122510098-natureview

Natureview Farms Case Analysis

MBA 623 – Dr. Jaju Choi, Pham, Neibyu, Shilawat, Teja, Winter

Agenda

• 5 C’s, Problem Definition – 5 min

• Market Analysis – 5 min

• Possible Marketing Strategies – 10 min

• Financials Summary with Sensitivities – 5 min

• Worst Case Scenarios - 5 min

• Conclusion – 5 min

• Q and A

– Feel free to ask your questions during presentation

1989 - Founded– Revenue $100 K. Yogurt products . Introduced 2 Flavors

1996 – Jim Wagner Hired to steady profits

1997 - CFO Jim Wagner got VC capital Infused capital

Today Feb 2000. Annual Revenue was $13 million in 1999. Total 12 Flavors in 8 Oz and 4 Flavors 32 Oz

VC to cash out at the end of 2001. Revenue needs to grow to 20 million

Company Background

• Emphasis on natural ingredients and its strong reputation for quality and great taste

• No artificial thickeners and rGBH mixed milk

• Comparing to the other products’ 30 days shelf life, Natureview’s yogurts will remain fresh for 50 days

• 8 Oz has 12 Flavors and 32 Oz 4 Flavors.

Product Profile

Customer

• Brand Sensitive

• Natural Foods Customer

• Taste savvy

• Less Price Sensitive

• Woman (Single and with Kids) take 74% Market Share

• Customer loves Natureview Yogurt

Competition

• Main competitor Horizon

• Recent IPO

• Flush with Cash

• Bigger than Natureview

• Already uses supermarket channel

Customer and Competetion

Strengths

Major and trusted brand in natural foods

Product Quality

Strong relationships in natural food market

Channel leader

Relatively Rapid revenue growth

Longer product s helf Life

Weakness

Owns Small portion of the yogurt market

Not ventured into supermarket channel

High dependence on brokers for distribution and promotion.

Inefficient nature foods distribution channel

Opportunity

Supermarket channel provides significant potential of growth

Natural food’s sales expected to grow by 20%

Opportunity for lowering customer cost

Threats

Lack of Capital

Main competitor(Horizon) is getting stronger

No expertise in supermarket channel

Company may have to reposition

Risk Inter Product cannibalization

SWOT

Natureview Crisis – Feb 2000

VC to cash out at the end of 2001

2001 – Revenue

needs to rise to $20 Million

1999 – Rev $13 Million

Problem Definition Natureviews problem is that they have to make strategic marketing decisions to grow revenues to $20,000,000 from their current $13,000,000 before the end of the 2001 fiscal year

8-oz. cups and smaller

74%

Children’s multipacks

9%

32-oz. cups 8%

Other 9%

The Yogurt Market

Market Topology

Supermarket 97%

Natural Foods Channel

3%

Channel Market Share

Natureview Farm 24%

Brown Cow 15%

Horizon Organic 19%

White Wave 7%

Others 35%


Dannon 33%

Yoplait 24%

Others 23%

Private Label 15%

Columbo 5%

Supermarket Channel

Distribution Channels

Distribution Channels


Manufacturer

Wholesaler

Distributors

Retailer

Customer

Supermarket Channel

Manufacturer

Wholesaler

Retailer

Customer

Channel Margin Analysis

Natural Foods Supermarket

Unit Cost Margin Selling Price Margin % Mark-up Unit Cost Margin Selling Price Margin % Mark-up

8 Oz

Manufr. 0.31 36% 0.48 0.17 56% 0.31 33% 0.46 0.15 49%

Wholesalers 0.48 7% 0.52 0.04 8% 0.46 15% 0.54 0.08 18%

Distributor 0.52 9% 0.57 0.05 10% 0.54 0% 0.54 0.00 0%

Retailer 0.57 35% 0.88 0.31 54% 0.54 27% 0.74 0.20 37%

Customer 0.88 0.74

32 Oz

Manufr. 0.99 44% 1.75 0.76 77% 0.99 41% 1.68 0.69 69%

Wholesalers 1.75 7% 1.89 0.13 8% 1.68 15% 1.97 0.30 18%

Distributor 1.89 9% 2.07 0.19 10% 1.97 0% 1.97 0.00 0%

Retailer 2.07 35% 3.19 1.12 54% 1.97 27% 2.70 0.73 37%

Customer 3.19 2.70

Multipack

Manufr. 1.12 39% 1.84 0.72 64% 1.12 37% 1.77 0.65 57%

Wholesalers 1.84 7% 1.98 0.14 8% 1.77 15% 2.08 0.31 18%

Distributor 1.98 9% 2.18 0.20 10% 2.08 0% 2.08 0.00 0%

Retailer 2.18 35% 3.35 1.17 54% 2.08 27% 2.85 0.77 37%

Customer 3.35 2.85

OPTIONS for Resolving the crisis

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

Proposed by Walter Bellini VP Sales

Option 1

Option II

Introduce 2 SKUs of a Children’s Multi-Pack into the Natural Foods Channel

Proposed by Kelly Riley, the assistant marketing director

Option III

Choices for Christine Walker, VP Marketing

Expand 4 SKUs of the 32-oz. size nationally Proposed by Jack Gottlieb, vice president of operations

Walter Bellini OPTION 2 OPTION 3

Benefits

1. Great Upside Potential

2. For supermarket adding these products would attract higher-income less

price-sensitive customers

3. Unit volume growth of organic yogurt at supermarkets of 20% per year from

2001 to 2006

4. This option also has the highest incremental demand

Risks

1. Supporting 8-oz cup size would require quarterly trade promotions and a

meaningful marketing budget

2. Advertising plan would cost $1.2 million per region per year in addition to the

promotional ads expenses

3. SG&A expenses would increase by $320,000 annually

4. This option creates direct competition with national yogurt brands

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

Option 1 – Income Forecast

Year 2000 Year 2001 Year 2002 Year 2003

Revenue $ 29,070,950 $ 32,285,140 $ 36,142,168 $ 40,770,602

Costs of Good Sold $ (19,040,000) $ (21,210,000) $ (23,814,000) $ (26,938,800)

Gross Profit $ 10,030,950 $ 11,075,140 $ 12,328,168 $ 13,831,802

Admin / Freight $ (2,210,000) $ (2,210,000) $ (2,210,000) $ (2,210,000)

Sales $ (1,880,000) $ (1,880,000) $ (1,880,000) $ (1,880,000)

Marketing $ (3,660,000) $ (3,660,000) $ (3,660,000) $ (3,660,000)

R&D $ (390,000) $ (390,000) $ (390,000) $ (390,000)

One-Time Slotting Fee $ (1,200,000)

- - -

Brokers' Fee @ 4% $ (642,838) $ (771,406) $ (925,687) $ (1,110,824)

Total Expense $ (9,982,838) $ (8,911,406) $ (9,065,687) $ (9,250,824)

Net Income $ 48,112 $ 2,163,734 $ 3,262,481 $ 4,580,978

Profit Margin 0.17% 6.70% 9.03% 11.24%

OPTION 1 OPTION 3

Benefits

1. Potentially give higher average gross profit margin than 8-oz size

2. It also has stronger competitive advantage like longer shelf life and lower

marketing expenses

Risks

1. Doubt on claim of new users would readily “enter the brand” via a multi-use

size

2. Doubt on sales team’s ability to achieve full national distribution in 12 months

3. Needs to hire sales personnel and establish relationships with supermarket

brokers

4. The 32-oz. expansion option would increase SG&A expense by $160,000

Option 2 – Expand 4 SKUs of the 32-oz. size nationally

Jack Gottleib



Revenue $ 22,214,425 $ 24,057,310 $ 26,268,772 $ 28,922,526


Gross Profit $ 8,579,425 $ 9,333,310 $ 10,237,972 $ 11,323,566

Admin / Freight $ (2,210,000) $ (2,210,000) $ (2,210,000) $ (2,210,000)

Sales $ (1,720,000) $ (1,720,000) $ (1,720,000) $ (1,720,000)

Marketing $ (1,894,000) $ (1,894,000) $ (1,894,000) $ (1,894,000)

R&D $ (390,000) $ (390,000) $ (390,000) $ (390,000)

One-Time Slotting Fee $ (2,560,000) - - -

Brokers' Fee @ 4% $ (368,577) $ (442,292) $ (530,751) $ (636,901)

Total Expense $ (9,142,577) $ (6,656,292) $ (6,744,751) $ (6,850,901)

Net Income $ (563,152) $ 2,677,018 $ 3,493,221 $ 4,472,665

Profit Margin -2.54% 11.13% 13.30% 15.46%

OPTION 1 OPTION 3

Benefits

1. Established leader in this channel

2. Perfect positioning for new multi-pack product

3. Long term the financial potential was very attractive

Risks

1. Established leader in this channel

2. Perfect positioning for new multi-pack product

3. Long term the financial potential was very attractive

Option 3 – Introduce 2 SKUs of a Children’s Multi-Pack into the


Kelly Riley



Revenue $ 16,317,073 $ 16,383,414 $ 16,451,083 $ 16,520,104


Gross Profit $ 6,057,073 $ 6,375,774 $ 6,407,090 $ 6,439,032

Admin / Freight $ (2,210,000) $ (2,210,000) $ (2,210,000) $ (2,210,000)

Sales $ (1,560,000) $ (1,560,000) $ (1,560,000) $ (1,560,000)

Marketing $ (640,000) $ (640,000) $ (640,000) $ (640,000)

R&D $ (390,000) $ (390,000) $ (390,000) $ (390,000)

One-Time Slotting Fee $ (82,927) - - -

Brokers' Fee @ 4% $ (132,683) $ (135,337) $ (138,043) $ (140,804)

Total Expense $ (5,015,610) $ (4,935,337) $ (4,938,043) $ (4,940,804)

Net Income $ 1,041,463 $ 1,440,438 $ 1,469,046 $ 1,498,227

Profit Margin 6.38% 8.79% 8.93% 9.07%

Financials Summary

2000 2001 2002 2003 2004

OPTION 1

Revenue $ 29,070,950.00 $ 32,285,140.00 $ 36,142,168.00 $ 40,770,601.60 $ 46,324,721.92

Gross Profit $ 10,030,950.00 $ 11,075,140.00 $ 12,328,168.00 $ 13,831,801.60 $ 15,636,161.92

Net Income $ 48,112.00 $ 2,163,734.40 $ 3,262,481.28 $ 4,580,977.54 $ 6,163,173.04

Profit Margin 0% 7% 9% 11% 13%

Profit Growth 0% 4397% 51% 40% 35%

OPTION 2

Revenue $ 22,214,425.00 $ 24,057,310.00 $ 26,268,772.00 $ 28,922,526.40 $ 32,107,031.68

Gross Profit $ 8,579,425.00 $ 9,333,310.00 $ 10,237,972.00 $ 11,323,566.40 $ 12,626,279.68

Net Income $ (563,152.00) $ 2,677,017.60 $ 3,493,222.12 $ 4,472,667.34 $ 5,648,001.41

Profit Margin -3% 11% 13% 15% 18%

Profit Growth 0% 575% 30% 28% 26%

OPTION 3

Revenue $ 16,317,072.85 $ 16,814,633.78 $ 17,386,828.84 $ 18,044,853.17 $ 18,801,581.15

Gross Profit $ 6,057,072.85 $ 6,575,333.78 $ 6,840,133.84 $ 7,144,653.92 $ 7,494,852.01

Net Income $ 1,041,463.11 $ 1,622,748.43 $ 1,864,660.69 $ 2,142,859.79 $ 2,462,788.76

Profit Margin 6% 10% 11% 12% 13%

Profit Growth 0% 56% 15% 15% 15%

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

$45,000,000

$50,000,000

2000 2001 2002 2003 2004

Option 1

Option 2

Option 3

Revenue

Profits

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

$16,000,000

$18,000,000

2000 2001 2002 2003 2004

Option 1

Option 2

Option 2

Demand Sensitivity for 2001

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

100% 95% 90% 85% 80% 75% 70% 65% 60% 55%

Option 1

Option 2

Option 3

Growth Sensitivity for 2001

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

20% 18% 16% 14% 12% 10% 8% 6% 4% 2%

Option 1

Option 2

Option 3

• There will be a horizontal channel conflict with supermarkets

• It is possible the current channel partners may be alienated

• This may end up having 3 way impact

– We discussed Product Demand, Revenue Growth

– Now we need to test Product Cannibalization

– All forecasts need to be stress tested for sensitivity

Channel Conflict and Cannibalization

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

100% 200% 300% 400% 500% 600% 700%

Option 1

Option 2

Option 3

Cannibalization Sensitivity for 2001

WORST Case Scenarios

$-

$5,000,000.00

$10,000,000.00

$15,000,000.00

$20,000,000.00

$25,000,000.00

$30,000,000.00

$35,000,000.00

0,100 0,90 0,80 5,100 5,90 5,80 10,100 10,90 10,80

Rev

enu

e

Cannabalization, Demand

Option 1 - Scenarios

Growth 20%

Growth 15%

Growth 10%

Growth 5%

Growth 0%


$-

$5,000,000.00

$10,000,000.00

$15,000,000.00

$20,000,000.00

$25,000,000.00

$30,000,000.00

0,100 0,90 0,80 5,100 5,90 5,80 10,100 10,90 10,80

Rev

enu

e



Growth 20%

Growth 15%

Growth 10%

Growth 5%

Growth 0%


$-

$2,000,000.00

$4,000,000.00

$6,000,000.00

$8,000,000.00

$10,000,000.00

$12,000,000.00

$14,000,000.00

$16,000,000.00

$18,000,000.00

0,100 0,90 0,80

Rev

enu

e



Growth 15%

Growth 10%

Growth 5%

Growth 0%

Decision Matrix

Decision Parameter Option 1 Option 2 Option 3

Revenue Objective Exceeds Exceeds Falls Short

Short Term Profits No No Gain

Long Term Profits High High Low

Channel Partners Highly Alienating Alienating Enhancing

Competitive Response Very Risky Risky Low

Cost to Induce Trial High Very High Low

Brand Equity Dilution Possible Possible No

Organizational capabilities Low Low High

Decision ???

Possible Conclusion

• If we really hard pressed to answer the $20 Million question, then it is fairly simple answer. Go with option 1.

• We recommend Natureview to Expand the multi-pack into supermarket channel in Northeast and West

• The benefits of this decision will include the follow. – High growth (12% changes from last year): – Minimized channel conflicts: Through this expansion, Natureview can

make its revenue goal by 2001 • no cannibalization/alienation

– New target customers: Supermarket will be selling these multi-packs relatively cheap.

– Higher expected annual demand

122510098-natureview

Documents

supermarket channel

natural foods channel

supermarket channel

natural ingredients

market analysis

price margin

markup unit cost margin

yogurt products