Natureview Farm Case Study

BACKGROUND

1989

• Founded and manufactured in Cabot, Vermont• Entered market with 8-oz and 32-oz with plain and vanilla flavor• Used 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• Low-cost “guerilla marketing” tactics

2000• Expanded to 12 yogurt flavors in 8-oz. & 4 flavors in 32-oz.• Exploring multipack yogurt products (for children)

ISSUES & GOALSVC needed to cash out of its investment

Should Natureview Farm expand into supermarket channel?

THE 4PsPRODUC

T

• Natural yogurt (organic)

• 8 –oz. size with 12 flavors

• 32-oz. size with 4 flavors

PRICE

• Affordable according to it’s channel

PLAC

E

• Natural food channel

• Warehouse clubs

• Convenience and drug store

• Mass merchandisers

PROMOTION

• It’s natural flavor with high quality and great taste growth in the national distribution and natural food channel

• Low-cost guerilla marketing

PRODUCT

• 12 yogurt flavors in 8-oz.• 4 yogurt flavors in 32-oz. yogurt flavors in 32-

oz

86%

14%

Revenues 20008-oz32-oz

Started exploring kid multipack yogurt product (4-oz)

Factors Considered By Consumers When Buying Yogurt Products

Packaging type/size Taste Flavor

Price Freshness Ingredient

Organic or not

Yogurt Market Share by Packaging Segment,1999

74%

9%

8%

9%8-oz. cup smaller

Children's multipacks

32-oz. cups

Others

Yogurt Distribution Channel,1999

97%

3%Distribution Channel

SupermarketsNatural food stores

Yogurt Market Share by Region,1999

26%

22%25%

27%Northwest

Midwest

Southwest

West

Length of Channel to Market

Supermarket ChannelChannel Natural Foods Channel Natural Foods Channel

Manufacturer

Distributor

Retailer

Customer

Manufacturer

Natural Foods Wholesaler

Natural Foods Distributor

Retailer

Customer

15%

27%35%

9%

7%

Yogurt Market Share by Brand,1999

Dannon33%

Yoplait24%

Others23%

Private Label15%

Columbo5%

Supermarket Channel

Natureview Farm24%

Brown Cow15%

Horizon Organic19%

White Wave7%

Others35%

Natural Foods Channel

Yogurt Production Costs and 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

OPTIONS & DILEMMA

OPTION 1

• Expand in Northeast and West supermarket region

• Bring in top 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

OPTION 1: Expand 6 SKUs of the 8-oz into eastern and

western supermarket regions

PROs

8-oz have highest incremental demand

Significant Revenue Potential

First organic yogurt brand to enter supermarket has a first mover advantage

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

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

regions

PROs

Generate higher gross profit margin than 8-oz size(43.6% vs. 36% for 8-oz. line)Strong competitive advantage: longer shelf life(45% share in Natural foods)

Lower promotion expenses : promoted only twice a year

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 monthsNeeds to hire sales personnel and establish relationships with supermarket brokersThe 32-oz. expansion option would increase SG&A expense by $160,000

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

PROs

The sales team was confident that they could achieve distribution for the two SKUs.

The financial potential was very attractive (Gross profitability : 37.6%)

Lower marketing expenses; no additional SG&A costs to introduce the productThe 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.

OPTION 3:Introduce two SKUs of a children multipack into the natural

foods channel

OPTION 3: Introduce 2 SKUs of a children’s multi-pack into the natural foods channel

Perfect Positioning into their core sales channel

Now which option to consider ?

Let’s see first “Qualitatively” by examining PROs & CONs

• Strong relationships

• Perfect positioning

• Attractive financial potential

• Natural food channel is growing 7 times faster than supermarkets

Option3

• Competitive advantage– Strong relationship with natural foods

retailers ex: Whole Foods and Wild Oats.– Sustainable competitive advantage– Main profit comes from natural foods

channel.

• Power and conflict– If stays with natural foods stores, there will

be no conflict.– Option 1 and 2 could potentially create

conflict between the firm and natural foods channel.

“…you can’t lose sight of what has made this company great.” –Barry Landers (CEO)

• Brand Image– Organic yogurt– Shoppers at natural foods stores earn more

income, more educated and not price sensitive.

– Natural foods store shoppers are more concern on health issue, not price.

– If expand to supermarket, its brand image will be doubted by current consumers.

• Financial and Risk Analysis– No extra slotting fees and advertising expense– Option 1 and 2 creates more expense – Lowest risk and cost if choose option 3– Will not have to compete with two main

competitors in supermarket channel which are Dannon and Yoplait

Let’s Analyze now by “Financial” Point of View, if Option 3 is

feasible or not ?

Financial StatementYear 2000 Financial Forecast

Option 1

Advertising Cost is abundance, Natureview would have paid

4,800,000 on ads by year 2001

Option 2

The slotting fee is too much, Nature view would have to enter 64

supermarkets

Option 3

No SG&A, Broker Fee, and Slotting Fee

Solution Financial Forecast’01

A Presentation by

Manu Tyagi, NIT Surat

during an internship under

Prof. Sameer Mathur, IIM Lucknow