Natureview Farm - Harvard Case Study

A marketing Case Study of Natureview Farm, an organic yogurt manufacturer. This analysis was performed by E. Santhosh Kumar, IIT Madras, during an internship with Prof. Sameer Mathur, IIM Lucknow.

1. CASE STUDY
By E SanthoshKumar, IIT Madras

2. ABOUTTHE COMPANY
•Founded in 1989
•Manufacturing plant in Cabot, Vermont
•Used natural ingredients to produce products
with longer average shelf-life
•Company revenue grew from $100,000 in 1989
to $13 million in 1999

3. 4 Ps
Product
•Natural Yogurt
(Organic)
•8-oz. size with 12
flavours
•32-oz. size with 4
flavours
Price
•Affordable in its
current channel
Place
•Natural food
channel
•National retailer
channel
•Convenience and
drug store
Promotion
•Natural Flavour
with high quality
and great taste
•Low cost guerilla
marketing

4. Natural/ Organic Market Trends
•Organic Food Consumers are in general more
educated, earn higher incomes and be older.
•Market is predicted to grow from $6.5 Billion in
1999 to $13.3 Billion in the next 4 years.
•67% of consumers consider price as a barrier
for entry into the organic market
•44% of consumers would like a wider selection
of organic products in the supermarket.

5. Trends in Yogurt Market
•Supermarkets account for 97% of sales and have
a 3% annual growth.
•Natural food stores account for 3% of sales and
have a 20% annual growth.
•The top 4 competitors control 50% market
share.
•Customer decisions are based on Package
type/size, flavour, price, freshness, ingredients and
if organic.

6. Yogurt Market Share by
Packaging Segment
74%
8%
9%
9%
Market Share
8/6-oz. cups
32-oz. cups
children's
multipacks
Others

7. Yogurt Distribution Channels
97%
3%
Distribution Channel
Supermarkets
Channel
Natural Foods
Channel

8. Length of Distribution Channels
Manufacturer
Distributor
Retailer
Customer
Manufacturer
Natural Foods
Wholesaler
Natural Foods
Distributor
Retailer
Customer
Supermarkets Channel Natural Foods Channel

9. Yogurt Market Share by Brand
33%
24%
23%
15%
5%
Supermarket Channel
Dannon
Yoplait
Others
Private
Label
Columb
24%
15%
19%
7%
5%
Natural Foods Channel
Natureview
Farm
Brown Cow
Horizon
Organic
White
Wave
Others

10. NatureviewFarm Costs & Prices
Natural Food
Channel
Supermarket
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

11. SITUATION
•GOAL–To attain highest possible valuation in
order to secure new investors or position itself
for acquisition.
•CHALLENGE –To identify a path to grow
revenue by over 50%, from $13 million in 1999 to
$20 million at the end of 2001.

12. Players Involved
•Christine Walker –Vice President of Marketing
•Jim Wagner –Chief Financial Officer (CFO)
•Barry Landers –Chief Executive Officer (CEO)
•Walter Bellini –Vice President of Sales
•Jack Gottlieb –Vice President of Operations
•Kelly Riley –Assistant Marketing Director

13. Decision Criteria
•Revenue Generation
•Effects of decision on existing relations
with brokers, natural food retailers, etc.
•Additional costs of promotion, marketing,
etc.

14. 3 Possible Decisions
Based on 2 broad approaches
1)Expansion into Supermarket chains
2)Strengthening of existing
distribution and marketing
strategies in Natural Foods chains

15. Hypothesis1
Expand 6 SKUs of the 8-oz. product line into one or
two selected supermarket channel regions
•8-oz. cups have the largest
dollar and unit share of market,
along with highest incremental
demand
•First-mover advantage as an
organic yogurt brand to enter
the supermarket channel
•Other natural brands have
successfully expanded to
supermarkets
Pros
•High level of competitive trade
promotion and marketing spend
•Possible conflict of interests
between supermarkets and
natural foods stores
•Lack of sales experience in
dealing with supermarket
channels
Cons

16. Supermarket Channel Margin Analysis
8 oz. cups
Player Selling
Price
Cost PriceMargin
Retailer $0.74 73% x $0.74
= $0.54
27%
Distributor$0.54 85%x $0.54
= $0.46
15%
Supplier
(Natureview)
$0.46 $0.31 33%

17. Projected Gross Profit
Year 2000 2001
IncrementalUnit
Sales
35,000,000 35,000,000 x120% =
42,000,000
Revenue 35,000,000 x$0.46 =
$16,100,000
42,000,000 x$0.46 =
$19,320,000
Cost of Production35,000,000 x$0.31 =
$10,850,000
42,000,000 x$0.31 =
$13,020,000
Gross Profit $5,250,000 $6,300,000

18. Projected Net Expenses
Year 2000 2001
Advertising Costs$1,200,000x 2
regions = $2,400,000
$1,200,000x 2
regions = $2,400,000
SG&A $320,000 $640,000
Slotting Fees $10,000 x 6 SKUs x
20 retailers =
$1,200,000
NotApplicable
BrokerFees $16,100,000 x 4% =
$644,000
$19,320,000 x 4% =
$772,800
Net Expenses $4,564,000 $3,812,800

19. Projected Net Profit
Year 2000 2001
Gross Profit $5,250,000 $6,300,000
NetExpenses $4,564,000 $3,812,800
Net Profit $686,000 $2,487,200

20. Hypothesis2
Expand 4 SKUs of the 32-oz. product line nationally
through supermarket channel
•32-oz. cups have a higher profit
margin than 8-oz. cups
•Fewer competitive offerings in
this size
•Strong competitive advantage in
terms of shelf-life
•Lower promotion expenses
Pros
•Higher slotting fees due to
nation-wide distribution
•Possible conflict of interests
between supermarkets and
natural foods stores
•Doubtful f new users would
readily enter the brand via
multi-use products.
•Doubtful if existing sales team
can achieve nation-wide
distribution in 12 months.
Cons

21. Supermarket Channel Margin Analysis
32 oz. cups
Player Selling
Price
Cost PriceMargin
Retailer $2.70 73% x $2.70
= $1.97
27%
Distributor$1.97 85%x $1.97
= $1.67
15%
Supplier
(Natureview)
$1.67 $0.99 41%

22. Projected Gross Profit
Year 2000 2001
IncrementalUnit
Sales
5,500,000 5,500,000
Revenue 5,500,000 x$1.67 =
$9,185,000
5,500,000 x$1.67 =
$9,185,000
Cost of Production5,500,000 x$0.99 =
$5,445,000
5,500,000 x$0.99 =
$5,445,000
Gross Profit $3,740,000 $3,740,000

23. Projected Net Expenses
Year 2000 2001
Advertising Costs$120,000x 4 regions
= $480,000
$120,000x 4 regions
= $480,000
SG&A $160,000 $320,000
Slotting Fees $10,000 x 4 SKUs x
64 retailers =
$2,560,000
NotApplicable
BrokerFees $9,185,000 x 4% =
$367,400
$9,185,000 x 4% =
$367,400
Net Expenses $3,567,400 $1,167,400

24. Projected Net Profit
Year 2000 2001
Gross Profit $3,740,000 $3,740,000
NetExpenses $3,567,400 $1,167,400
Net Profit $172,600 $2,572,600

25. Hypothesis3
Expand 2 SKUs of the children’s multi pack into the
Natural Foods channel
•Existing strong relationships
with leading natural food channel
retailers
•The sales team was experienced
in this distribution channel
•Financially attractive –the
natural foods channel was
growing 7 times faster than the
supermarket channel
Pros
•Rapid growth of Natureview
Farms in the natural food
channel might lead to bigger
demands from retailers, similar
to the case of supermarket
channel
•Missing out on the opportunity
to become the first-mover in
the supermarket channel
Cons

26. Natural Foods Channel Margin Analysis
Children’s Multi-pack
Player Selling PriceCost Price Margin
Retailer $3.35 65% x $3.35 =
$2.18
35%
Distributor$2.18 91%x $2.18 =
$1.98
9%
Wholesaler $1.98 93% x $1.98 =
$1.84
7%
Supplier
(Natureview)
$1.84 $0.99 37.6%

27. Projected Gross Profit
Year 2000 2001
IncrementalUnit
Sales
1,800,000 1,800,000 x 115% =
2,070,000
Revenue 1,800,000 x$1.84 =
$3,312,000
2,070,000 x$1.84 =
$3,808,800
Cost of Production1,800,000 x$1.15 =
$2,070,000
2,070,000 x$1.15 =
$2,380,500
Gross Profit $1,242,000 $1,428,300

28. Projected Net Expenses
Year 2000 2001
Marketing Expenses$250,000 $250,000
Complementary
Cases
2.5% x $3,312,000 =
$82,800
2.5% x $3,808,800 =
$95,220
Net Expenses $332,800 $345,220

29. Projected Net Profit
Year 2000 2001
Gross Profit $1,242,000 $1,428,300
NetExpenses $332,800 $345,220
Net Profit $909,200 $1,083,080

30. Recommended Solution
Option 1should be pursued for the following reasons
•Returns the highest expected increase in revenue among the
three options. Total revenue by 2001 is $32,320,000 , which
is well above the target $20 million
•First-mover advantage of organic yogurt manufacturer to
the supermarket channel.
•Exposure to a larger range of customers
•8 oz. yogurt cups have the maximum demand
•Short-term risk is compensated by large long-term revenue
increase

31. THANK
You

32. DISCLAIMER
Created by E. SanthoshKumar, IIT Madras, during a
Marketing Internship by Prof. SameerMathur, IIM
Lucknow
Prof. SameerMathur, IIM LucknowE. SanthoshKumar, IIT Madras