Case AnalysisNatureview Farm

Agenda• About Natureview Farm• Issues and Challenges• Market Trends• Options• Recommendations

About Natureview Farm• Founded in 1989 in Cabot, Vermont• Manufacturer and marketer of refrigerated cup organic

yogurt• Uses natural ingredients and special process

How is Natureview Farm different?Natureview Farm yogurt is different from its other competitors:• Uses natural ingredients• Longer shelf life (50 days)• Reputation of high quality and great taste

Natureview is successfulBecause:• Strong brand• Effective, low-cost “Guerrilla Marketing”• National distribution in natural foods channels• Strong relationships with distributors

Issues and Challenges

Issues and ChallengesVenture Capital firm needs the cash out of investment, and thus Natureview Farm needs to increase its revenues by 50% by the end of 2001.Its current revenue is $13 million. It needs to reach $20 million.

GOAL :To find another investor or position itself for acquisition, and increasing revenues.

Questions !• Should Natureview expand into the supermarket channel to

increase its revenue?• What marketing strategy should it use?

Market Trends

Market Trends

46%

25%

29%

Channel that customers tend to buy

Supermarket Small health storesNatural Foods

97

3

Yogurt Distribution Channel

Supermarket Natural Foods

Market Trends

26%

22%25%

27%

Yogurt Market Share by Region

Northeast Midwest Southeast West

74%

9%

8%

9%

Yogurt Distribution Channel

8 oz. cups and smaller Children's multipacks32 oz. cups Others

Market Trends

33%

24%

23%

5%

15%

Yogurt Market Share by Brand

Supermarket

Dannon Yoplait OthersColumbo Private label

Yogurt Distribution Channel

24%

15%

19%7%

35%

Yogurt Market Share by Brand

Natural Foods Channel

Natureview Farm Brown Cow Horizon OrganicWhite Wave Others

Length of Channels to Market

Manufacturer

Natural Foods Wholesaler

Natural Foods Distributor

Retailor

Customer

Manufacturer

Distributor

Retailor

Customer

Supermarket Channel

Natural Foods Channel

Strategic Options

Option 1Expand 6 SKUs of the 8-oz. product line into one or two selected supermarket channel regions

Option 1Pros• 8-oz. cups represent largest dollar and unit share of market• Other natural food brands have successfully expanded to

supermarkerts• Supermarkets may authorize only one organic yogurt

manufacturer• Advantage in being the first organic yogurt to move to

supermarket

Option 1Cons• Highest level of competition amongst all the product lines

of yogurt• Increase in advertising cost and SG&A expenses• Little experience in dealing with supermarket chains• High potential, but high risk and cost

Option 1Financial AnalysisSupermarket Channel Analysis

Channel Margin Cost Price Selling Price

Natureview ($0.46-$0.31)/$0.46 = 33%

$0.31 $0.46

Distributor 15% $0.54*85% = $0.46 $0.54

Retailor 27% $0.74*73% = $0.54 $0.74

Customer

Option 1Year 2000 Year 2001

Unit Sales 35,000,000 35,000,000 * 1.2 = 42,000,000

Revenue 35,000,000 * $0.46 = $16,100,000

42,000,000 * $0.46 = $19,320,000

Cost 35,000,000 * $0.31 = $10,850,000

42,000,000 * $0.31 = $13,020,000

Gross Profit $5,250,000 $6,300,000

ExpenseAdvertisement 1,200,000 * 2 = 2,400,000 2,400,000SG&A 320,000 640,000Slotting Fee 6 * 10,000 * 20 = 1,200,000Broker’s Fee $16,100,000 * 4% =

$644,000$19,320,000 * 4% = $772,800

Net Profit $686,000 $2,487,200

Option 2Expand 4 SKUs of the 32-oz. size nationally

Option 2Pros• 32-oz. cup generates an above-average gross profit margin

(43.6% vs 36% for 8-oz. product line)• Fewer competitive offerings in this size• Competitive advantage due to longer shelf life• Lower promotional expenses

Option 2Cons• Higher slotting fees due to national distribution• National distribution will be challenging within 12 months• Promotion and lower price at supermarkets may hurt the

brand

Option 2Financial AnalysisSupermarket Channel Analysis

Channel Margin Cost Price Selling Price

Natureview ($1.67-$0.99)/$1.67 = 41%

$0.99 $1.67

Distributor 15% $1.97*85% = $1.67 $1.97

Retailor 27% $2.70*73% = $1.97 $2.70

Customer

Option 2Year 2000 Year 2001

Unit Sales 5,500,000 5,500,000Revenue $9,185,000 $9,185,000Cost $5,445,000 $5,445,000Gross Profit $3,740,000 $3,740,000

ExpenseAdvertisement $480,000 $480,000SG&A $160,000 $320,000Slotting Fee $2,560,000Broker’s Fee $367,400 $367,400Net Profit $172,600 $2,572,600

Option 3Introduce 2 SKUs of a children's multi-pack into the natural foods channel

Option 3Pros• Strong relationships with leading natural foods channel

retailers• Financially lucrative• High margins• Low sales and marketing expenses

Option 3Cons• Have to prolong venturing into supermarkets• May not reach the target revenue of $20 million by 2001• Competitors have already expanded to supermarkets

Option 3Supermarket Channel Analysis

Channel Margin Cost Price Selling PriceNatureview ($1.84-$1.15)/$1.84

= 38%$1.15 $1.84

Natural Foods Wholesalers

7% %1.84 $1.98

Distributor 9% $1.98 $2.18Retailor 35% $2.18 $3.35Customer

Option 3Year 2000 Year 2001

Unit Sales 1,800,000 2,070,000Revenue $3,312,000 $3,808,800Cost $2,070,000 $2,380,500Gross Profit $1,242,000 $1,428,300

ExpenseMarketing $250,000 $250,000Comp. Case $82,800 $95,220Net Profit $909,200 $1,083,080

What is the best option?

• Higher revenue generated• Lower Slotting Fee (only 2 supermarkets)• Transition to supermarkets• Advantage over competitors by expanding into

supermarket

Option 1 !

Recommended AdjustmentsInstead of just introducing 8-oz. cups, 32-oz, cups should also be introduced in supermarkets.• More shelf coverage• Better gross profit margin• No competition for 32-oz. cups

Combining advantages of both the product lines.

Created by Parth Shah, IIT Madras, during a marketing management internship by Prof. Sameer Mathur, IIM Lucknow.

Disclaimer