Harvard Business School Case

1. NATUREVIEW FARM

2. INTRODUCTION
TO CASE

3. WHAT IS
NATUREVIEW FARM ?

4. WHO ARE THE KEY
PEOPLE ?

5. YOGURT
MARKET SHARE
BY BRAND,
1999
(SUPERMARKET
AND NATURAL
FOODS
CHANNELS, IN
% U.S.
DOLLARS)

6. NATUREVIEW
FARM’S EARLY
YEARS &
CURRENT
SITUATION

7. Since
1989 ,
revenue
s had
grown
from
less
than
$100,000
to $13
million.
entered the
market with
8-ounce (oz.)
& 32-oz. cup
sizes of
yogurt in 2
flavors—
plain ,
vanilla.
•Later
added
flavors to
both sizes.
Flavored
yogurt
productio
n – led to
brand
extension
;increased
revenues
& need for
new
equipment
Grew
quickly
to
national
distributi
on &
shared
leadersh
ip in the
natural
foods
channel.
Aided
by
creative
, low-
cost
“guerill
a
marketi
ng”
tactic
EARLY YEARS

8. By 2000,
produced
•12 flavors in
8-oz. cups
(86%
revenues)
• 4 flavors in
32-oz. cups
(14%
revenues).
started
exploring
multipack
yogurt
products
(children’s 4-
oz. cups and
yogurt
packaged in
tubes)
a typical
case
shipped to
retailer
•12 cups
for the 8-
oz.
•6 cups for
the 32-oz.
Developed
strong
relationships
with leading
natural foods
retailers chains
ex -
• Whole Foods
($1.57 billion
revenues in 1999)
• Wild Oats ($721
million revenues
AS OF 2000

9. Now NatureView management have to find another
investor or position itself for acquisition, & increasing
revenues was critical in order to attain the highest possible
valuation for the company.
The VC firm now needs to cash out of its investment in
NatureView.
No one questioned Wagner’s recommendation in 1997 that
NatureView arrange for an equity infusion from a venture
capital (VC)
Jim Wagner ,in 1996 as CFO -developed financial controls
that brought steady profitability to the company
Despite the growth that NatureView Farm had been able to
achieve since it began in 1989, the company - long struggled
to maintain a consistent level of profitability

10. WHAT IS THE
PRESENT
SITUATION ?

11. VC firm now needs to cash out of
its investment
The management team needs to
find a way to increase the firm’s
revenues to $20 million by the
end of 2001
Still need to take decision
regarding its entry in super
market channel
If the company enters supermarket
channel then how to retain its
traditional channel retailers ,
customers n suppliers?
SITUATION ANALYSIS

12. NATUREVIEW FARM INCOME
STATEMENT, 1999

13. 4
ISSUES
HOW WILL THE
COMPANY
MAKE
REVENUE $20
MILLION TILL
END OF 2001?
THE REFRIGERATED
YOGURT CATEGORY
AND THE YOGURT
CONSUMER
THE SALES AND
DISTRIBUTION
PROCESS:
SUPERMARKET
CHANNEL VS.
NATURAL FOODS
STORES
ANALYSIS OF THE
SENIOR
MANAGEMENT
TEAM’S THREE
OPTIONS

14. HOW WILL THE
COMPANY MAKE
REVENUE $20
MILLION TILL END
OF 2001?

15. To increase its revenue by year
end -
1.It needs to increase its product
sales
2.Cut down on total cost incurred
3.Increase efficiency
4.Increase product life & quality

16. INCREASING SALES BY:
Increasing its manufacturing - increase shelf space ;
increasing more no. of packs in its typical case .
Increase number of cases in each size that it
supplies to its distributors , retailers and natural
food channels.
Enter supermarket channel & explore other
existing channels (the firm’s traditional
distribution channel was natural foods stores till
now)
Brand extension in same line – increase flavors or
related yogurt products .

17. THE REFRIGERATED
YOGURT
CATEGORY & THE
YOGURT
CONSUMER

18. YOGURT SALES DISTRIBUTION
CHANNELS
% Sales
supermarket
natural foods
stores
 Warehouse Clubs,
Convenience stores,
Drug stores, and Mass
merchandisers.
 Limited revenue
generation
DOMAINANT CHANNELS OTHER CHANNELS

19. % OF ORGANIC CONSUMERS
BUYING ORGANIC PRODUCTS
FROM ?where did they buy ?

20. CONSUMER & HOUSEHOLD
SURVEY RESULTS
0% 20% 40% 60% 80%
Price was barrier in
purchase of organic
products
Would buy more organic
product if it were less
expensive
Need for a wider selection
of organic product in
supermarkets
% US HOUSEHOLDS &
CONSUMERS

21. FACTORS
DECIDING
WHICH
YOGURT TO
PURCHASE ?
PACKAGE
TYPE/SIZE
TASTE
FLAVOR
PRICE
FRESHN
ESS
INGREDI
ENTS
PRODUCT
ORGANIC
OR NOT

22. YOGURT MARKET SHARE BY
PACKAGING SEGMENT, 1999
(SUPERMARKET CHANNEL,IN % $ )

23. CONSUMER DISTRIBUTION
6/8OZPACKS
• Target -
Women
• Favorability
– all flavors
in market
CHILDREN'SMULTIPACKS
• Target –
children &
mothers
•6, 4-oz.
cup
servings
•8, 2-oz.
tubes
• Favorabilit
y – all
flavors in
market
32OZPACKS
• Target –
‘heavy’
yogurt
consumers
• Used for
preparing
dishes like
smoothies
• Favorability
– plain &
vanilla

24. THE SALES &
DISTRIBUTION
PROCESS:
SUPERMARKET
CHANNEL VS.
NATURAL FOODS
STORES

25.  Smaller manufacturers ex:
NatureView Farms use sales
brokers to sell their yogurt - both
natural foods and supermarket
chains
 For yogurt, the broker’s fee - 4% of
manufacturer’s sales
 Broker’s fees - typically accounted
for in SG&A (Sales, General &
Administrative) expense.

26. SUPER MARKET
CHANNEL

27. Monitor sales trends, esp. of
new items, by region, area,
& store, using sophisticated
scanner technology.
Relatively streamlined
distribution systems allows
to maintain lower prices.
Suppliers -> Large
distribution center ->
Chain’s warehouse.
Markup on each product
by intermediaries. Typical
Distributor margin - 15% &
Retailer Margin-27%.
SUPERMARKETS
CHANNEL

28. ADDITIONAL
EXPENSES
Refrigerated yogurt, slotting fee
averaged - $10,000 per SKU per
retail chain.
For 8 different flavors in 8-oz packs
- $80,000 /retail chain
Northeast, Midwest, and Southeast of
the U.S., advertisements -$7,500 (for
the size typically used by firm’s
competitors. ) In the West, same
advertisements - $15,000 per ad per
retailer.
Nationally, they cost $8,000 on
average

29. NATURAL FOODS
CHANNEL

30. Typically charge
higher retail prices
for the same
products than
supermarkets .
Distributors deliver
product to individual
stores, sometimes
stock the shelves &
track paperwork.
Manufacturer ships
products ->
Wholesaler ->
Distributor ->
Retailer
Intermediaries “break
cases”. Typical natural
foods Wholesaler
Margin 7%, Distributor
Margin 9% Retailer
Margin 35%.
NATURAL
FOODS
CHANNEL

31. ADDITIONAL
EXPENCES No slotting fees charged by
natural foods retailers .
Require a 1-time allotment of 1
free case of product for every
new SKU authorized for
distribution in its 1st year.
Minimal advertisement fee
( all regions)

32. Yogurt Production Costs and
Retail Prices by Channel

33. LENGTH OF CHANNELS TO
MARKET

34. ANALYSIS OF THE
SENIOR
MANAGEMENT
TEAM’S 3
OPTIONS

35. OPTION 1

36. Expand 6 SKUs of the 8-oz.
product line into one or two
selected supermarket channel
regions
The 6 SKUs chosen were the best-
selling SKUs of the 8-oz. line

37. ARGUMENT BASED ON 3 KEY POINTS
8-oz. cups - represent the largest dollar , unit
share of the refrigerated yogurt market-
providing significant revenue potential.
Silk Soymilk & Amy’s Organic Foods- increased
revenues by over 200% within 2 years of
entering supermarkets. Natureview , uniquely
positioned to capitalize on the growing trend in
natural & organic foods in supermarkets.
More competitors planning on extension to
supermarket hence retailers would likely
authorize only one organic yogurt brand.

38. DRAWBACKS
OF OPTION 1
Higher
risks
and
costs.
The 8-oz. size -
highest level of
competitive trade
promotion &
marketing
spending.
Supporting this cup size
would require quarterly
trade promotions and much
Marketing budget.
advertising plan (television,
radio, outdoor & print
advertising) estimated to
cost $1.2 million per region
per year + Trade promotions
SG&A expenses -
increase - $320,000 /year
($200,000 + sales staff
managing supermarket
brokers in the 2
regions; $120,000 -
towards additional
marketing staff)

39. OPTION 2

40. Expand 4 SKUs of the
32-oz. size nationally

41. ARGUMENT BASED ON 3 KEY POINTS
32-oz. cups - smaller unit & dollar share of the
yogurt market but generate above-average gross
profit margin for Natureview (43.6% vs. 36.0% for
the 8-oz. line).
Strong competitive advantage - product’s longer
shelf life, fewer competitive offerings in this size.
Achieved a 45% share of 32-oz segment in the
natural foods channel. Company can sell approx.
5.5 million incremental units in the first year.
Slotting expenses -higher because of national
distribution , Promotional expenses - lower(32-oz.
size promoted only twice a year.)
For a 32-oz. expansion, marketing expenses
significantly lower —only 10% of cost for 8-oz. size
in each region i.e. $120,000 / region per year

42. DRAWBACKS
OF OPTION 2
Risk whether new
users would
readily “enter the
brand” via a multi-
use size .
Additions to sales
headcount for the
32-oz. expansion
option - increase
SG&A expenses
by $160,000.
Need to hire sales personnel
– should experience selling to
the more sophisticated
supermarket channel ; need
to establish relationships with
supermarket brokers
Sales team’s
inability to
achieve full
national
distribution in
mere 12 months

43. OPTION 3

44. Introduce 2 SKUs of a
children’s multi-pack into
the natural foods channel

45. ARGUMENT BASED ON 5 KEY
POINTS
Expansion into the supermarket channel will affect
relationships with leading natural food channel retailers
According to Riley NatureView lacks in necessary
resources / skill-set to sell effectively to & through
supermarkets
NatureView’s all-natural ingredients - provide the perfect
positioning to launch its own children’s multi-pack product
offering into their core sales channel.
Financial potential - very attractive ; sales & marketing
expenses in this channel –lower.
Natural foods channel growing almost 7 X faster than
supermarket channel; Firm’s brand extension - further boost
sales performance;5-year projected unit growth CAGR of
yogurt - to be 15%, according to industry market research.

46. DRAWBACKS
OF OPTION 3
Natural foods channel would
soon make demands - like
those that Riley feared from
supermarkets (real
marketing plan; more
demands from logistical &
technological standpoint
compared with distribution
partners)
Retailers were
likely to
demand more
and more as
they grew.

47. WHICH IS THE
BEST OPTION
OUT OF THE 3
HERE ?

48. SALES PROJECTIONS FOR NATUREVIEW’S
STRATEGIC OPTIONS

49. TOTAL FIXED COST IS SAME FOR ALL 3
OPTIONS
 TOTAL COST = TOTAL FIXED COST +
ADVERTISING COSTS + PROMOTION
COSTS + SKU COSTS

50. DIFFERENCES

51. I •According to cost analysis - option 3 is the best choice
II
•Taking other factors into consideration such as
retailer , distributor relations option 3 contains no
risk of loosing any but option 1 & 2 does
III
•Also in case of option 2 & 3 sales teams capability for
expansion is questionable
IV
•Number risks to firm in option 3 is least so
cumulatively it’s the best option for increasing
revenue for the company with maximum probability
of success
INFERENCES

52. RECAP

53. What is Nature View farm?
Who are the key people ?
Early years
As of 2000
Situation analysis
4 issues
How to increase revenue
Ways To increase sales
Survey exhibits
Factors used for yogurt selection
Super market channel – facts , additional
expenses
Natural channel – facts , additional expenses
Options 1 ,2 ,3 and their respective drawbacks
Problem analysis , Differences & inferences

55. DISCLAIMER
Created by Esha Singh , Bits
Pilani , during a Marketing
Internship by Prof. Sameer
Mathur ,IIM Lucknow