NATUREVIEW FARMCASE STUDY

By - Kunal GuptaIIT Bombay

INTRODUCTIONFounded in 1989

Manufacturer and Marketer of Refrigerated Cup Yogurt

Differentiators:- All Natural Ingredients- Longer Shelf Life (50 days)- Reputation for high quality and great taste

Key Success Factor:- Strong Brand- Guerrilla Marketing- Strong Relationship and Distributors

NATURAL/ORGANIC MARKET TRENDSOrganic Food market is predicted to grow from $6.5 Billion to $13.3 Billion over 4 years.

Generally Organic Food customers tend to be more educated, earn higher incomes, be older and live in the Northeast and West.

67% of households consider price as a barrier to purchase organic food products.

44% of customers would like a wider selection of organic products in supermarket.

Supermarkets are moving toward attracting new customers by offering more organic products.

YOGURT MARKET TRENDS

Top 4 Competitors control over 50% market shareSupermarkets – 97% of total sales (3% annual growth)Natural food stores – 3% of total sales (20% annual growth)Factors in purchasing decision:Package type/size, flavour, price, freshness, ingredients, organic

CHALLENGE

Identify path to grow revenue by over 50% from $13 Million in 1999 to $20 Million at the end of 2001

Goal: Attain highest possible valuation in order to secure new investors or position itself for acquisition.

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

Pros:-8oz cups represent largest dollar and unit share of market.-Supermarkets fear losing market share to natural food competitors.-Other natural food brands have successfully expanded to supermarkets.

Cons:-Highest level of competitive trade promotion and marketing spend.-Possible channel conflict between supermarkets and natural food stores.-Little experience in dealing with supermarket chains.

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

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

Year 2000 Year 2001

Unit Sales 35,000,000 units 35,000,000*(1+20%) = 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

Advertisement 1,200,000*2 Regions = $2,400,000 $2,400,000

SG&A $320,000 $640,000

Slotting Fees 10,000*6*20 retails = $1,200,000 --

Broker’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 32oz product line nationally

Pros:-32oz cups generate an above average gross profit margin.-Fewer competitive offering in this size.-Lower promotional expense than Option 1.

Cons:-Higher slotting fees due to national distribution.-National distribution will be challenging within 12 months.-Possible channel conflict between supermarkets and natural food stores.

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

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

Year 2000 Year 2001

Unit Sales 5,500,000 units 5,500,000

Revenue 5,500,000*$1.67 = $9,185,000 $9,185,000

Cost 5,500,000*$0.99 = $5,445,000 $5,445,000

Gross Profit $3,740,000 $3,740,000

Marketing 120,000*4Regions = $480,000

$480,000

SG&A $160,000 $320,000

Slotting Fees 10,000*4*64 retails = $2,560,000

--

Broker’s Fee 9,185,000*4% = $367,400 $367,400

Net Profit $172,600 $2,572,600

OPTION 3Expand 2 SKUs of the children’s multi pack into the natural food channel

Pros:-Natureview has strong relationship with leading natural food channel retailers.-Financially attractive.-More time to prepare the company for moving into supermarket channel.

Cons:-Fast growth of natural food channel will lead to demands equal to those of supermarkets.-Miss opportunity to enter supermarket channel before competitors.

Channel Margin Cost Price Selling PriceNatureview ($1.84-$1.15)/$1.84 = 38% $1.15 $1.84

Natural Food Wholesalers 7% $1.98&93% = $1.84 $1.98

Distributor 9% $2.18*91% = $1.98 $2.18

Retailer 35% $3.35*73% = $2.18 $3.35

Year 2000 Year 2001

Unit Sales 1,800,000 units 1,800,000*(1+15%) = 2,070,000

Revenue 1,800,000*$1.84 = $3,312,000 2,070,000*$1.84 = $3,808,800

Cost 1,800,000*$1.15 = $2,070,000 2,070,000*$1.15 = $2,380,500

Gross Profit $1,242,000 $1,428,300

Marketing $250,000 $250,000

Comp. Case 3,312,000*2.% = $82,800 3,808,800*2.5% = $95,220

Net Profit $909,200 $1,083,080

RECOMMENDATION

Pursue Option 1Higher Revenue

Higher investor’s confidence

Accelerating growth rate

Market penetration

• Choose 6 best flavour that were sold from Natural Foods.

• Hire talent knowledgeable of supermarket channel.

• Start to develop relationships with supermarket distributors.