Natureview farm Case study

1. Natureview
Farm
By : Deepanshu
Aggarwal
IIT KANPUR

2. Agenda
Overview
• Company
• Natural/Organic market Trends
• Yogurt Market Trends
• Challenges
Option 1
Option 1
Option 1
Financials
Recommendations

3. Company
 Founded in 1989
 Manufaturers and marketers of refrigerated cup yogurt
 Differntiators:
o Natural ingredients
o Longer shelf life
o Reputation for high quality and great taste
 Key success factors:
o Strong brand
o Effective , low cost “guerrilla marketing”
o National distribution in natural foods channel
o Strong relationships with distributors

4. Natural/Organic Market Trends
 Organic foods market predicted to grow from $6.5 billion to
$13.3 over 4 years.
 Gererally organic products customers tend to be more
educated, earn higher incomes, be older and live in the
northeast and west.
 67% of households consider price as a barrier to purchase of
organic products
 44% of consumers would like a wider selection of organic
products in supermarkets.
 Supermarkets are moving toward attracting new customers by
offering more organic products.

5. Yogurt Market Trends
 Concentrated – 4 competitors control over 50% share
 Supermarkets = 97% of total sales (3% annual growth)
 Natural food stores = 3% total sales (20% annual growth)
 Factors in purchasing decisions:
package type/size , flavour, price, freshness, ingredients,
organic

6. Natureview
Challenge : identify path to grow revenues by
over 50% within 23 months.
Goal : Attain highest possible valuation in
order to secure new investors or position
itself for acquisition.

7. Option 1
Expand 6 SKU’s of the 8-oz product line into one or two selected supermarket
channel region
Pros: 8-oz cups represent
largest dollar and unit
share of market
Supermarkets fear losing
market share to natural
food competitors
Other natural food brands
have successfully
expanded to supermarkets
Cons Highest level of competitive
trade promotion and
marketing spend
Possible channel conflict
between supermarkets and
natural food stores
Promotion and lower price
at supermarkets may hurt
the brand

8. Option 2
Expand 4 SKU’s of the 32-oz product line nationally
32-oz cups generate
an above-average
gross profit margin
(43.6% vs 36% for 8-
oz line)
Fewer competitive
offerings in this size
Competitive
advantage due to
long shelf life of
product
Lower promotional
expenses than
option 1
Pros
Higher slotting
fees due to
national
distribution
National
distribution will
be challenging
within 12 month
No guarantee
that customer
awareness of the
brand would
grow
Promotion and
lower price at
supermarkets
may hurt the
bran d
Cons

9. Option 3
Expand 2 SKU’s of a children’s multi-pack into the natural foods channel
Natureview
already has strong
relationships with
leading natural
foods channel
retailers
More time to
prepare the
company for
moving into
supermarkets
Financially-
attractive
High margins-
37.6%
Pros
Fast growth of
natural foods
channel will lead
to demands equal
to those of
supermarkets
Miss opportunity
to enter
supermarkets
before
competitors
Cons

10. Financial of option 1
Sale price $0.78
Retail margin $0.21
Price to retail $0.57
Distributor margin $0.09
Price to distributor $0.48
Mfc cost $0.31
Gross profit NV $0.17
Gross profit margin 35.95%

11. Incremental unit
sales(20% growth
after year
Top line
growth(increm,
revenue)
Incremental
production costs
2000 2001
35,000,000
$16,939,650
$10,850,000
2002
42,000,000
$20,327,580
$13,020,000
2003
50,400,000
$24,393,096
$15,624,000
2004
60,480,000
$29,271,715
$18,748,800
2005
72,576,000
$35,126,058
$22,498,560
2006
87,091,20
0
$42,151,2
69.89
$26,998,2
72.00
Gross profit
SG&A increase
Trade promo
Advertisement in 2
region
Slotting fee $1,200,000
$6,089,650
$320,000
$90,000
$2,400,000
$7,307,580
$640,000
$90,000
$2,400,000
$8,769,096
$960,000
$90,000
$2,400,000
$10,522,915
.20
$1,280,000.
00
$90,000
$2,400,000
$12,627,498
.24
$1,600,000
$90,000
$2,400,000
$15,152,9
97.89
$1,920,00
0
$90,000
$2,400,00
0
Incremental cash flow
NPV
$1,200,000
$27,184,76
7.45
$3,279,650 $4,319,096 $5,352,498 $6,752,915.
20
$8,537,498.
24
$10,742,9
97.8

12. Financials of option 2
Sales price $2.83
Retail margin $0.76
Price to retail $2.07
Distributor margin $0.31
Price to distributor $1.76
MFC cost $0.99
Gross profit NV $0.77
Gross profit margin 43.7%

13. Incremental unit
sales(15% growth per
year)
Top line
growth(increm,
revenue)
Incremental
production costs
2000 2001
5,500,000
$9,658,082
$5,445,000
2002
6,325,000
$11,106,794
.88
$6,261,750
2003
7,273,750
$12,772,814.1
1
$7,201,012
2004
8,364,813
$14,688,736
$8,281,164
2005
9,619,534
$16,892,046
$9,523,339
2006
11,062,46
5
$42,151,2
69.89
$26,998,2
72.00
Gross profit
SG&A increase
promo cost
Advertisement in 2
region
Slotting fee $2,560,000
,00
$4,213,650
$64,000,000
$480,000,000
$160,000
$4,845,044
$640,000
$480,000
$320,000
$5,769,096
$64,000
$480,000
$480,000
$6,422,915.
20
$64,000.00
$480,000
$640,000
$7,627,498.
24
$64,000
$480,000
$800,000
$8,152,99
7.89
$1,920,00
0
$90,000
$2,400,00
0
Incremental cash flow
NPV
$2,560,000
$20,044,53
3.32
$3,509,082.5
0
$3,981,044.
88
$4,547,801.61 $5,223,571.
85
$6,024,707.
62
$6,970,01
3.72

14. Financial of Option 3
Sales price $3.35
Retail margin $1.17
Price to retail $2.18
Distributor margin $0.20
Price to distributor $1.98
Wholesaler margin $0.14
Price to wholesaler $1.84
MFC cost $1.15
Gross profit NV $0.69
Gross profit margin 37.6 percent

15. Recommendation
Option 1:
 Financials
 Only a regional distribution instead of national which should make it easier to
implement
 Competitors are going to move into the supermarket space and we may miss a
huge opportunity by not taking the risk
 Higher slotting fees, but more visibility of the product

16. Recommended adjustments
What action plan should the company pursue?
 Marketing mix: 8-oz, $0.78, located in-store with other major yogurt
manufactures, in-store promotions
 Sales: utilize more sophisticated technology to monitor sales trends
 Brand: will remain premium through joint promotions with other
premium products such as granola or organic fresh fruit
 Channel partner Arrangements:
1. Lower MSRP for natural food retailers to better compete with
supermarkets
2. Work with retailer, distributer, and wholesaler to reduce costs and
maintain margins
3. Ex: case-breaking , shelf stocking, paperwork

17. Questions

18. Net marketing contribution = (sale revenue x % gross profit) –
marketing expenses
Net marketing contribution
(in thousands)
2001 2002 2003 2004 2005 2006 Averag
e
Opt. 1 $3,599.
65
$4,817.
58
$6,279.
09
$8,032.
91
$10,137
.49
$12,662
.90
$7,585.
28
Opt. 2 $3,669.
08
$4,301.
04
$5,027.
80
$5,863.
57
$6,824.
70
$7,930.
01
$5,602.
70
Opt. 3 $997.07 $1,308.
84
$1,698.
55
$2,185.
68
$2,794.
61
$3,55.7
6
$2,090.
08

19. Thank you