11/16/2009 MRK526MT CASE ANALYSIS-NATUREVIEW FARM SUBMITTED TO DONNA GEARY | BY MAHMOUD ISSA
TABLE OF CONTENT EXECUTIVE SUMMERY THE PROBLEM CHANNEL ANALYSES SITUATION ANALYSES FINANCIAL ANAL YSES ORGANIZATIONAL OBJECTIVES ALTERNATIVES/ OPTIONS RECOMMENDATION IMPLEMENTATI ON PLAN BIBLIOGRAPGHY PAGE 3 4,5 6,7 7,8 9 9 10-16 17 18 19 2
000.00 0.5% growth in 4oz multipack In crease in consumer interest in organic foods Threats Competition(both in regular yogurt and organic yogurt) Increasing nature store channel demands on logistics or technology Increasingly price sensitive consumers due to economical slowdown Weaknesses Small manufacture. retailers Product test and approval Product and promotion launch First status report Final yearend report 1 week nd rd 2 week – 3 week th 4 week nd 2 month th 6 month th 12 month st 3
.000 before the end of the 2001 fiscal year.3 bi llion in 2003 Nature store channel sales up 20% 12.000 from their current $13.000.Executive Summery The Problem Natureviews main problem is that they have to make strategic marketing decisions to grow revenues to $20.Option 3 due to: Low risk factors Low cost Take advantage of curre nt relationships and growth of nature foods channel Implementation Plan Approval Meet with R&D. sales. but only ser ves niche market of organic food purchasing consumers. However despite the risk. The Nature foods channel offers less risk.000 from their curren t $13.000.000 before the end of the 2001 fiscal year Alternatives/Options Option 1: Expa nd into the supermarket channel with 6 SKUs of 8oz yogurt in two regions Option 2: Expand into the supermarket channel with 4 SKUs of 32oz yogurt in all regions Option 3: Introduce 2 SKU of children multi pack into natural foods channel Rec ommendation . taste and natural ingredients Strong relationship with natur e store retailers Opportunities Organic food market expected to grow to $13. It is cheaper to invest a nd is expected to grow by 20% annually Strength Long product shelf life Reputati on of high quality. brokers. this channel provides the most e xposure and market base. low funds and revenue Relies on brokers that may n ot be adequate for supermarket channel Current marketing strategy based only on nature store channel Organizational Objectives Grow revenues to $20. Channel Analyses Supermark et channel offers more potential for sales and revenue but also is very costly d ue to technology and slotting fee requirements and is also risk filled due to ma ny unknown variables.
Natureview Farms needed to become valuated by other possible venture capital investment firms. they were troubled to learn that the venture capi tal firm had to withdraw and cash out their investment. Natureview open their doors to venture capital firms in order to rec eive funds that were desperately needed.000 from their current $13. In order to get funded with another venture capi tal firm and continue marketing efforts to maintain their leading 24% market sha re.The Problem Natureview Farm I was established in 1989 and since then in a span o f just 10 years. Natureviews main problem is that they have to make strategic marketing deci sions to grow revenues to $20.000.000 before the end of the 2001 fiscal year. About 3 years after Natureview began be ing funded by venture capital. In fact Natureview has been known fo r their reputation of high quality. Naturevie w must make numerous strategic marketing decisions. flavourful. high income. 000 to $13. organic yogurt that niche consumers crave.000.000. natural ingredients. southeast.000. In order to solve this problem. they had limited cash assets. Natureview farms has increased their annual revenues from $100.00 0 per year or they will have no choice but to consider being part of an acquisit ion. This is about a 54% increase.000. The main decision would be w hether Natureview should expand their product’s distribution through the supermark et channel within the northeast. Since Natureview is a small company. midwest and west 4
. price flexible consum ers who want organic all natural products with no artificial growth hormones or any other types unnatural ingredients. leaving Natureview Farms with a lack strategic funding. This means that they had to raise their revenue to $20. This growth was largely due to creating a tasty. So in 1997. with will seems quite tough considering that Natureview Farms only has 12 months to do so in a market that serves a specific niche of intelligent. flavourful texture and great taste.
To make an informed marke ting decision. These new manufactories must pay a $10. This fee is in addition to any advertising expenditures that t he manufacture may have. In fact due to channel size. it can be pulled from the channel. southeast. The Manufacture wo uld then have to repay the slotting fee when applying for 5
. If the manufacture product continuously does not make a profit for the retailers. Natureview also could also follow the status quo r oute and remain in the nature food stores channel where they enjoyed 10 years of success that found them on top with 24% market share.000 slotting fee for each stock keeping unit (SKU) per retailer chain in each of the four regions. pe r retailer chain.74 and $2. The yogurt industry in this channel is dominated by large yogurt products manufacturers such as Dannon and Yoplait who have 33 % and 24% market share respectively.85 . Compared to the nature store channel. In this channel an 8oz and a 32oz cu p of yogurt go for $0. In this channel there are 4 steps in the distribution table.70.000 nationally per ad. This channel also requires each manufacture to contribute funds a minimum of every 3 months f or cooperative weekly trade promotions that average $8. while a 4oz cup multipack can sell for $2. However it is bal anced by the expensive investment needed by manufactures who want to enter this channel.regions of the United States. this channel is much more technologicall y driven. This technology run operation is rather quite costly. midwest and west regions of the United States. Natureview must first vigorously analyse each channel and their q ualities. Channel Analyses Supermarket Channel This channel consists of many supermarket c hains scattered across the northeast. The manufacture sells the product to the distributor who sells the product to t he retailer on its way to the end consumer. most retailers require scanning devices a nd automated inventory tracking systems to be used to organise the channel produ ct flow.
88 and $3. Generally in this channel. These brokers charge a bout 4% of manufacture sales in the yogurt category.19.35. manufa ctures will often use sales brokers to attract retailers. there are 5 steps a product goes through. the nature store channel is friendly to small manufactures whose funds are lacking. Nature Stores Channel Unlike the supermarket chain. An 8oz and a 3 2oz cup of yogurt go for $0. First the product is manufactured by the manufacture and then is sold to natural foods wholesalers. this channel provides th e most risk for smaller manufacture but also provides a high level of potential. The only one-time SKU f ee for new manufactures in this channel is a allocation of one complementary cas e of product for every new SKU in the first year. In this channels distributi on. 6
. while a 4oz cup multipack can sell for $3. Along with this fee. This would usually equate to b eing less than the supermarket channel slotting fee. Then it is sol d to distributers who do bulk breaking and then sell and deliver to the retailer s who sell to the final consumer. Even though this channel is small and generally more expensive it is gro wing 7 times faster than the supermarket and offers continued potential for smal l manufactures such as Nature view. Because of the multiple fees and uncertainty.re-entry. prices are usually higher since the niche target consumers are less price sensitive.
Bec ause Natureview uses organic. 7
. thei r yogurt stays fresh up to 50 days. Natureview also has a strong re putation based on quality. T his reputation is one of the reasons why Natureview has strong relationships wit h nature store retailers. This relationship entitles Natureview to be able to wo rk with the retailers to try and sell the product more efficiently and thus incr ease profit and most likely sales. taste and natural ingredients Strong relationship with nature store retaile rs Opportunities Organic food market expected to grow to $13. natural ingredients with now growth hormones. taste and natural ingredients. This means there will be less product los s and thus the cost of goods sold will be lower.Situation Analyses SWOT Strength Long product shelf life Reputation of high qual ity.5% growth in 4oz multipack Increase in consu mer interest in organic foods Weaknesses Small manufacture. This will help Naturev iew when introducing any new product consumers will be more willing to try it. low funds and revenue Relies on brokers that may n ot be adequate for supermarket channel Current marketing strategy based only on nature store channel Threats Competition(both in regular yogurt and organic yogurt) Increasing nature store channel demands on logistics or technology Increasingly price sensitive c onsumers due to economical slowdown Strength On huge strength for Natureview Farms is their products shelf life.3 billion in 2003 N ature store channel sales up 20% 12. This is huge considering that the completion’s product only stays fresh for 30 days.
Threats Competition is by far Natureviews biggest thr eat. Companies such as Horizon Organic and Brown Cow in the nature store channel are competing directly with Natureview to gain a strangle hold in the organic y ogurt industry. Another weakness of Natureview is th at their current strategy is not very flexible. It is based for the nature store channel.5% in 4oz multipacks giv e Natureview an opportunity to take advantage of this and expand their product o ffering and thus revenues.Weakness Natureview is a small manufacture. If these retailers begin demanding the use of scanning devices and automated inventory tracking systems. Another hug e threat is the possibility of nature store channel retailers increasing the dem and on logistics and technology criteria. Thus if Natureview decides to expand to the supermarket channel. The annual rise of 12. This affects Natureviews abilities to atta in valuation amongst venture capital firms. 8
. Thus. they will have to revise their entire marketing strategy. It has limited funds to which it can use to make marketing decisions. Also because Natureview is sma ll. Opportunity The organic foo d market is expected to grow tremendously over the next few years due to increas ing consumer interest. This will create new opportunities for product line exten sions or other new product launches. Natureview wi ll be hard-pressed to find the funds necessary to facilitate those demands. their revenues are generally low. The rise to organic foods is also why natur e food stores have rising by 20%. There is also competition from national brands such as Dannon an d Yoplait who are rumoured to be launching their own organic yogurt. marketers for Natureview must take this in mind when creating a strategic marketing plan.
Financial Analyses Natureviews revenues are not that bad since they do hove 24% market share to lead their competitors.000 before the end of the 2001 fiscal year This objective is largely due to necessity.000.000 390.000 4.000 63% 37% Revenues $ 13. This is the main reason why th e final net income is just 2% of revenue.000 from th eir current $13.000 17% 12% 3% 3% 2% (Income statement retrieved from Natureview Farm case) 9
.000. If Natureview wants to gain more profi ts they will have to find ways to reduce expenses or increase revenue. However the advertising and sales expens es seem Cost of Goods Sold $ $ 8.000 1. which is the logical option since Natureview wants to increase revenues to $20 million by the end of 2001.210. Natureview farms must be able to meet this objective if they can attain validation for venture capital firms to invest and infuse the m with funds that can be used toward strategic investments.000 100% Natureview Farms Income Statement to be a little when compared to the gross profit. If this objective wa s not met Natureview would have no choice but to consider being part of an acqui sition.000 260.810.190.000 390.560. Organizational Objectives Grow revenues to $20.000. Gross Profit Expenses Advertisng/ Freight Sales Marketing Research & Development Net Income $ $ $ $ $ 2.
When that is added with Natur eview’s current revenue of $13million. Advantages High potential for increased revenue Consu mers in NE and W region are most likely to purchase organic st Disadvantages High risk High advertising cost of $1. By choosing this option Natureview will be able to gain a first move advantage on their organic yogurt competitors. This will equate to 20 total retail chains. it will equate to $38. In fact this whole option offers great potential.5% market share after 1 year (35 million unit sales)
. Getting your foot first in the door means you will have a heads up on the market by the time the competition arrives. The 8oz size is the most popular and thus offers the best potential .000 ($200. It is expected to get 35 milli on units sold to receive revenue of $25.2 million per region per yea r($2. This expansion will cover the west and the northeast regions. while the northeast region will include the top 11 retail c hains. This option is expected t o get the most unit sales out of all the options.Alternatives/Options Option 1: Expand into the supermarket channel with 6 SKUs o f 8oz yogurt in two regions Option 1 is that Natureview expands into the superma rket channel with 6 SKUs of the 8oz product size.9 million. Yoplait)
Expected 1.000 for marketing staff) Direct competition with national brands(Dannon.000 for sales sta ff.$120. This is crucial for success. Expansion into the west region will include the top 9 retail chains.9 million from this option alone. The main reason why the 8oz p roduct was chosen for this option is because it represents a large part of the t arget group.4 million total) Expenses will increase by $320. Expected sales are at $25. well over the $20 million objective.9 million.
000 3.000 Number of Retailers In Region 2 Total cost per promotion Region 1&2 Promotions Per Period Promotions Periods Required Per Year Total Promotions Total Cost of Promotions $ $ 11 $ 9 $ 217.000 0 .000 0.000 15.000 $ 19.000 1.000 15.500 4 4 16 3.000 1.480.3% 1% 3% 9% 3% 18% 11
.000 3.874.400.036.000 $ $ $ 1.000 1.86 0.000 100% 42 % 58% Current Income Statement With Option 1 Revenues Cost of Goods Sold Gross Profit Expenses Advertising/ Freight Sales Marketing Research & Development SKU s Slott ing Fee Trade Promotions Broker Fee Net Income $ 38.74 25.000 120.000 100% 49% 51% $ $ $ $ $ $ $ $ 2.000 1.050.000 6.610.850.900.000 2.850.900.000 20 1.000 12% 5% 1.036.000 6.200.480.200.036.200.46% 0% 5% 13% 4% 26% $ $ $ $ $ $ $ $ 4.000.000 200.040.000 10.000 120.Option 1 Financial Information Region Information Number of Regions Region 1(# o f Retailers) Region 2(# of Retailers) Income Information Expected unit sales Pri ce per Unit Expected Revenue Unit Cost COGS $ $ $ $ 35.000 9% 1% 0.000 7.500 Trade Promotion Information 2 Northeast(11) West(9) Expense Information Advertising Per Region Total Advertisi ng Broker Fee(4% of sales) Sales.400.000 1.760. General & Administrative Sales Force Marketing Staff $ $ 200.000 390.31 10.614.000 510.000 Cost Per Promotion Region 1 Per Retailer Slotting Fee Information Number of Retailers In Region 1 Cost Per Promotion Region 2 Per Retailer Number of SKUs Single SKU Slotting Fee Per Chain Total Slotting Fee Per Chain Number o f Retail Chains Total Slotting Fee $ $ $ 6 10.000 1.900.480.000 Option 1 Income Statement Revenues Cost of Goods Sold Gross Profit Expenses Adve rtising/ Freight Sales Marketing Research & Development SKU s Slotting Fee Trade Promotions Broker Fee Net Income $ $ $ 25.000 $ 19.200.000 60.
rather than the normal four times a year. it will equate to $27.56 million.5 million units will be sold in the first year. option 2 has Natureview expand with 4 SKUs of not 8oz but the 32oz of yogurt.85 mill ion.This option seems to give the most potential. However unlike option 1. option 2 also has Naturev iew expand their product into the supermarket channel. Th e reasoning behind this is that there will be less competition in the 32oz categ ory and that the profit margin for 32oz option is 63% versus 51% for the 8oz. Advantages Fewer competition Lower on average trade promotion expense Disa dvantages High risk Higher profit margin for 32oz versus 8oz Expected 1st year s ales of 5. This option will expand into all for r egions.85 million. This will bring revenues from this option alone to $14. The only way this would be a liable investment wou ld be if some of the risks were abolished. Option 2: Expand into the supermarket channel wi th 4 SKUs of 32oz yogurt in all regions Like option 1. it is expected that a sales volume of 5. Otherwise this option seems to be too expensive and risky to pursue. When ad ded with Natureview’s current revenue of $13million. but on average the trade promotion will be lower since the 32 oz size will only be promoted twice a year.5 million units New users may not want to purchase large 32oz quantity of product Very difficult to achieve full national distribution within one year
. However it also has a lot of risks and cost associated with it. with a total of 64 retail chains. The SKU slotting fee is extremely high at $2. well over the $20 million objective.
000 8% 6% 2% 1% 9% 15% 2% 8%
.Option 2 Financial Information Region Information Expense Information $ $ $ 594.000 $ 9.000 510.000 100% 49% 51% $ $ $ $ $ $ $ 2.000 120.000 2.000 $ 4.000 100% 37% 63% Current Income Statement With Option 2 Revenues Cost of Goods Sold Gross Profit $ $ 160.000 4.850.000 0% 1.445.445.635.405.99 5.000 2.215.70 14.850.000 64 Number of SKUs Single SKU Slotting Fee Per Chain Total Slotting Fee Per Chain Nu mber of Retail Chains Total Slotting Fee $ $ $ 4 10.000 $ 594.210.000 $ 120.096.000 0.000 $ 5.850.000 $ $ 2.000 Total Cost Per Promotion Promotions Per Period Prom otions Periods Required Per Year Total Promotions Total Cost of Promotions $ $ 5 12.000 594.000 Sales Force Marketing Staff $ $ 160.1% 0.000 390.096.000 1.875.000 64 2.000 Option 2 Income Statement Revenues Cost of Goods Sold Gross Profit Expenses Adve rtising/ Freight Sales Marketing Research & Development SKU s Slotting Fee Trade Promotions Broker Fee Net Income $ 14. Cost Per Promotion Per Retailer Slotting Fee Information Number of Retailer s $ 8.560.096.000 Number of Regions Total # of Retailers 4 64 Advertising Per Region Total Advertising Broker Fee(4% of sales) Income Information Sales.000 4 2 8 4.000 Trade Promotion Information Ave.500.720. General & Administrative Expected unit sales Price per Unit Expected Revenue Unit Cost COGS $ $ $ $ $ 5.000 $ 14.000 $ 1. 8% 0% 17% 28% 4% 13% Expenses Advertising/ Freight Sales Marketing Research & De velopment SKU s Slotting Fee Trade Promotions Broker Fee Net Income $ 27.560.560.000 40.000 $ 13.
Natureview will not expand into the supermarket channel. For this option to be acceptable the risk and unknowns must be dealt wit h. However this option is also very risky and has many unknown such as whether it is plausible to distribute nationally within on e year. they would be one of only a few companies to offer the 32oz s ize of organic yogurt in the supermarket chain.8 million units sold at a price $3 . Another reasons is that cost will be done since SKU slotting fees will no longer be changed. They will introduce 2 SKUs of 4oz multipacks. These figures are less than the other options but are based on a l ow risk plan.35 per unit. This option will also require a broker fee of 4%. Instead Nat ureview will introduce a new line of products for children in the nature foods c hannel. 14
. the tremendous growth rate give this market a huge amount of potential without much risk. E ven thought multipacks are only 9% of total organic yogurt sales. That fact that there is not many competitors is a huge advantage.5%. There will be a requ ired allocation of one complementary case of product for every new SKU in the fi rst year. The multipack market was i dentified earlier in this analyses because of its annual growth rate of 12.This option seems to be taking a differentiation approach. Option 3: Introduce 2 SKU of children multi pack into natural foods channel In t his option. If this option is cho sen by Natureview. This would usually equate to being less than the supermarket channel s lotting fee. This is a huge reason why this option is valuable. Total revenues wi th this option will be about 6 million with 1.
800.35 Total Advertising Broker Fee(4% of sales) $ $ 6. General & Administrative Slotting Fee Information Sales Force Marketing Staff $ $ 250.000 $ 3.750 15
.000 Sales.000 Number Of SKUs Total Cost Of Complementary Cases $ 2 150.030.070.000 $ 1.Advantages Take advantage of current relationships within nature foods channel ow risk factors Natureview positioned nicely for option Low cost Take advantage of growing natural foods channel Disadvantages Low expected revenue Requires R&D to develop product
Option 3 Financial Information Income Information Expense Information Expected unit sales Price per Unit Expected Revenue Unit Cost COGS 1.15 $ 241.200 $ 2.
They know the distributors.030.000 54% 46% Gross Profit Expenses Advertising/ Freight Sales Marketing Research & Developmen t Cost Of Complementary Cases Broker Fee $3.070. Howeve r because there is so few risk involved. reward is also few.000 $ 8.960.030. There are very few unknown variables.210.000 $ 150.050 12% 8% 3% 2% 1% 1% 19% Net Income $3.000 $ 640. Combined with the current $13 mi llion revenue.
.050 55% This option is by far the most conservative of the three.560. it equates to just over $19 million.000 $ 390. It presents the least amount of risk because the basis of this option is to stick with what is known.200 $ 3. The revenues from t his options is the lowest of the three options.5% 4% $ 2. This is under the objective of $20 million.000 66% $ $ $ 250.000 $ 1.Option 3 Income Statement Current Income Statement With Option 3 Revenues $6.260.1% 0% 2.750 $ 241.750 $ 241.770.318.200 0% 0% 4. This must be taken in consideration when choosing the recommenda tion. retailer s. consumers and anyone in between.578.000 100% Revenues $19. Natureview knows the natural foods channel.000 100% Cost of Goods Sold $2.000 34% Cost of Goods Sold Gross Profit Expenses Advertising/ Freight Sales Marketing Re search & Development Cost Of Complementary Cases Broker Fee Net Income $10.000 $ $ 150.
. The reason why this option was chosen was because it offered very f ew risk and had a vide variety of known variables. It is recommended that Natureview Farms chooses the t hird option. If this option i s followed with the suggested revisions. Natureview must ensure that they can increase the expected revenues by $1 million or more in order to meet or beat the objective of $20 million. retailers and consumers. It used the same distributo rs. This option also did not require an entire marketing strategy change. It also took advantage of the growing nature food channel and the multipack market segment. However. it is highly encouraged that Natureview Farms invest more funds in marketing the launch of children’s multipack. because this option ends up being $1 milli on short of the objective. situat ion and available options. it has the potential to increase Nature view’s success tremendously. Perhaps a more intensive concentrated promotion plan would yield $1million or more in extra revenue.Recommendation After careful review and thorough analyses of the problem.
Implementation Plan Implementation Gain full approval of recommendation from mar keting manager and financial advisor Managers meet with R&D department to discus s multipack produce qualities Managers meets with brokers and sales staff to dis cuss new product sales plan Managers meet with retailers to discuss future launc h and financial information First production of product for testing and approval Official product launch and distribution Official launce of product consumer pr omotions First product income status report Continue with plan or revise it depe nding on report End of year report Time Frame 1st week 2nd week 3rd week 3rd wee k 4th week 2nd month 6th month 12th month 18
Boston : Harvard Business Publishing . Brief Case s. 19
.Bibliography All statistical and strategically information in this report was re trieved from the following source: Fleming. 2007. Karen. "Natureview Farm".