 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

OPTION 3

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

• Proposed by Kelly Riley, the Assistant Marketing Director

OPTION 3Benefits• Established leader in this channel

• Perfect positioning for new multi-pack product

• Long term the financial potential very attractive

OPTION 3Risks• Established leader in this channel

• Perfect positioning for new multi-pack product

• Very attractive long term the financial potential

OPTION 3

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

Natural foods Channel Margin Analysis

OPTION 3: Income projections2000 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

But what is the

solution?

Let’s Summarize First for

Million Dollar Question

projection Comparison matrixOption 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

decision matrixDecision Parameter

Option 1

Option 2 Option 3

Revenue Objective Exceeds Exceeds Falls Short

Channel Partners Highly Alienating

Alienating Enhancing

Competitive Response

Very Risky Risky Low

Cost to Induce Trial High Very High Low

Brand Equity Dilution

Possible Possible No

Organization Capabilities

Low Low High

Where is

Strategy?

• If we really hard press to answer the $20 million question, then it’s fairly simple answer. Go with option 1.

• We recommend Nature view to expand the multi pack into supermarket channel in Northeast and West

Possible strategy

• High growth (more than 12% from last year)

• Minimized channel conflicts : Through this expansion, Nature view can make it’s revenue goal by 2001

• No cannibalization or alienation

• New target customers : Supermarket will be selling these multi packs relatively cheap

Benefits of the strategy

THANK YOU

DISCLAIMERThis presentation was prepared by Prasoon Bajpai, IIT

Kanpur as an internship assignment under the supervision

of Prof. Sameer Mathur , IIM Lucknow