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Natureview Farm's Expansion Strategy
- 1. Natureview FarmHARVARD BUSINESS SCHOOL CASE
- 2. Early Year’s and Growth 1989 • Founded in Cabot, Vermont • Manufactured (8oz and 12oz) and Marketed refrigerated cup yogurt • Only used natural ingredients 1999 • Revenue grows from $100,000 to $13 million • Additional flavors added to its product category 2000 • Introduced Multipack and 12oz yogurt case. • Market Leader in Natural Food Channel due to strong relationship with natural food retailers
- 3. Issues VC needed to cash out of its investment in the company. The company has to find a new VC or increase its revenue for high valuation. The management aims to increase revenues to $20m by the end of 2001
- 4. People Involved in the Process Barry Landers (CEO) Jim Wagner (CFO) Walter Bellini (VP, Sales) Jack Gottlieb (VP, Operations) Christine Walker (VP, Marketing) Kelly Riley (Ass. Marketing Director)
- 5. Four P’s of Natureview Farm Product • Natural refrigerated yogurt • Size: 8oz, 12oz, 32oz and multipacks • 12 Different flavors of yogurt Price • Rated between $0.88 and $4 • Higher than yogurt’s sold in supermarket Place • Natural Food Retailers • Warehouse Clubs • Convenience stores and drug stores Promotion • Guerilla Marketing • High shelf period • No artificial ingredients • Natural sweeteners and thickeners
- 6. Strong Brand Low Cost Market leader in natural food channel No artificial ingredients Longer shelf life (50 days) Entire financing through VC Lack of risk taking abilities Low cost marketing and sales team Strong relationship with leading natural food retailers Accumulation of cash by horizon from IPO Being dropped out of traditional channels due to expansion SWOT
- 8. Prices By Channel Super Market Channel Natural Food Channel 8 oz $0.74 $0.88 32 oz $2.70 $3.19 Multipack $2.85 $3.35
- 9. Shoppers of Organic Products at Various Places 46% 25% 29% Sales Supermarket Small Health Food Stores Natural Foods Supermarket
- 10. Product Preference 74% 9% 8% 9% 6 and 8 oz Multipacks 32 oz Others
- 11. Market Factors Considered Before Purchase Package Type/Size Taste Flavor Price Freshness Ingredients Organic/Non-organic Natural Food Shoppers consider: Product ingredients Organic/Non-organic Health Promoting Quality Price
- 12. Yogurt Market Share by Brand 33% 24% 23% 15% 5% SUPERMARKET CHANNEL Dannon Yoplait Others Private Label Columbo 24% 15% 19% 7% 35% NATURAL FOODS CHANNEL Natureview Brown Cow Horizon Organic White Wave Others
- 13. Yogurt Market Share by Region (1999) 26% 22% 25% 27% Northeast Midwest Southeast West
- 14. Problems To increase revenue by 50% by end of 2001 Analysis of the suggestions of managers and deciding the best. Is Supermarket channel the only way out?
- 15. Options and Dilemma Option 1 Option 2 Option 3 • Suggested by Walter Bellini • Expand in Northeast and West supermarket region • To expand to 6 SKU’s of the 8oz product line • Suggested by Jack Gottlieb • Expand the supermarket channel nationally • Expand 4 SKU’s of the 32oz size nationally • Suggested by Kelly Riley • Expansion in Natural Food Channel • To introduce 2 SKU’s of multipack into the natural foods channel
- 16. Option 1 by Walter Bellini Pro(s): • 8oz cups represent the largest dollar and unit share of the market • Significant revenue potential due to the category’s market demand • First Mover advantage will benefit the company Con(s): • Shift from low cost marketing to high cost marketing • Slotting fee for each six SKU’s brings additional burden • Quarterly Trade promotions • High risk of channel conflict
- 17. Option 2 by Jack Gottleib Pro(s) • Higher profit margin than other categories (43.6% vs 36% for the 8oz) • Fewer competitive offerings • 45% market share in this category • Lower promotion expenses Con(s) • Expansion into supermarket channel within 12 months • High slotting expenses • Readiness of consumers to enter the brand via multi use size. • Sales team ability to handle expansion into supermarket channel
- 18. Option 3 by Kelly Riley Pro(s): • Strong relationship with leading natural food retailers • Higher financial returns • Perfect Positioning • The natural food channel growth is higher than supermarkets • Higher gross profit Con(s): • Many potential conflicts and other uncertain factors that the managers could not determine. • Miss the opportunity to enter the supermarket channel as first commer
- 19. Quantitative Analysis The suggestion by Kelly Riley, is quantitatively viable and also appropriate because Competitive advantage in natural food channel. Perfect positioning Avoids conflict between the firm and the traditional retailers Strong brand image amidst organic food consumers No additional slotting fee Reduced and known competition Keep up to Barry Landers request.
- 21. Option 1 Revenue 35000000*0.74 = $25,900,000 COGS 35000000*0.31 = $ 10,850,000 Gross Profit $15,050,000 Expenses Advertisement Cost $1,200,000*2 = $2,400,000 SG&A $320,000*2 = $640,000 Slotting Fee $10,000*6*20 = $1,200,000 Broker’s Fee (4% of Revenue) $1,036,000 NET INCOME $9,774,000
- 22. Option 2 Revenue 5500000*2.70 = $14,850,000 COGS 5500000*0.99 = $5,445,000 Gross Profit $9,405,000 Expenses Advertisement Cost 120,000*4 = $480,000 SG&A $160,000 Slotting Fee $10,000*4*64 = $2,560,000 Broker’s Fee (4% of Revenue) $594,000 NET INCOME $5,611,000
- 23. Option 3 Revenue 1800000*3.35 = $6,030,000 COGS 1800000*1.15 = $2,070,000 Gross Profit $3,960,000 Expenses Marketing $250,000 SG&A - Slotting Fee - Broker’s Fee (4% of Revenue) - NET INCOME $3,710,000
- 24. Option 3 Revenue 1999 $13,000,000 2000 $6,030,000 2001 $6,934,500 NET REVENUE $25,964,500 Financially Viable Option • Option 3 is viable both quantitatively and financially • It also solves all the problems that where to be answered.
- 25. Recap Natureview Early Days and Background People Involved SWOT Analysis Types of Channel Channel and Market Analysis Options and Dilemma Quantitative Analysis Financial Analysis
- 27. DISCLAIMER Done By Shachin Shibi, Sri Sai Ram Institute of Technology Chennai Guided By, Prof. Sameer Mathur, IIM Lucknow Carnegie Mellon University (PhD) During the remote Marketing Management Internship, Dec’17-Jan’18