Natureview Farms Case

Natureview Farm Group 4 Section A

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Case Overview

• Natureview Farm,Inc. - Small Yogurt Manufacturer • Founded in 1989 (in Cabot, Vermont) • Gained 24% market share of natural foods channel • Use natural ingredients and special process • Organic yogurt with longer shelf life (50 days)

Natureview Farm

Timeline 1989: founded in Cabot, Vermount manufactured and marketed refrigerated cup yoghurt with 2 flavors (plain and Vanila)

1996: Jim Wagner was hired as CFO Natureview farm was funded by a VC firm.

1999: revenue grows from $100,000 to $13 million in 10 years

Natureview Farm

Main Issues An unplanned exit by its venture capital investors

Naturview Farm wants to increase revenues from presently $13 million (1999) to $20 million by year 2001. whether to achieve this revenue growth by expanding into the supermarket channel and what is the best plan?

Natureview Farm

Market Trend: 74%

67% 58% 44%

26%

Organic Dairy product Buyer Heavy Organic Food Buyer Light Organic Food Buyer

Price barrier to purchase Would buy if less expensive Need a wider selection

Organic food market expected to grow from $6.5 billion(1999) to $ 13.3 billion in worth in 2003 Characterstics of buyers: • High income • More educated • Live in northeast and west (majorly)

Natureview Farm

Market Trend:

channel used by organic food consumers

Yogurt market share by Region

29% 46%

27%

25% 25%

supermarket small health food store narural food supermarket

Northeast Southeast

26%

22%

Midwest West

Natureview Farm

Market Trend:

Yogurt market share by packaging segment

8%

12.50%

9%

9% 74%

3% 2%

Growth 8-oz cups and smaller 32-oz cups

childern's multipack others

8-oz cups and smaller Children's multipacks 32-oz. Cups

Natureview Farm

Market Trend: Distribution Channel

Sales

3%

Super marke t Chann el

Natur al foods Chan nel

97%

Natural foods

Supermarket

Natureview Farm

Length of Channel to Market

Natureview Farm

Competitor s:

Yogurt Market share by Brand: Supermarket Channel 5% 15%

33%

7% 24%

Yoplait Columbi

24%

35%

23%

Dannon Private label

Natural Foods Channel

Others

15% 19%

Natureview Farm Horizon Organic Others

Brown Cow White Wave

Natureview Farm

The Challenge: Income statement, 1999

Revenues COGS Gross Profit Expenses Administration/freight Sales Marketing Research and development Net Income

13000000 8190000 4810000 2210000 1560000 390000 390000 260000

Natureview Farm

The Challenge:  

8-Oz. Cups

86%

3%

1999 2000 2001 1118000 11515400 11860862 0

32-Oz. Cups

14%

2%

1820000

Total Revenues 

Revenue Growth rate

1856400

1893528

1300000 0 13371800 13754390  

  Natureview Farm

Growth Strategies: Current Product New Product

Current Market

New Market

Market Penetration Strategy

Product Development Strategy

Market Development Strategy

Diversificati on Natureview Farm

Options:

Natureview Farm

Option 1: Mr. Walter Bellini, Vice President Of sales Expand 6 SKUs of the 8-oz Size into eastern and western supermarket Regions.

Natureview Farm

Option 2:

Mr. Jac k Operat Gottlieb, Vice ions Preside nt Of Expan d 4 SK Us of t Nation he 32ally int oz Size o supe r marke t Chan nel.

Natureview Farm

Option 3: Ms. Kelly Riley, the assistant marketing Director Introduce 2 Children’s Multipack into Natural Foods Channel

Natureview Farm

Natureview Farm

• Potential for high growth expected 1.5% market share after 1 year(35 million units)

•

High expense - 3.04 million

• Consumers in NE and W are more likely to go for organic.

•

Direct competition with biggies with huge cash power

• Has highest dollar share of 74%.

•

Quaterly promotion required

• Smaller length of channel to market & reduction of price. • Others have tested it and succeeded. Natureview Farm

sales price retailer margin(27%) price to retail distributor margin( 15%) sales price for natureview

0.74 0.20 0.54 0.08 0.46

Number of regions

2 (Northeast and west)

Retailers

20

Natureview Farm

Incremental Income Statement Expected sales in units Price per unit Revenue Cost per unit COGS   Advertising Expense Advertising per region Total   Sales & Administrative Marketing Staf Sales Force Broker's fee (4%) Total Slotting Fee Number of SKUs One SKU fee per chain Retail Chains Total Slotting Fee   Trade Promotion Cost per promotion per retailer(Northeast) Number of retailers Cost per promotion per retailer(west) Number of retailers Promotion periods per year Total cost of promotions   Net Profit

                                                               

                                                               

Option 1 2000 35,000,000 0.46 16,100,000 0.31 10,850,000     1,200,000 2,400,000     120,000 200,000 644,000 964,000   6 10,000 20 1,200,000     7,500 11 15,000 9 4 870000   -184,000

  2001 42,000,000 0.46 19,320,000 0.31 13,020,000     1,200,000 2,400,000     120,000 200,000 772,800 1,092,800               7,500 11 15,000 9 4 870000   1,937,200

Natureview Farm Natureview Farm

Natureview Farm

• Fewer competition  • Lower on average trade promotion expense • Higher profit margin for 32oz versus 8oz • Expected 1st year sales of 5.5 million units

• High risk    • Low Dollar share of 32 oz cups • Sales force expansion cost $160,000 •

Issue of pricing diferentially

• Smaller length of channel to market Natureview Farm

sales price retailer margin(27%) price to retail distributor margin( 15%) sales price for natureview

Number 0f regions Retailers

2.70 0.73 1.97 0.30 1.68

4 64

Natureview Farm

Incremental Income Expected sales in units Price per unit Revenue Cost per unit COGS   Advertising Expense Advertising per region Total   Sales & Administrative Marketing Staf Broker's fee (4%) Total Slotting Fee Number of SKUs One SKU fee per chain Retail Chains Total Slotting Fee   Trade Promotion

                                             

                                             

Option 2 2000 5,500,000 1.68 9,240,000 0.99 5,445,000     120,000 480,000     160,000 369,600 529,600   4 10,000 64 2,560,000    

  2001 5,500,000 1.68 9,240,000 0.99 5,445,000     120,000 480,000     160,000 369,600 529,600              

Cost per promotion per retailer(Avg.) Number of retailers Promotion periods per year Total cost of promotions   Net Profit

           

           

8,000 64 2 1024000   -798,600

8,000 64 2 1024000   1,761,400 Natureview Farm

Natureview Farm

• • •

Leverage current relationships within nature foods channel Natural foods channel growing faster than Supermarkets Low cost

• Low expected revenue • Requires R&D to develop product • Miss opportunity to enter Supermarkets before competitors.

Natureview Farm

sales price retailer margin(35%) price to retail distributor margin( 9%) price to wholesaler wholesaler margin( 7%) Selling price for natureview

3.35 1.17 2.18 0.20 1.98 0.14 1.84

Natureview Farm

Incremental

   

Option 3

 

Income

   

2000

2001

Expected sales in units

   

1,800,000

2,070,000

Price per unit

   

1.84

1.84

Revenue

   

3,312,000

3,808,800

Cost per unit

   

1.15

1.15

COGS

   

2,070,000

2,380,500

 

   

 

 

Sales & Administrative

   

 

 

Marketing Staf

   

250,000

250,000

complimentary case (2.5%)

   

82,800

95,220

Total

   

332,800

345,220

 

   

 

 

Net Profit

   

909,200

1,083,080

Natureview Farm

Our recommenda tion:

Natureview Farm

• •

Most viable option to reach a goal of $20 million Revenues

High growth rate of 20% better than any other option • •

First-Mover Advantage

More visibility of the product, new target customers

Natureview Farm

Action Plan: • Leverage the relationship with brokers to strike a deal with supermarkets • Choose 6 SKUs to be introduced in supermarkets. • Partner with more than one VC to minimize risk.

Enter Super Markets

Design Trade promotions

• Deploy maximum resources to make efective use of the channel. • Have a sale and marketing function dedicated to supermarket. • Try to maintain the premium image of the brand through unique promotions

• Diferential pricing • Incentivize retailers for the perceived loss. (Retailer Engagement Schemes) • Work with retailers, distributors and wholesalers to reduce cost, maintain margins & decrease the price diference.

Manage Channel Conflict

Natureview Farm

Marketing Mix : 8-oz , $0.78, Presence in supermarket among other yogurt manufacturers, in-store Promotion. Sales : Analyse the sales using more sophisticated methods. Brand : Will Position itself the same as the premium product Channel Partner arrangements : • Work with retailers, distributors and wholesaler to reduce costs and mantain margins. • Work to remove the price diferentiation. Natureview Farm

Any Questions?

Natureview Farm