Natureview Farm Harvard Case Analysis

Natureview Farm : Case Analysis

• Yogurt is consumed by 40% of the population

• Among these people 7 % are women

• Organic foods market was expected to grow by 20-40%

and the yogurt market by 2-4% in the next 5 years

• Different criterias for the regular shoppers and the people

prefering organic foods in the selection of yogurt.

• 46% of organic food buyers bought food at a supermarket

• 29% at natural foods store.

• 25 % at a small health store.

• Shoppers at natural food stores tend to be more educated, richer and

older than the regular supermarket shoppers.

• They tend to settle in the Northeast and the West.

• Natural stores channel was expected to grow 7 times faster than the

supermarket channel.

• 58% of US households told that they will buy more organic products if

prices were less.

• 44% demanded a larger variety of organic products

SITUATION

TO EMPLOY MEASURES TO INCREASE

THE REVENUE FROM $13 MILLION

(YEAR 2000) TO $20 MILLION BY

THE END OF THE YEAR 2001

DECISION to be made!!

To expand into the supermarket chains

OR

To strengthen the existing distribution and

marketing strategy to earn greater revenues

MANUFACTURER

NATURAL FOODS WHOLESALER

CONSUMER

RETAILER

NATURAL FOODS DISTRIBUTOR

NATURAL FOODS CHANNEL

The typical natural foods wholesaler margin was 7%, the distributor margin

was 9%, and the retailer margin was 35%.

MANUFACTURER

DISTRIBUTOR

CUSTOMER

RETAILER

SUPERMARKET CHANNEL

The typical distributor margin in this channel was 15%, and the typical retailer margin

was 27% and thus prices tended to be lower here than the natural foods stores.

QUESTIONS

DECISION OPTIONS

•3 decision options

DECISION CRITERIAS

• REVENUE GENERATION

• EFFECT ON THE EXISTING RELATIONSHIPS

• ADDITIONAL COSTS

MOST IMPORTANT CRITERIA

•TO MEET THE OBJECTIVES OF REVENUE GENERATION

DECISION OPTIONS

OPTION 1

To expand 6 SKUs(Stock-keeping units) of 8 oz cups into

1 or 2 selected supermarkets.

BENEFITS• Great upside potential

• 8 oz cups were the largest source of revenue generation

• Horizon Organic and other competitors were also planning to

enter the supermarkets and they would allow entry of only 1 such

brand

•A modest growth rate(3%).

RISKS• Fierce competition in the 8 oz cup segment (74% of market share).

• Alienating relations with the existing distribution channel

• Fear of losing trust and in turn shelf place in the the natural food stores.

• Increased costs owing to increased advertising, trade promotions

incement in SG&A costs.

• Higher slotting costs

• Inefficient sales team.

OPTION 2

• To expand 4 SKUs of 32 oz cups nationally in supermarkets.

BENEFITS

• Potentially gives higher profit margins than the 8 oz cups

• Natureview had competitive advantage because of the longer

shelf life

• Lower marketing, advertising and SG&A cost increments.

• Trade Promotions only twice a year.

RISKS

• Doubt that they will enter a multi – brand use.

• Inefficiency of the sales team.

•Need to hire additional sales personnel.

• Increased costs for advertising , marketing and half- yearly trade

promotions(though less than option 1).

• The SG&A costs will increase by $160,000.

OPTION 3

• Introduce 2 SKUs of children’s multi-pack in thenatural foods channel.

BENEFITS

• Established leader in the market(45%).

• Perfect positioning for the launch of children multipacks.

• Attractive long term potential.

• Existing channel relationships would strengthen.

• Effective sales team.

• No additional SG&A costs.

• The natural foods channel was expected to grow 7 times

faster than the supermarket channel.

RISKS

• Lower revenue generation than either of the 3 options.

• Fears of natural food retailers putting forth the same demands

as a supermarket retailer.

• Fear of falling behind the competitors and losing an important

oppurtunity for expansion and increasing revenue.

HYPOTHESISand ANALYSIS

HYPOTHESIS

I hypothise that OPTION 2 shall generate enough revenue so as to

satisfy the objective and at the same time should be more suitable

among the 3 options to satisfy the remaining decision criterias.

OPTION 2

TARGET OF REVENUE GENERATION =$ 20 MILLION

CURRENT REVENUE GENERATION =$ 13 MILLION

DIFFERENCE TO BE ACHIEVED(in 1 year) =$ 7 MILLION

SELLING PRICE (at the supermarket) =$2.70/cup

DISTRIBUTOR+RETAILER MARGIN =15%+27%=42%

SELLING PRICE FOR NATUREVIEW =$ 1.566/CUP

ANTICIPATED INCREMENT IN SALES UNIT = 5,500,000

INCREASES REVENUE GENERATION = 5,500,000*1.566=$8,613,000

Hence, the revenue generation objective is fulfilled.

OPTION 2(COSTS AND DOWNSIDES)

MARKETING EXPENSES =$120,000/REGION

=$120,000*4

=$480,000

INCREASED SG&A EXPENSES =$160,000

SLOTTING EXPENSES =$X

HALF-YEARLY TRADE PROMOTIONS =$Y

TOTAL EXPENSES = $640,000+$X+$Y

The natural foods stores ,on the other hand, will have a reason less to feel detered and

violated as the 32 oz occupied a smaller portion of market share and hence only a small

source of revenue generation.

The costs , may seem somewhat higher but they are much less than option 1(evaluated next)

ALTERNATIVES

OPTION 1

TARGET OF REVENUE GENERATION =$ 20 MILLION

CURRENT REVENUE GENERATION =$ 13 MILLION

DIFFERENCE TO BE ACHIEVED(in 1 year) =$ 7 MILLION

SELLING PRICE (at the supermarket) =$.74/cup

DISTRIBUTOR+RETAILER MARGIN =15%+27%=42%

SELLING PRICE FOR NATUREVIEW =$ .4292/CUP

ANTICIPATED INCREMENT IN SALES UNIT = 35,000,000

INCREASES REVENUE GENERATION = 35,000,000*.4292=$15,022,000

Hence, the revenue generation objective is fulfilled.

OPTION 1(COSTS AND DOWNSIDES)

MARKETING EXPENSES =$1,200,000/REGION

=$1,200,000*4

=$4,800,000=$4.8 MILLION

INCREASED SG&A EXPENSES =$320,000

SLOTTING EXPENSES =$A($10,000/SKU)

QUARTERLY TRADE PROMOTIONS =$B

TOTAL EXPENSES = $5.12 MILLION+$A+$B

The natural foods stores ,on the other hand, will feel detered and

violated as the 8 oz occupied the largest chunk of market and hence was the largest

source of revenue generation.

The costs are way too high than option 2(evaluated earlier).

Also, this was the market segment which faces the most stiff competition and seeing the market

potential, even the supermarket chains were expected to release brands of their own.

OPTION 3

TARGET OF REVENUE GENERATION =$ 20 MILLION

CURRENT REVENUE GENERATION =$ 13 MILLION

DIFFERENCE TO BE ACHIEVED(in 1 year) =$ 7 MILLION

SELLING PRICE (at the natural foods store) =$3.35/pack

DISTRIBUTOR+WHOLESALER+RETAILER MARGIN =9%+7%+35%=51%

SELLING PRICE FOR NATUREVIEW =$ 1.6415/PACK

ANTICIPATED INCREMENT IN SALES UNIT = 1,800,000

INCREASES REVENUE GENERATION = 1,800,000*1.6415=$2,954,700

Hence, the revenue generation objective is NOT fulfilled.

OPTION 3(COSTS AND DOWNSIDES)

MARKETING EXPENSES =$A(same as earlier)

INCREASED SG&A EXPENSES =$0

SLOTTING EXPENSES =$C(same as earlier subjected to change)

TRADE PROMOTIONS =$D(same as earlier)

TOTAL EXPENSES = $A+$C+$D

The relationship with the natural foods store shall in turn, be strengthened and the trust and

The bond between them shall be reinforced.

Also, the costs incurred are significantly lower than the earlier options and the net profit margin

is also high and high profitability is expected in the coming years , but , the immediate

objective of revenue generation remains unfulfilled.

PROOFand ACTIONS

• Natureview could not risk itself losing the trust of the

natural food stores as they were expected to

grow 7 times faster than the supermarket stores.

“Farm had developed strong relationships with leading

natural foods retailers, including the chainsWhole

Foods ($1.57 billion revenues in 1999) and

Wild Oats ($721 million revenues). The organic

foods market, worth $6.5 billion in 1999, was

predicted to grow to $13.3 billion in 2003.”

• Also, Natureview had to enter the supermarket

chain as other competitors were also aiming for the

same and Natureview could not risk losing a

significant portion of market segment.

“Supermarket retailers would likely authorize

only one organic yogurt brand.

The first brand to enter the channel could

therefore have a significant first-mover advantage.”

Natureview should therefore go with option 2.

RECAP

• Title slide

• Background

• Facts

• Situation

• Decision to be made

• Questions

• Decision options

• Decision criterias

• Most important criteria

• Decision options

• Option 1

• Option 2

• Option 3

• Hypothesis and Analysis

• Hypothesis

• Analysis

• Option 2

• Alternatives

• Option 1

• Option 3

• Proof and Actions

• Proof

• Actions

DISCLAIMERThese slides were created by Shreyans Hinger , under the guidance of Prof.

Sameer Mathur , under a summer internship mentored by him.