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Natureview Farm Case Analysis
Started in 1989
Sells Yogurt using family yogurt recipe
Uses natural ingredients , sells through natural food channels
12 flavors in8 oz cupand 4 flavors in 32 oz cup
Average shelf life of 50 days , 20 more than the average
NatureviewFarm
Growth from $100,000 to$13,000,000 in 10 years
1997
2000(present)
By 2001
Increase revenue to 20 million dollars to attract another investor
Got funding from a venture capitalist
Venture Capitalist decides to cash out
How to increase revenue to $20,000,000 by 2001?
Revenue $13,000,000 100 %
COGS $8,190,000 63%
Gross Profit $4,810,000 37%
Expenses
Administration $2,210,000 17%
Sales $1,560,000 12%
Marketing $390,000 3%
Research & Development
$390,000 3%
Net Income $260,000 2%
Natureview Farm Income Statement, 1999
86% of profits is from 8 oz while 14% is from 32 oz. Mathematically-Gross Profit Margin = 0.86*36%+0.14*43.2%=37%
Projected GrowthSegment Percentage Growth (In % US
Dollars)
8-oz. cups and smaller 3%
Children’s multipacks 12.5%
32-oz. cups 2%
Channel Percentage Growth in Yogurt sales
Supermarket 3%
Natural Foods 20%
Channels Unit Cost %Margin Selling Price
Manufacturer $0.31 36% $0.48
Distributor $0.48 7% $0.52
Wholesaler $0.52 9% $0.57
Retailer $0.57 35% $0.88
Customer $0.88
Natural Foods Channel , 8 oz
Channels Unit Cost %Margin Selling Price
Manufacturer $0.99 43.2% $1.74
Distributor $1.74 7% $1.87
Wholesaler $1.87 9% $2.05
Retailer $2.05 35% $3.16
Customer $3.16
Natural Foods Channel , 32 oz
Channels Unit Cost %Margin Selling Price
Manufacturer $1.15 37.6% $1.84
Distributor $1.84 7% $1.97
Wholesaler $1.97 9% $2.17
Retailer $2.17 35% $3.35
Customer $3.35
Natural Foods Channel , Children Multipack
Channels Unit Cost %Margin Selling Price
Manufacturer $0.31 32.5% $0.46
Distributor $0.46 15% $0.54
Retailer $0.54 27% $0.74
Customer $0.74
Supermarket Channel , 8 oz
Channels Unit Cost %Margin Selling Price
Manufacturer $0.99 41% $1.74
Distributor $1.74 15% $2.04
Retailer $2.04 27% $2.7
Customer $2.7
Supermarket Channel , 32 oz
Segmentation
Yogurt Market Share by Packaging Segment, 1999
Yogurt Market Share by Brand (Supermarket channel), 1999
Yogurt Market Share by Brand (Natural Foods channel), 1999
Yogurt Market Share by region in % US dollars (Supermarket channel), 1999
Expand six stock keeping units (SKUs) of the 8-oz. product line into one or two selected supermarketchannel regions
Benefits1-Significant Revenue Potential
2-Other natural food brands increased revenues by over 200% within two years of entering supermarkets
3-Highest Incremental Demand
4-First Mover Advantage- Supermarket retailers would likely authorize only one organic yogurt brand
Risks
Benefits1-Requires quarterly trade promotions and a huge marketing budget
2-Creates direct competition with national brands
3-Possible channel conflict
4-Promotions and lower price can hurt the premier brand image
5-Little experience in dealing with supermarket channels
Risks
Expenses Calculation
Slotting fees of $60,000 X 20 (Retailers) =$1,200,000
Broker fees @ 4% of sales
Added $320,000
SG&A expenses
Advertising expenseand quarterly trade promotions ad costs
$390,000+$2400000 +$7500*4*11+$15000*4*9=$3,660,000
Year 2000 2001 2002Incremental Units Sold (20% growth per year)
35,000,000 42,000,000 50,400,000
Total Revenue $13,000,000 + 35,000,000*$0.46 = $29,100,000
$13,000,000 + 42,000,000*$0.46 = $32,320,000
$13,000,000 + 50,400,000*$0.46 = $36,184,000
COGS $19,040,000 $21,210,000 $23,814,000
Gross Profit $10,060,000 $11,110,000 $12,370,000
ExpensesAdministration $2,210,000 $2,210,000 $2,210,000
Sales $1,880,000 $1,880,000 $1,880,000Marketing $3,660,000 $3,660,000 $3,660,000Research & Development $390,000 $390,000 $390,000
Slotting Fees $1,200,000
Broker fees $644,000 $772,800 $927,360
Net Income $76,000 $2,197,200 $3,302,640
Profit Margin 0.26% 6.79% 9.127%
Expand four SKUs of the 32-oz size nationally through supermarket channel
Benefits
1- 32 oz generates an above average profit margin
2-Lesser competition in this size
3-Lower promotional expenses than option 1
4-Longer Shelf life
Risks
Benefits1-Achieving national distribution will be challenging in 12 months
2-New users would not readily “enter the brand” via a multi-use size
3-Possible channel conflict
4-Little experience in dealing with supermarket channels
Risks
Expenses Calculation
Slotting fees of $40,000 X 64 (Retailers) =$2,560,000
Broker fees @ 4% of sales
Added $160,000
SG&A expenses
Advertising expenseand quarterly trade promotions ad costs
$390,000+$480,000 +$8000*2*64=$1,894,000
Year 2000 2001 2002Incremental Units Sold (20% growth per year)
5,500,000 6,600,000 7,92,000
Total Revenue $13,000,000 + 5,500,000*$1.74 = $22,570,000
$13,000,000 + 6,600,000*$1.74 = $24,484,000
$13,000,000 + 7,920,000*$1.74 = $26,780,000
COGS $13,635,000 $14,724,000 $16,030,800
Gross Profit $8,935,000 $9,760,000 $10,749,200
ExpensesAdministration $2,210,000 $2,210,000 $2,210,000
Sales $1,720,000 $1,720,000 $1,720,000Marketing $1,894,000 $1,894,000 $1,894,000Research & Development $390,000 $390,000 $390,000
Slotting Fees $2,560,000
Broker fees $382,800 $459,360 $551,232
Net Income -$221,800 $3,086,640 $3,983,968
Profit Margin -0.98% 12.6% 14.88%
Introduce two SKUs of a children’s multi-pack into the natural foods channel
Benefits1-Lower sales and marketing expenses
2-Avoid possible channel conflict and brand dilution
3-Perfectly positioned to launch this option as it has strong relationships with the leading natural foods channel
4-Natural foods channel was growing almost seven times faster than the supermarketchannel
Risks
Benefits1-Lowest incremental demand
2-Natural foods channel could soon start making the same demands as the supermarket channels
3-Miss the chance to enter the supermarket channel before competitors
4-Fall short of the $20,000,000 revenue target by 2001
Risks
Expenses Calculation
Complimentarycases @ 2.5% of sales
Added $250,000 marketin
g expenses
Year 2000 2001 2002Incremental Units Sold (15% growth per year)
1,800,000 2,070,000 2,380,500
Total Revenue $13,000,000 + 1,800,000 *$1.84 = $16,312,000
$13,000,000 + 2,070,000*$1.84 = $16,808,800
$13,000,000 + 2,380,500*$1.84 = $17,380,120
COGS $10,260,000 $10,570,500 $10,927,575
Gross Profit $6,052,000 $6,238,300 $6,452,545
ExpensesAdministration $2,210,000 $2,210,000 $2,210,000
Sales $1,560,000 $1,560,000 $1,560,000Marketing $640,000 $640,000 $640,000Research & Development $390,000 $390,000 $390,000
Complimentary Case Fees
$66,240 $76,176 $87,602.4
Net Income $1,185,760 $1,362,124 $1,564,943
Profit Margin 7.27% 8.1% 9%
BestMediumWorst
Parameter Option 1 Option 2 Option 3RevenueShort Term ProfitLong Term ProfitChannel conflictCompetition
Ranking based on various parameters
Option 2Meets the revenue objective of $20,000,000
Highest long term profit growth
Avoids direct competition with the top brands
High future growth potential
Created by Tishya Kapoor, IIT
Delhi during a marketing
internship under Prof. Sameer
Mathur , IIM Lucknow