harvard business school case study -nature view farm
TRANSCRIPT
Natureview Farm Case Study
BACKGROUND
1989
• Founded and manufactured in Cabot, Vermont• Entered market with 8-oz and 32-oz with plain and vanilla flavor• Used 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• Low-cost “guerilla marketing” tactics
2000• Expanded to 12 yogurt flavors in 8-oz. & 4 flavors in 32-oz.• Exploring multipack yogurt products (for children)
ISSUES & GOALSVC needed to cash out of its investment
Should Natureview Farm expand into supermarket channel?
THE 4PsPRODUC
T
• Natural yogurt (organic)
• 8 –oz. size with 12 flavors
• 32-oz. size with 4 flavors
PRICE
• Affordable according to it’s channel
PLAC
E
• Natural food channel
• Warehouse clubs
• Convenience and drug store
• Mass merchandisers
PROMOTION
• 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. yogurt flavors in 32-
oz
86%
14%
Revenues 20008-oz32-oz
Started exploring kid multipack yogurt product (4-oz)
Factors Considered By Consumers When Buying Yogurt Products
Packaging type/size Taste Flavor
Price Freshness Ingredient
Organic or not
Yogurt Market Share by Packaging Segment,1999
74%
9%
8%
9%8-oz. cup smaller
Children's multipacks
32-oz. cups
Others
Yogurt Distribution Channel,1999
97%
3%Distribution Channel
SupermarketsNatural food stores
Yogurt Market Share by Region,1999
26%
22%25%
27%Northwest
Midwest
Southwest
West
Length of Channel to Market
Supermarket ChannelChannel Natural Foods Channel Natural Foods Channel
Manufacturer
Distributor
Retailer
Customer
Manufacturer
Natural Foods Wholesaler
Natural Foods Distributor
Retailer
Customer
15%
27%35%
9%
7%
Yogurt Market Share by Brand,1999
Dannon33%
Yoplait24%
Others23%
Private Label15%
Columbo5%
Supermarket Channel
Natureview Farm24%
Brown Cow15%
Horizon Organic19%
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 top 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 demand
Significant Revenue Potential
First organic yogurt brand to enter supermarket has a first mover advantage
CONs
High risk & high cost (marketing)
Require quarterly trade promotions
Advertising plan would cost $1.2 million per region per year
SG&A expenses increase by $320,000 annually
Need to pay one time slotting fee
OPTION 2:Expand 4 SKUs of the 32-oz size nationally into supermarket
regions
PROs
Generate higher gross profit margin than 8-oz size(43.6% vs. 36% for 8-oz. line)Strong competitive advantage: longer shelf life(45% share in Natural foods)
Lower promotion expenses : promoted only twice a year
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
OPTION 2: Expand 4 SKUs of the 32-oz. size nationally into supermarket channel
PROs
The sales team was confident that they could achieve distribution for the two SKUs.
The financial potential was very attractive (Gross profitability : 37.6%)
Lower marketing expenses; no additional SG&A costs to introduce the productThe 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.
OPTION 3:Introduce two SKUs of a children multipack into the natural
foods channel
OPTION 3: Introduce 2 SKUs of a children’s multi-pack into the natural foods channel
Perfect Positioning into their core sales channel
Now which option to consider ?
Let’s see first “Qualitatively” by examining PROs & CONs
• Strong relationships
• Perfect positioning
• Attractive financial potential
• Natural food channel is growing 7 times faster than supermarkets
Option3
• Competitive advantage– Strong relationship with natural foods
retailers ex: Whole Foods and Wild Oats.– Sustainable competitive advantage– Main profit comes from natural foods
channel.
• Power and conflict– If stays with natural foods stores, there will
be no conflict.– Option 1 and 2 could potentially create
conflict between the firm and natural foods channel.
“…you can’t lose sight of what has made this company great.” –Barry Landers (CEO)
• Brand Image– Organic yogurt– Shoppers at natural foods stores earn more
income, more educated and not price sensitive.
– Natural foods store shoppers are more concern on health issue, not price.
– If expand to supermarket, its brand image will be doubted by current consumers.
• Financial and Risk Analysis– No extra slotting fees and advertising expense– Option 1 and 2 creates more expense – Lowest risk and cost if choose option 3– Will not have to compete with two main
competitors in supermarket channel which are Dannon and Yoplait
Let’s Analyze now by “Financial” Point of View, if Option 3 is
feasible or not ?
Financial StatementYear 2000 Financial Forecast
Option 1
Advertising Cost is abundance, Natureview would have paid
4,800,000 on ads by year 2001
Option 2
The slotting fee is too much, Nature view would have to enter 64
supermarkets
Option 3
No SG&A, Broker Fee, and Slotting Fee
Solution Financial Forecast’01
A Presentation by
Manu Tyagi, NIT Surat
during an internship under
Prof. Sameer Mathur, IIM Lucknow