case analysis of natureview farm case

1. Natureview Farm case analysis

2. BACKGROUND
1989
• Founded in 1989, Natureview Farm manufactured
and marketed refrigerated cup yogurt under the
Natureview Farm brand name.
1999
• Natureview Farm’s revenues had grown from less
than $100,000 to $13 million.
2000
• Natureview Farm produced twelve refrigerated yogurt
flavors in 8-oz. cups and four flavors in 32-oz. cups
and also started exploring multipack yogurt products

3. WHO IS WHO IN THE
COMPANY
• Barry Landers, Chief Executive Officer
(CEO)
• Jim Wagner, chief financial officer (CFO)
• Christine Walker, vice president of
marketing
• Walter Bellini, vice president of sales
• Jack Gottlieb, vice president of operations
• Kelly Riley, the assistant marketing director

4. Present situation
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?

5. SWOT ANALYSIS
strength weakness
1)Strong brand
2)Low cost
3)No artificial thickeners used
4)Unique, smooth and creamy
texture of yogurt
5)Usage of natural ingredients
6)Longer shelf life
1)No alternative financing
available
2)Lacks potential of taking higher
risks and costs
3)Doubt on sales team’s ability
OPPORTUNITY threats
1)Strong relationships with
leading natural foods retailers
1)Accumulation of cash by
Horizon from IPO
2)Being dropped out of traditional
channel

6. Yogurt Market Share by Packaging
Segment
74%
9%
8%
9%
8-oz. cup smaller
Children's
multipacks
32-oz. cups

7. Yogurt Market Share by Region
26%
22%
25%
27%
Northwest
Midwest
Southwest
West

8. Yogurt Distribution Channel
Supermarket
s
97%
Natural food
stores
3%

9. Length of Channel to Market
Supermarket Channel
Natural Foods ChannelManufacturer
Distributor
Retailer
Customer
Manufacturer
Natural Foods
Wholesaler
Natural Foods
Distributor
Retailer
Customer
15%
27%
35%
9%
7%

10. 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

11. Yogurt Production Costs and Retail
Prices by Channel
Natural
Food
Channel
Supermarket
Food
Channel
Manufacturi
ng 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

13. OPTION 1:
Expand 6 SKUs of the 8-oz
into eastern and western
supermarket regions

14. • 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

15. Supermarket Channel Margin
Analysis
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

16. Projection Income Statement
2000 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
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 = 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

17. OPTION 2:
Expand 4 SKUs of the
32-oz size nationally
into supermarket
regions

18. • 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 x 73% =
$0.1.97
Distribut
or
$1.97 15% $0.54 x 85% =
$1.67
Naturevi
ew
$1.67 ($1.67/$0..99)/$1.
67 =41%
$0.99

20. Perceived 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

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

22. • 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.
PROs
• There were many potential conflicts and other uncertain
factors that the manager could not determine.
• Can not achieve the target objective of Natureview farm
CONs

23. 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

24. Perceived 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

26. 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

27. 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)

28. • Created by Kolagani Harichandana,NIT Raipur,during a
marketing internship under Prof.Sameer Mathur,IIM
Lucknow.
• K.Harichandana Prof.Sameer Mathur
DISCLAIMER