Natureview Farm Case Analysis

Natureview Farm

Harvard Business School Case

Prepared By:

Chirag GuptaIndian School of Mines Dhanbad

Natureview Farm Case AnalysisAn Overview

AboutMarketing StrategySWOT AnalysisMarket AnalysisThe Real ProblemThe 3 Options

-Qualitative and Financial Analysis of each option

Recommendation-Short term and Long Term

AboutFounded in 1989

Manufacturer and Marketer of refrigerated cup yogurt

The recipe used natural ingredients and a special process that gave a unique smooth and creamy texture

Equity infusion by a VC firm helped the revenues to grow to $13million in 1999

Senior ManagementBarry Landers (CEO)Jim Wagner (CFO)Christine Walker (VP Marketing)Walter Bellini (VP Sales)Jack Gottlieb (VP Operations)

Product Offering

Offers yogurt in 8 oz. cups with 12 flavors (86% revenue) and 32 oz. cups in 4 flavors (14% revenue).

Looking to launch multipack products.

Segmentation, Targeting and Positioning

Targets more educated with higher incomes and older age group customers.

Uses milk from cows untreated with rGBH with no use of artificial flavors creating strong brand values.

Distributes through natural stores channel with creative, low-cost “guerilla marketing” tactics.

Strengths

• Long product shelf life

• Strong relationship with natural store retailers

Weakness

• No marketing strategy for supermarket channel

• Small manufacturer in search of new investors

Opportunities

• 100% expected growth in Organic food market by 2003

• Expected 20% y-o-y growth in natural stores channel

Threats

• Fierce competition

• Price Sensitivity

Market Trends

Organic food market to grow to $13.3billion in 2003 from $6.5billion in 1999.

Supermarkets have a share of 97% in yogurt sales.

Factors in purchasing decisions: package type/size, taste, flavor, price, freshness and ingredients.

67% described price as a barrier to purchase of organic products.

Present Situation

VC firm needs to cash out.

Management needs to find another investor or position itself for acquisition.

Challenges

Identify the path to grow revenues to about $20million by end of 2001.

Attain the highest possible valuation to secure new investors.

The 3 Options-as suggested by Senior Management

“Expand six SKUs of the 8-oz. product line into one or two selected supermarketchannel region”

-Walter Bellini, Vice President Sales

Pros8 oz. cups have largest market share

First-Mover advantage

Launch in Northeast and West can increment to larger sales.

Expected increase of 20% in organic yogurt through supermarket channels.

Cons

Channel Conflict

No previous experience with supermarket chains

Additional marketing and slotting fee expenses

Financial Analysis

Gross Profitability

Number of regions: 2Region 1: Northeast (11 chains)Region 2: West (9 chains)

Expected unit sales: 35 millionPrice per unit: $0.74Expected Revenue: $25.9 millionUnit cost incurred: $0.31Total Cost incurred: $10.85 million

Gross Profitability: $15.05million

Expenses

Number of SKUs: 6Total Slotting fee per chain: $60,000Total Slotting fee: $1.2 million

Advertising per region: $1.2 millionTotal Advertising Cost: $2.4 million

Broker Fee (4% of sales): $1.036 millionSG&A Expenses: $320,000

Cost per promotion in Northeast per retailer: $7,500Cost per promotion in West per retailer: $15000Promotions required per year: 4Total Cost of Promotion: $870,000

Total Expenses: $5.826 million

Revenue and Net Income

Option 1:Gross Profitability: $15.05millionTotal Expenses: $5.826 millionNet Income: $9.224 million

Current Income Statement:Original Income: $260,000

Revenue: $38.9 millionNet Income: $9.484 million

“Expand four SKUs of the 32-oz. size nationally”

-Jack Gottlieb, Vice President Operations

Pros

32 oz. cups have higher gross profit margin (43.6% vs 36% for 8 oz. line)

Longer shelf life of product

Fewer competitive offerings in this line

Lower promotional expenses

Cons

Extremely ambitious plan of national distribution within 12 months

Higher slotting fees due to national distribution

Lower pricing at supermarkets can lead to channel conflicts

Financial Analysis

Gross Profitability

Number of regions: 4Total retailers: 64

Expected unit sales: 5.5 millionPrice per unit: $2.70Expected Revenue: $14.85 millionUnit cost incurred: $0.99Total Cost incurred: $5.445 million

Gross Profitability: $9.405 million

Expenses

Number of SKUs: 4Total Slotting fee per chain: $40,000Total Slotting fee: $2.56 million

Advertising per region: $120,000Total Advertising Cost: $480,000 million

Broker Fee (4% of sales): $594,000SG&A Expenses: $160,000

Average Cost per promotion per retailer: $8,000Promotions required per year: 2Total Cost of Promotion: $1.024 million

Total Expenses: $4.818 million

Revenue and Net Income

Option 2:Gross Profitability: $9.405 millionTotal Expenses: $4.818 millionNet Income: $4.587 million

Current Income Statement:Original Income: $260,000

Revenue: $27.85 millionNet Income: $4.847 million

“Introduce two SKUs of a children’s multi-pack into the natural foods channel”

-Kelly Riley, Assistant Marketing Director

Pros

Strong relationships with leading Natural Foods Channel retailers

Financially attractive

Ideal Positioning for multi-pack product launch

Lower risks involved

Cons

Miss opportunity to enter supermarkets before competitors.

Low-end technology to track sales

Minimal revenue generation of all 3 options

Financial Analysis

Gross Profitability

Expected unit sales: 1.8 millionPrice per unit: $3.35Expected Revenue: $6.03 millionUnit cost incurred: $1.15Total Cost incurred: $2.07 million

Gross Profitability: $3.96 million

Expenses

Number of SKUs: 2Cost of Complementary case: 2.5% of sales = $150,750

Broker Fee (4% of sales): $241,200Marketing Expenses: $250,000

Cost of R&D and Operations: $100,000 (say)

Total Expenses: $741,950

Revenue and Net Income

Option 3:Gross Profitability: $3.96 millionTotal Expenses: $741,950Net Income: $3.218 million

Current Income Statement:Original Income: $260,000

Revenue: $19.03 millionNet Income: $3.478 million

Short TermFirm in a critical condition as of now. Needs to strengthen rather than drastically expand.

Option 3 would be the best due to large number of known variables.

Since short of $1million revenue, it needs to invest more funds in targeted marketing.

Long TermIt needs to expand in supermarket channels for higher revenue.A regional 8 oz. launch would be more effective than a national expansion.Wider market coverage with use of efficient technology with effective campaigns will build brand equity.

DisclaimerCreated by Chirag Gupta, ISM Dhanbad

during an internship on “Marketing Management” underProf. Sameer Mathur, IIM Lucknow