NATUREVIEW FARM Case Study SWAPNIL GOYAL IIT KANPUR
NATUREVIEW
FARM
Case Study
SWAPNIL GOYAL IIT KANPUR
1989
• Entered as a manufacturer of refrigerated cup yogurt • First enter market 8-oz and 32-oz with plain and vanilla flavor • Use 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
2000 • Expand to 12 yogurt flavors & multipack yogurt (for children)
OVERVIEW
VC needed to cash out of its investment
Need to find a path to grow revenues
by over 50% before the end of 2001
($20 mil)
Should Natureview Farm expand into
supermarket channel?
ISSUES
THE 4Ps
PRICE
• Affordable according to it’s channel
PLACE
• Natural food channel
• Wholesale club
• National retailer channel
• Convenience and drug store
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
86%
14%
Revenues 2000
8-oz
32-oz
SWOT ANALYSIS
STRENGTH WEAKNESS
Strong brand
No artificial thickeners used
Usage of natural ingredients
Longer shelf life
No alternative financing available
Lacks potential of taking higher
risks and costs
Doubt on sales team’s ability
OPPORTUNITY THREATS
Strong relationships with leading
natural foods retailers
Accumulation of cash by Horizon
from IPO
Being dropped out of traditional
channel
Packaging type/size
Taste Flavor
Price Freshness Ingredient
Organic or not
Market Trend For Yogurt Product
Yogurt Market Share by Packaging Segment
74%
9%
8%
9%
8-oz. cup smaller
Children's multipacks
32-oz. cups
Others
Yogurt Market Share by Region
26%
22% 25%
27%
Column1
Northwest
Midwest
Southwest
West
Yogurt Distribution Channel
97%
3% Distribution Channel
Supermarkets
Natural food stores
Manufacturer
Natural foods
wholesaler
Natural foods distributor
Retailer
Customer
Manufacturer
Distributor
Retailer
Customer
Length of Channel to Market
Supermarket Channel Natural Foods Channel
Yogurt Market Share by Brand
Dannon
33%
Yoplait 24%
Others 23%
Private Label 15%
Columbo 5%
Supermarket Channel
Natureview Farm 24%
Brown Cow 15%
Horizon
Organic
19%
White Wave
7%
Others 35%
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 AND DILEMMA
OPTION 1
• Expand in Northeast and West supermarket region
• Bring in the 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
• 8-oz have highest incremental demand • High potential to increase revenue • First mover as organic yogurt brand to enter supermarket channel
PROs
• 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
CONs
Channel Selling Price Margin Cost price
Retailer
$0.74
27%
$0.74/1.27 = $0.58
Distributor $0.58
15%
0.58/1.15 = $0.51
Natureview
$0.51
64.5%
$0.31
Supermarket Channel
Margin Analysis
2000 2001
Unit Sales 35 000 000 35 000 000 x (1+20%) = 42 000 000
Revenue 35 000 000 x $ 0.51 = $17 850 000 42 000 000 x 0.51 = $ 21 420 000
Cost of goods sold 35 000 000 x $ 0.31 = $ 10 850 000 42 000 000 x 0.31 = $ 13 020 000
Gross Profit $ 7 000 000 $ 8 400 000
Expenses
Advertisement $ 1 200 000 x 2 region = $ 2 400 000 $ 2 400 000
SG&A $ 320 000 $ 640 000
Slotting Fee 6 x $ 10 000 x 20 retails = $1 200 000 $0
Broker’s Fee $ 17 850 000 x 0.04 = $ 714 000 $ 21 420 000 x 0.04 = $ 856 800
Net Profit $ 2 366 000 $ 4 503 200
Projection Income Statement
OPTION 2: Expand 4 SKUs of the 32-oz size nationally
into supermarket regions
• Generate higher profit margin than 8-oz size • Strong competitive advantage: longer shelf life • Lower promotion expenses
PROs
• 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 months
• Needs to hire sales personnel and establish relationships with supermarket brokers
• The 32-oz. expansion option would increase SG&A expense by $160,000
CONs
Supermarket channel margin analysis
Channel Selling Price Margin Cost price
Retailer
$2.70
27%
$2.70 / 1.27 = $2.13
Distributor $2.13
15%
$2.13 / 1.15 = $1.85
Natureview $1.85 ($1.85-$0..99)/$1.85 =87%
$0.99
Projection income statement
2000 2001
Unit sales 5 500 000 5 500 000
Revenues growth 550000 x 1.85 = 10 175 000 10 175 000
Cost of Goods sold 5500000 x 0.99 = 5 445 000 5 445 000
Gross profit 4 730 000 4 730 000
Expense:
Slotting fee 4 x 10000 x 64 = 2 560 000 0
SG & A 160 000 160 000
Advertising cost 120000 x 4 = 480 000 480 000
Broker's fee (4% revenues)
407 000 367 400
Net profit 1 123 000 3 722 600
• It would yield the strongest profit contribution of all the strategies under consideration.
• The natural foods channel was growing almost seven times faster than the supermarket.
• The financial potential was very attractive. • The sales team was confident that they could achieve distribution for the two SKUs.
PROs
• There were many potential conflicts and other uncertain factors that the manager could not determine.
CONs
OPTION 3: Introduce two SKUs of a children
multipack into the natural foods channel
Nature Food Channel Margin
Analysis
Channel Selling Price
Margin Cost Price
Retailer $3.35 35% $3.35 /1.35 = $2.48
Distributor $2.48 9% $2.48 /1.09 = $2.28
Nature foods wholesalers
$2.28 7% $2.28 /1.07 = $2.13
Natureview $2.13 ($2.13 - $1.15) / $1.15
=85% $1.15
2000 2001
Unit sales 1 800 000 1 800 000 x 1.15 = 2 070 000
Revenue growth 1 800 000 x 2.13 = 3 834 000 2,070,000 x 2.13 = 4 409 100
Cost Of Goods sold 1,800,000 x 1.15 = 2 070 000 2,070,000 x 1.15 = 2 380 500
Gross profit 1 764 000 20 28 600
Expense:
Marketing 250 000 250,000
Complementary cases 3 834 000 x 2.5% = 95 850 4409100 x 2.5% = 11 02 28
Net profit 1 418 150 1 668 372
Projection Income Statement
WHICH ONE TO CHOOSE?
OPTION 1 OPTION 2
OPTION 3
Comparison of Options for Year 2001
Option Option 1 Option 2 Option 3
Gross Margin 64.5% 87% 85%
Unit sales 42 000 000 5 500 000 2 070 000
Revenue Growth 21 420 000 $10 175 000 $ 4 409 100
Cost $ 13 020 000 $ 5 445 000 $ 2 380 500
Gross profit $ 8 400 000 $ 4 730 000 $ 17 554 000
Expense:
SG & A $ 640 000 $ 160 000 0
Marketing $ 2 400 000 $ 480 000 $ 250000
Broker's fee (4%
revenues)
$ 856 800 $ 367 400 0
Complementary cases 0 0 $173 363
Net profit $ 4 503 200 $ 3 722 600 $ 1 668 372
DECISION
Go for option 1
Reach beyond the target objective of 20 million revenue by end of 2001 with projected of
$21 420 000
8 –oz yogurt is the highest demand
In supermarket, can expose to more range of customers
Will have the first mover advantages of natural product to enter supermarket
A bit risky but in a long term will generate revenues of 200% (as looking at two other competitors)
These slides were created by
SWAPNIL GOYAL (IIT KANPUR)
as part of an internship
under the guidance of
Prof. SAMEER MATHUR (IIM Lucknow)