NATUREVIEW FARM CASE STUDY

NUSAIBAH ROSLAN MMJ 141005SHARIFAH RADHIAH SYED AZMAN MMJ 141003SITI AISAH MUHAMMAD MMJ 141013

Master of Technology & Innovation Management

MMJT 1043 Marketing of Technology & Innovative Products

BACKGROUND

1989

• Founded and manufactured in Cabot, Vermont• First enter market 8-oz and 32-oz with plain and

vanilla flavor• Use 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

2000• Expand to 12 yogurt flavors & multipack yogurt (for

children)

ISSUESVC 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?

THE 4PSPR

OD

UCT

• Natural yogurt (organic)

• 8 –oz. size with 12 flavors

• 32-oz. size with 4 flavors

PRIC

E • Affordable according to it’s channel

PLAC

E • Natural food channel

• Wholesale club

• National retailer channel

• Convenience and drug store

PRO

MO

TIO

N • 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

86%

14%

Revenues 2000

8-oz32-oz

Start exploring kid multipack yogurt product (4-oz)

SWOT ANALYSIS

STRENGTH WEAKNESS Strong brand Low cost No artificial thickeners

used Unique, smooth and

creamy texture of yogurt Usage of natural

ingredients Longer shelf life

No alternative financing available

Lacks potential of taking higher risks and costs

Doubt on sales team’s ability

OPPORTUNITY THREATS Strong relationships with

leading natural foods retailers

Accumulation of cash by Horizon from IPO

Being dropped out of traditional channel

MARKET TREND FOR YOGURT PRODUCT

Packaging

type/size

Taste Flavor

Price Freshness

Ingredient

Organic or not

YOGURT MARKET SHARE BY PACKAGING SEGMENT

74%

9%

8%

9% 8-oz. cup smaller

Children's multipacks

32-oz. cups

Others

YOGURT MARKET SHARE BY REGION

26%

22%25%

27%Northwest

Midwest

Southwest

West

YOGURT DISTRIBUTION CHANNEL

97%

3%Distribution Channel

SupermarketsNatural food stores

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%

YOGURT MARKET SHARE BY BRAND

Dannon33%

Yoplait24%

Others23%

Private Label15%

Columbo5%

Supermarket Channel

Natureview Farm24%

Brown Cow15%

Horizon Organic

19%

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 the 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 demandHigh potential to increase revenueFirst mover as organic yogurt brand to enter supermarket channel

CONs

High risk & high cost (marketing)Require quarterly trade promotionsAdvertising plan would cost $1.2 million per region per yearSG&A expenses increase by $320,000 annually Need to pay one time slotting fee

SUPERMARKET CHANNEL MARGIN ANALYSISChannel Selling

priceMargin 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

PROJECTION INCOME STATEMENT2000 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 000ExpensesAdvertisement $ 1 200 000 x 2 region = $

2,400 000$ 2,400 000

SG&A $ 320 000 $ 640 000Slotting Fee 6 x $ 10 000 x 20 retails =

1200 000Broker’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

OPTION 2:EXPAND 4 SKUS OF THE 32-OZ SIZE NATIONALLY INTO SUPERMARKET REGIONS

PROs

Generate higher profit margin than 8-oz size

Strong competitive advantage: longer shelf life

Lower promotion expenses

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

SUPERMARKET CHANNEL MARGIN ANALYSISChannel Selling

priceMargin Cost price

Retailer $2.70 27% $2.70 x 73% = $0.1.97

Distributor $1.97 15% $0.54 x 85% = $1.67

Natureview

$1.67 ($1.67/$0..99)/$1.67 =41%

$0.99

PROJECTION INCOME STATEMENT

2000 2001Unit sales 5,500,000 5,500,000Revenues 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 22,405,000Expense:Slotting fee 4 x 10000 x 64 =

2,560,000 0

SG & A 160,000 160,000Marketing 120000 x 4 = 480000 480,000Broker's fee (4% revenues)

367,400 367,400

Net profit 18,837,600 21,397,600

PROs 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.

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

OPTION 3:INTRODUCE TWO SKUS OF A CHILDREN MULTIPACK INTO THE NATURAL FOODS CHANNEL

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

PROJECTION INCOME STATEMENT

2000 2001Unit 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 17,554,000Expense:Marketing 250,000 250,000Complementary 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

WHICH ONE TO CHOOSE?

COMPARISON OF OPTIONS FOR YEAR 2001

Option Option 1 Option 2 Option 3Gross Margin 33% 41% 38%Unit sales 42, 000 000 5,500,000 2,070,000Revenue projection

44, 080 000 27,850,000 19,934,500

Cost $ 13 020 000 $ 5 445 000 $ 2,380,500Gross profit $ 31, 060 000 22,405,000 17,554,000Expense:SG & A $ 640, 000 160,000 0Marketing $ 2, 400, 000 480,000 250,000Broker'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

DECISIONGo 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)

THANK YOU