nature view case study

1. Natureview
Farm Case
Study

2. 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)
About Natureview

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. •Natural yogurt (organic)
•8 –oz. size with 12 flavors
•32-oz. size with 4 flavors
•Affordable according
to it’s channel
•Natural food channel
•Wholesale club
•National retailer channel
•Convenience and drug store
•It’s natural flavor with high
quality and great taste growth
in the national distribution and
natural food channel
•Low-cost guerilla marketing

5. 86%
14%
Revenues 2000
8-oz
32-oz
Start exploring kid multipack
yogurt product (4-oz)
• 12 YOGURT FLAVOURS IN 8-OZ
• 4 YOGURT FLAVOURS IN 32-OZ
Product

6. • 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
• Strong relationships
with leading
natural foods
retailers
• Accumulation of
cash by Horizon
from IPO
• Being dropped out
of traditional
channel

7. Market Trend
Packaging
type/size
Taste
Flavor
Price
Freshness
Ingredient
Organic
or not

8. 74%
9%
8%
9% 8-oz. cup smaller
Children's
multipacks
32-oz. cups
YOGURT MARKET SHARE
BY PACKAGING
SEGMENT

9. 26%
22%
25%
27%
Northwest
Midwest
Southwest
West
YOGURT MARKET SHARE BY
REGION

10. 97%
3% Distribution Channel
Supermarkets
Natural food stores
Yogurt Distribution
Channel

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%
Columbo
5%
SUPERMARKET CHANNEL
Natureview
Farm
24%
Brown
Cow
15%
Horizon
Organic
19%
White
Wave
7%
Others
35%
NATURAL FOODS CHANNEL

13. 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
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 $2.70 27% $2.70 x 73% = $1.97
Distributor $1.97 15% $0.54 x 85% = $1.67
Natureview $1.67 ($1.67/$0.99)/$1.67
=41%
$0.99

17. 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

18. OPTION 2:
Expand 4 SKUs of the 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 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

21. OPTION 3:
Introduce two SKUs of a children
multipack into the natural foods channel
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
•

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

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 Parameter Option 1 Option 2 Option 3
Revenue Objective Exceeds Exceeds Falls Short
Short Term Profits No No Gain
Long Term Profits High High Low
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
Organizational capabilities Low Low High
Decision Matrix

27. 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

28. Benefits
The benefits would include the following :
• 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.

29. Final 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)

30. Credits
www.google.com
www.hbr.org
www.youtube.com

31. Disclaimer
Created by Abhishek Goyal of IIT Kanpur
during a Marketing Internship by Prof.
Sameer Mathur, IIM Lucknow.