Natureview Farms

Case Analysis

MBA 623 Dr. Jaju

Choi, Pham, Neibyu, Shilawat, Teja, Winter

Agenda

5 Cs, Problem Definition 5 min

Market Analysis 5 min
Possible Marketing Strategies 10 min
Financials Summary with Sensitivities 5 min
Worst Case Scenarios - 5 min
Conclusion 5 min
Q and A
Feel free to ask your questions during presentation

Company Background

1996 Jim
Wagner Hired
to steady
profits
1989 - Founded
Revenue $100 K.
Yogurt products .
Introduced 2
Flavors

1997 - CFO Jim

Wagner got VC
capital Infused
capital

Today Feb 2000.

Annual Revenue
was $13 million in
1999. Total 12
Flavors in 8 Oz and
4 Flavors 32 Oz

VC to cash out
at the end of
2001. Revenue
needs to grow
to 20 million

Product Profile
Emphasis on natural ingredients and its strong reputation
for quality and great taste
No artificial thickeners and rGBH mixed milk
Comparing to the other products 30 days shelf life,
Natureviews yogurts will remain fresh for 50 days
8 Oz has 12 Flavors and 32 Oz 4 Flavors.

Customer and Competetion

Customer
Brand Sensitive
Natural Foods Customer
Taste savvy
Less Price Sensitive
Woman (Single and with
Kids) take 74% Market
Share
Customer loves
Natureview Yogurt

Competition
Main competitor
Horizon
Recent IPO
Flush with Cash
Bigger than Natureview
Already uses
supermarket channel

SWOT
Strengths

Weakness

Major and trusted brand

in natural foods

Owns Small portion of the

yogurt market

Product Quality

Not ventured into

supermarket channel

Strong relationships
natural food market

in

Channel leader
Relatively Rapid revenue
growth
Longer product s helf Life

Opportunity
Supermarket channel
provides significant
potential of growth

High dependence on
brokers for distribution
and promotion.
Inefficient nature foods
distribution channel

Threats
Lack of Capital
Main competitor(Horizon) is
getting stronger

Natural foods sales

expected to grow by 20%

No expertise in supermarket
channel

Opportunity for lowering

customer cost

Company may have to

reposition
Risk Inter Product
cannibalization

Natureview Crisis Feb 2000

2001
Revenue
needs to rise
to $20 Million

1999 Rev
$13 Million

VC to cash out at the

end of 2001

Problem Definition
Natureviews problem is that
they have to make strategic
marketing decisions to grow
revenues to $20,000,000 from
their current $13,000,000
before the end of the 2001
fiscal year

Market Topology

The Yogurt Market

32-oz. cups
8%
Childrens
multipacks
9%

Natural Foods
Channel
3%

Channel Market Share

Other
9%

8-oz. cups and

smaller
74%

Supermarket
97%

Distribution Channels
Natural Foods Channel

Others
35%

Natureview Farm
24%

Brown Cow
15%
Horizon Organic
19%

Supermarket Channel
Columbo
5%

White Wave
7%
Private Label
15%

Dannon
33%

Others
23%
Yoplait
24%

Distribution Channels

Natural Foods Channel

Supermarket Channel

Manufacturer

Manufacturer

Wholesaler

Wholesaler

Distributors

Retailer
Customer

Retailer
Customer

Channel Margin Analysis

Natural Foods
Unit Cost

Margin

Selling Price

Supermarket
Margin

% Mark-up

Unit Cost

Margin

Selling Price

Margin

% Mark-up

0.31
0.46
0.54
0.54
0.74

33%
15%
0%
27%

0.46
0.54
0.54
0.74

0.15
0.08
0.00
0.20

49%
18%
0%
37%

0.99
1.68
1.97
1.97
2.70

41%
15%
0%
27%

1.68
1.97
1.97
2.70

0.69
0.30
0.00
0.73

69%
18%
0%
37%

1.12
1.77
2.08
2.08
2.85

37%
15%
0%
27%

1.77
2.08
2.08
2.85

0.65
0.31
0.00
0.77

57%
18%
0%
37%

8 Oz
Manufr.
Wholesalers
Distributor
Retailer
Customer

0.31
0.48
0.52
0.57
0.88

36%
7%
9%
35%

0.48
0.52
0.57
0.88

0.17
0.04
0.05
0.31

56%
8%
10%
54%

32 Oz
Manufr.
Wholesalers
Distributor
Retailer
Customer

0.99
1.75
1.89
2.07
3.19

44%
7%
9%
35%

1.75
1.89
2.07
3.19

0.76
0.13
0.19
1.12

77%
8%
10%
54%

Multipack
Manufr.
Wholesalers
Distributor
Retailer
Customer

1.12
1.84
1.98
2.18
3.35

39%
7%
9%
35%

1.84
1.98
2.18
3.35

0.72
0.14
0.20
1.17

64%
8%
10%
54%

OPTIONS for Resolving the crisis

Choices for Christine Walker, VP Marketing

Option 1

Option II

Option III

Expand 6 SKUs of
the 8-oz. product
line into one or two
selected
supermarket
channel regions

Expand 4 SKUs of
the 32-oz. size
nationally
Proposed by Jack
Gottlieb, vice
president of
operations

Introduce 2 SKUs
of a Childrens
Multi-Pack into the
Natural Foods
Channel
Proposed by Kelly
Riley, the assistant
marketing director

Proposed by
Walter Bellini VP
Sales

Option 1 - Expand 6 SKUs of the 8-oz. product line into one or two selected
supermarket channel regions
Benefits
1. Great Upside Potential
2. For supermarket adding these products would attract higher-income less
price-sensitive customers
3. Unit volume growth of organic yogurt at supermarkets of 20% per year from
2001 to 2006
4. This option also has the highest incremental demand

Walter Bellini OPTION 2

OPTION 3

Risks
1. Supporting 8-oz cup size would require quarterly trade promotions and a
meaningful marketing budget
2. Advertising plan would cost $1.2 million per region per year in addition to the
promotional ads expenses
3. SG&A expenses would increase by $320,000 annually
4. This option creates direct competition with national yogurt brands

Option 1 Income Forecast

Year 2000

Year 2001

29,070,950

32,285,140 $

36,142,168

40,770,602

Costs of Good Sold $

(19,040,000)

(21,210,000) $

(23,814,000)

(26,938,800)

10,030,950

11,075,140 $

12,328,168

13,831,802

(2,210,000)

(2,210,000) $

(2,210,000)

(2,210,000)

Sales

(1,880,000)

(1,880,000) $

(1,880,000)

(1,880,000)

Marketing

(3,660,000)

(3,660,000) $

(3,660,000)

(3,660,000)

R&D

(390,000)

(390,000) $

(390,000)

(390,000)

One-Time Slotting
Fee

(1,200,000)

Brokers' Fee @ 4%

(642,838)

(771,406) $

(925,687)

(1,110,824)

Total Expense

(9,982,838)

(8,911,406) $

(9,065,687)

(9,250,824)

Net Income

48,112

2,163,734 $

3,262,481

4,580,978

Revenue

Gross Profit
Admin / Freight

Profit Margin

0.17%

Year 2002

Year 2003

6.70%

9.03%

11.24%

Option 2 Expand 4 SKUs of the 32-oz. size nationally

Benefits
1. Potentially give higher average gross profit margin than 8-oz size
2. It also has stronger competitive advantage like longer shelf life and lower
marketing expenses

OPTION 1

Jack Gottleib OPTION 3

Risks
1. Doubt on claim of new users would readily enter the brand via a multi-use
size
2. Doubt on sales teams ability to achieve full national distribution in 12 months
3. Needs to hire sales personnel and establish relationships with supermarket
brokers
4. The 32-oz. expansion option would increase SG&A expense by $160,000

Option 2 Income Forecast

Year 2000

Year 2001

22,214,425

24,057,310 $

26,268,772

28,922,526

Costs of Good Sold $

(13,635,000)

(14,724,000) $

(16,030,800)

(17,598,960)

8,579,425

9,333,310 $

10,237,972

11,323,566

(2,210,000)

(2,210,000) $

(2,210,000)

(2,210,000)

Sales

(1,720,000)

(1,720,000) $

(1,720,000)

(1,720,000)

Marketing

(1,894,000)

(1,894,000) $

(1,894,000)

(1,894,000)

R&D

(390,000)

(390,000) $

(390,000)

(390,000)

One-Time Slotting
Fee

(2,560,000)

Brokers' Fee @ 4%

(368,577)

(442,292) $

(530,751)

(636,901)

Total Expense

(9,142,577)

(6,656,292) $

(6,744,751)

(6,850,901)

Net Income

(563,152)

2,677,018 $

3,493,221

4,472,665

Revenue

Gross Profit
Admin / Freight

Profit Margin

-2.54%

Year 2002

11.13%

Year 2003

13.30%

15.46%

Option 3 Introduce 2 SKUs of a Childrens Multi-Pack into the

Natural Foods Channel
Benefits
1. Established leader in this channel
2. Perfect positioning for new multi-pack product
3. Long term the financial potential was very attractive

OPTION 1

OPTION 3

Kelly Riley

Risks
1. Established leader in this channel
2. Perfect positioning for new multi-pack product
3. Long term the financial potential was very attractive

Option 3 Income Forecast

Year 2000

Year 2001

16,317,073

16,383,414 $

16,451,083

16,520,104

Costs of Good Sold $

(10,260,000)

(10,007,640) $

(10,043,993)

(10,081,073)

6,057,073

6,375,774 $

6,407,090

6,439,032

(2,210,000)

(2,210,000) $

(2,210,000)

(2,210,000)

Sales

(1,560,000)

(1,560,000) $

(1,560,000)

(1,560,000)

Marketing

(640,000)

(640,000) $

(640,000)

(640,000)

R&D

(390,000)

(390,000) $

(390,000)

(390,000)

One-Time Slotting
Fee

(82,927)

Brokers' Fee @ 4%

(132,683)

(135,337) $

(138,043)

(140,804)

Total Expense

(5,015,610)

(4,935,337) $

(4,938,043)

(4,940,804)

Net Income

1,041,463

1,440,438 $

1,469,046

1,498,227

Revenue

Gross Profit
Admin / Freight

Profit Margin

6.38%

Year 2002

8.79%

Year 2003

8.93%

9.07%

Financials Summary
2000

2001

2002

2003

2004

Revenue

$ 29,070,950.00

$ 32,285,140.00

$ 36,142,168.00

$ 40,770,601.60

$ 46,324,721.92

Gross Profit

$ 10,030,950.00

$ 11,075,140.00

$ 12,328,168.00

$ 13,831,801.60

$ 15,636,161.92

Net Income

$ 2,163,734.40

$ 3,262,481.28

$ 4,580,977.54

$ 6,163,173.04

OPTION 1

48,112.00

Profit Margin

0%

7%

9%

11%

13%

Profit Growth

0%

4397%

51%

40%

35%

Revenue

$ 22,214,425.00

$ 24,057,310.00

$ 26,268,772.00

$ 28,922,526.40

$ 32,107,031.68

Gross Profit

$ 8,579,425.00

$ 9,333,310.00

$ 10,237,972.00

$ 11,323,566.40

$ 12,626,279.68

Net Income

$ 2,677,017.60

$ 3,493,222.12

$ 4,472,667.34

$ 5,648,001.41

OPTION 2

(563,152.00)

Profit Margin

-3%

11%

13%

15%

18%

Profit Growth

0%

575%

30%

28%

26%

Revenue

$ 16,317,072.85

$ 16,814,633.78

$ 17,386,828.84

$ 18,044,853.17

$ 18,801,581.15

Gross Profit

$ 6,057,072.85

$ 6,575,333.78

$ 6,840,133.84

$ 7,144,653.92

$ 7,494,852.01

Net Income

$ 1,041,463.11

$ 1,622,748.43

$ 1,864,660.69

$ 2,142,859.79

$ 2,462,788.76

Profit Margin

6%

10%

11%

12%

13%

Profit Growth

0%

56%

15%

15%

15%

OPTION 3

Revenue
$50,000,000

$45,000,000

$40,000,000

$35,000,000

$30,000,000
Option 1
$25,000,000

Option 2
Option 3

$20,000,000

$15,000,000

$10,000,000

$5,000,000

$0
2000

2001

2002

2003

2004

Profits
$18,000,000

$16,000,000

$14,000,000

$12,000,000

$10,000,000

Option 1
Option 2

$8,000,000

Option 2

$6,000,000

$4,000,000

$2,000,000

$0
2000

2001

2002

2003

2004

Demand Sensitivity for 2001

$35,000,000

$30,000,000

$25,000,000

$20,000,000

Option 1
Option 2
Option 3

$15,000,000

$10,000,000

$5,000,000

$0
100%

95%

90%

85%

80%

75%

70%

65%

60%

55%

Growth Sensitivity for 2001

$40,000,000

$35,000,000

$30,000,000

$25,000,000

Option 1
$20,000,000

Option 2
Option 3

$15,000,000

$10,000,000

$5,000,000

$0
20%

18%

16%

14%

12%

10%

8%

6%

4%

2%

Channel Conflict and Cannibalization

There will be a horizontal channel conflict with

supermarkets
It is possible the current channel partners may be
alienated
This may end up having 3 way impact
We discussed Product Demand, Revenue Growth
Now we need to test Product Cannibalization
All forecasts need to be stress tested for sensitivity

Cannibalization Sensitivity for 2001

$35,000,000

$30,000,000

$25,000,000

$20,000,000
Option 1
Option 2
Option 3

$15,000,000

$10,000,000

$5,000,000

$0
100%

200%

300%

400%

500%

600%

700%

WORST Case Scenarios

Option 1 - Scenarios
$35,000,000.00

$30,000,000.00

Revenue

$25,000,000.00

$20,000,000.00

Growth 20%
Growth 15%
Growth 10%

$15,000,000.00

Growth 5%
Growth 0%

$10,000,000.00

$5,000,000.00

$-

0,100

0,90

0,80

5,100
5,90
5,80
Cannabalization, Demand

10,100

10,90

10,80

WORST Case Scenarios

Option 2 - Scenarios
$30,000,000.00

$25,000,000.00

Revenue

$20,000,000.00

Growth 20%

$15,000,000.00

Growth 15%
Growth 10%
Growth 5%
Growth 0%

$10,000,000.00

$5,000,000.00

$0,100

0,90

0,80

5,100

5,90

5,80

Cannabalization, Demand

10,100

10,90

10,80

WORST Case Scenarios

Option 3 - Scenarios
$18,000,000.00

$16,000,000.00

$14,000,000.00

Revenue

$12,000,000.00

$10,000,000.00
Growth 15%
Growth 10%

$8,000,000.00

Growth 5%

Growth 0%
$6,000,000.00

$4,000,000.00

$2,000,000.00

$-

0,100

0,90
Cannabalization, Demand

0,80

Decision Matrix
Decision Parameter

Option 1

Option 2

Option 3

Revenue Objective
Short Term Profits
Long Term Profits
Channel Partners
Competitive Response
Cost to Induce Trial
Brand Equity Dilution
Organizational capabilities

Exceeds
No
High
Highly Alienating
Very Risky
High
Possible
Low

Exceeds
No
High
Alienating
Risky
Very High
Possible
Low

Falls Short
Gain
Low
Enhancing
Low
Low
No
High

Decision ???

Possible Conclusion
If we really hard pressed to answer the $20 Million question, then it
is fairly simple answer. Go with option 1.

We recommend Natureview to Expand the multi-pack into

supermarket channel in Northeast and West
The benefits of this decision will include the follow.
High growth (12% changes from last year):
Minimized channel conflicts: Through this expansion, Natureview can
make its revenue goal by 2001
no cannibalization/alienation

New target customers: Supermarket will be selling these multi-packs

relatively cheap.
Higher expected annual demand