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Natureview case analysis

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  • 1. NATUREVIEW OBJECTIVE: They have to make strategic marketing decisions to grow revenues to $20,000,000 from their current $13,000,000 before the end of the 2001 fiscal year. CUSTOMER TARGET: Yogurt is consumed by 40% of the US population. Among those 70% are women. Organic dairy products are bought by 74% of heavy organic buyers and 29% of light organic buyers. For natural food buyers, factors to see when buying yogurt are ingredients and whether it is organic or not. Factors to check when deciding which yogurt to purchase are package, size, price, flavour, freshness, ingredients and whether it was organic or not. Shoppers at Natural Food Stores are older, educated and have higher incomes. 46% of organic food consumers bought at supermarkets. 25% bought at a small health store. 29% at natural foods supermarket Supermarket Channel Columbo Dannon Other Private Label Yoplait (1999) 5% 33% 23% 15% 24% Natural Foods Channel Other Nature view Farm Horizon Wave White Wave Brown Cow (1999) 35% 24% 19% 7% 15% OBJECTIVE: Natural Foods Customer is Brand Sensitive, Taste savvy and Less Price Sensitive so they charged higher Retail prices. COMPETITIVE ADVANTAGE: HORIZON ORGANIC: It flushes with cash from a recent IPO. It definitely produces a full range of organic dairy. It is also known as a National Brand BROWN COW: Strong regional presence on the West coast WEAKNESS: Brown Cow’s yogurt was all natural but not organic. Horizon’s was organic but it had a shorter shelf life than Natureview’s product GROWTH STRATEGY:  Its growth has involved high Gross Profit margin ( 37%)  In 1999, 100% Revenue generated from sales of refrigerated yogurt to natural foods stores.  High market capture with 8-oz
  • 2. Choices for Christine Walker, VP Marketing • Option 1: Expand 6 SKUs of the 8-oz. product line into one or two selected supermarket channel regions as Proposed by Walter Bellini VP Sales • Option 2: Expand 4 SKUs of the 32-oz. size nationally as Proposed by Jack Gottlieb, vice president of operations • 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 1 analysis Option 1 - Expand 6 SKUs of the 8-oz product line into one or two selected supermarket channel regions Benefits 1. Great Upside Potential 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 Risks 1. Supporting 8-oz cup size would require quarterly trade promotions and a meaningful marketing budget 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. This option creates direct competition with national yogurt brands Income forecast Year 2000 Year 2001 Year 2002 Year 2003 Revenue Costs of Good Sold Gross Profit Admin / Freight Sales Marketing R&D One-Time Slotting Fee Brokers' Fee @ 4% Total Expense Net Income Profit Margin $ $ $ $ $ $ $ 29,070,950 (19,040,000) 10,030,950 (2,210,000) (1,880,000) (3,660,000) (390,000) $ (1,200,000) $ (642,838) $ (9,982,838) $ 48,112 0.17% $ $ $ $ $ $ $ 32,285,140 (21,210,000) 11,075,140 (2,210,000) (1,880,000) (3,660,000) (390,000) $ $ $ $ $ $ $ 36,142,168 (23,814,000) 12,328,168 (2,210,000) (1,880,000) (3,660,000) (390,000) $ (771,406) $ (925,687) $ (8,911,406) $ (9,065,687) $ 2,163,734 $ 3,262,481 6.70% 9.03% $ $ $ $ $ $ $ 40,770,602 (26,938,800) 13,831,802 (2,210,000) (1,880,000) (3,660,000) (390,000) - $ (1,110,824) $ (9,250,824) $ 4,580,978 11.24%
  • 3. Option 2 – Expand 4 SKUs of the 32-oz. size nationally Benefits 1. Potentially give higher average gross profit margin than 8-oz size 2. It also has stronger competitive advantage like longer shelf life and lower marketing expenses Risks 1. 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. The 32-oz. expansion option would increase SG&A expense by $160,000 Forecast Year 2000 Revenue Costs of Good Sold Gross Profit Admin / Freight Sales Marketing R&D Year 2001 $ 22,214,425 $ 24,057,310 $ 26,268,772 $ 28,922,526 $ (13,635,000) $ (14,724,000) $ (16,030,800) $ (17,598,960) $ 8,579,425 $ $ 10,237,972 $ 11,323,566 $ (2,210,000) $ (2,210,000) $ (2,210,000) $ (2,210,000) $ (1,720,000) $ (1,720,000) $ (1,720,000) $ (1,720,000) $ (1,894,000) $ (1,894,000) $ (1,894,000) $ (1,894,000) (390,000) $ (390,000) $ (390,000) $ (390,000) - - (442,292) $ (530,751) $ $ One-Time Slotting Fee $ Brokers' Fee @ 4% Total Expense Net Income Profit Margin $ 9,333,310 (2,560,000) $ (368,577) $ (9,142,577) $ -2.54% $ Year 2002 (6,656,292) $ (563,152) $ 11.13% 2,677,018 $ Year 2003 (636,901) (6,744,751) $ (6,850,901) 3,493,221 $ 4,472,665 13.30% 15.46%
  • 4. Option 3 – Introduce 2 SKUs of a Children’s Multi-Pack into the Natural Foods Channel Benefits 1. Established leader in this channel 2. Perfect positioning for new multi-pack product 3. Long term the financial potential was very attractive Risks 1. Established leader in this channel 2. Perfect positioning for new multi-pack product 3. Long term the financial potential was very attractive Forecast Year 2000 Revenue Costs of Good Sold Gross Profit Admin / Freight Sales Marketing R&D Year 2001 Year 2002 Year 2003 $ 16,317,073 $ 16,383,414 $ 16,451,083 $ 16,520,104 $ (10,260,000) $ (10,007,640) $ (10,043,993) $ (10,081,073) $ 6,057,073 $ 6,375,774 $ 6,407,090 $ 6,439,032 $ (2,210,000) $ (2,210,000) $ (2,210,000) $ (2,210,000) $ (1,560,000) $ (1,560,000) $ (1,560,000) $ (1,560,000) $ (640,000) $ (640,000) $ (640,000) $ (640,000) $ (390,000) $ (390,000) $ (390,000) $ (390,000) - - One-Time Slotting Fee $ Brokers' Fee @ 4% $ (132,683) $ (135,337) $ (138,043) $ (140,804) $ (5,015,610) $ (4,935,337) $ (4,938,043) $ (4,940,804) $ 1,041,463 $ 1,440,438 $ 1,469,046 $ 1,498,227 Total Expense Net Income Profit Margin 6.38% (82,927) 8.79% 8.93% - 9.07%
  • 5. SUMMARY 2000 OPTION 1 Revenue Gross Profit Net Income Profit Margin Profit Growth OPTION 2 Revenue Gross Profit Net Income Profit Margin Profit Growth OPTION 3 Revenue Gross Profit Net Income Profit Margin Profit Growth 2001 2002 2003 2004 $ 29,070,950.00 $ 32,285,140.00 $ 36,142,168.00 $ 40,770,601.60 $ 46,324,721.92 $ 10,030,950.00 $ 11,075,140.00 $ 12,328,168.00 $ 13,831,801.60 $ 15,636,161.92 $ $ 3,262,481.28 $ 4,580,977.54 $ 6,163,173.04 48,112.00 $ 2,163,734.40 0% 7% 9% 11% 13% 0% 4397% 51% 40% 35% $ 22,214,425.00 $ 24,057,310.00 $ 26,268,772.00 $ 28,922,526.40 $ 32,107,031.68 $ 8,579,425.00 $ 9,333,310.00 $ (563,152.00) $ 2,677,017.60 $ 10,237,972.00 $ 11,323,566.40 $ 12,626,279.68 -3% 11% 13% 15% 18% 0% 575% 30% 28% 26% $ 3,493,222.12 $ 4,472,667.34 $ 5,648,001.41 $ 16,317,072.85 $ 16,814,633.78 $ 17,386,828.84 $ 18,044,853.17 $ 18,801,581.15 $ 6,057,072.85 $ 6,575,333.78 $ 6,840,133.84 $ 7,144,653.92 $ 7,494,852.01 $ 1,041,463.11 $ 1,622,748.43 $ 1,864,660.69 $ 2,142,859.79 $ 2,462,788.76 6% 10% 11% 12% 13% 0% 56% 15% 15% 15%
  • 6. Decision Matrix Decision Parameter Option 1 Option 2 Option 3 Revenue Objective Short Term Profits Long Term Profits Channel Partners Competitive Response Cost to Induce Trial Brand Equity Dilution Organizational capabilities Exceeds No High Highly Alienating Very Risky High Possible Low Exceeds No High Alienating Risky Very High Possible Low Falls Short Gain Low Enhancing Low Low No High Possible Conclusion 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 The benefits would include the follow: 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 Higher expected annual demand.