Retail Management Case analysis

Natureview Farm

Summary

Natureview farm team, a small yogurt manufacturer faced a challenging situation whereby they had
to find a way to increase the revenue by over 50% before the end of 2001. The main agenda of the
meeting they conducted was if they should expand into the supermarket channel, as this channel
would be beneficial to meet their ultimate goal of revenue generation. Natureview’s CEO Barry
Launders demanded a plan from his team. Their target was to reach $20 million by the end of 2001.

Natureview was founded in 1989. Their product, yogurt was manufacturer at the Natureview farm
production facility in Cabot, Vermont. Key to the Natureview yogurt flavor and texture was their
recipe which was developed by their founder. They used natural ingredients and the process along
with that was what set them apart from their competitors. The average shelf life of Natureview Farm
was 50 days which was more as compared to their competitors. They first entered into the market
with 8-ounce (oz) and 32-oz cup sizes of yogurt. Flavors constituted of vanilla and plain. They had
also come up with multipack yogurt products for children (4-oz cups and tube yogurt). Natureview
had strong relationships with the top natural food retailers, Whole Foods and Wild Oats.

The consumption of Yogurt was nearby 40% of the US population. Factors that were keenly
observed by the customers while deciding the type of yogurt are package type, taste, flavor, price etc.
Mostly people preferred 6-oz and 8-oz yogurt cups.

There were three options that were proposed regarding the decision to be made between the two
channels: Supermarket and Natural food retail chains.

 Option 1: Expanding six SKUs of the 8-oz product line into some supermarket channel
regions that they selected. Eight-ounce cups are the most profitable of their product lines.
There are companies who have gone forward with this plan earlier and they have succeeded
on increasing the revenues by around 200%. They only could enjoy the first mover advantage
as their rivals have not tried out this plan.
 Option 2: Expanding four SKUs of the 32-oz product line. Reason being that even if they are
preferred by a smaller number of people, they contribute in generating an above average gross
profit margin.
 Option 3: Introducing two SKUs of children’s multipack into the natural food channels. Riley
was skeptical if they are skilled enough to succeed in the supermarkets. As they had a good
relationship with renowned natural food chains, it can be hampered by entering into the
supermarket channel.
Now they have to come into a concession of what could be beneficial for the organization.
Q1. How has Natureview succeeded in the natural foods channel?

Ans. Natureview farm succeeded because of the following reasons:

1. Break cases: in other channels, natureview was demanded to deliver cartoon of large number
of yogurt cups. Whereas, in Natural foods channel any number of cups could be ordered. This
helped in meeting the low-quantity demand od customers. Had there not been this flexibility,
the company will lose those customers who want yogurt in small quantity.
2. Relationship with retailers: it was expected that organic food market, in 2003, would grow
to $13.3 billion. The company, therefore, built strong relation with other natural food retailers
such as Whole foods and Wild oats. This relationship helped the company in its growth.
3. Market growth: the market growth in natural food channel was higher, having growth at
20%, as compared to supermarkets which had growth of only 3%.
4. Market share: in the year 1999, Natureview farm has 24% market share which was highest
of all the other competing brands.
5. Higher margin: the margin for retailers in natural foods channel is 37% as compared to 27%
in the supermarket channel. This was an incentive for the natural foods retailers to sell its
products.

Q2. What are the 2 primary growth strategies under considerations by Natureview?
Ans. - The two primary growth strategies under considerations by Natureview were –

1. Supermarket Channel – There were two options for the expansion into supermarkets. First
option was expansion of six SKUs of the 8-oz. product line into one or two selected supermarket
channels and second option was expansion of four SKUs of the 32-oz. size nationally. The
reasons that would support entering supermarkets are –
 8-ounce cups are of largest dollar value and unit share of the refrigerated yogurt is high for
these cups, hence having significant potential. Other players of this segment have successfully
positioned them into the supermarket channel. Two brands had increased revenue by 200% in
supermarket’s channel. Natureview’s competitors might enter supermarkets soon, so to have
first mover advantage Natureview should enter first.
 The 32-oz. cups produced more gross profit margin than 8-oz. cups (43.6% vs. 36.0% for 8-
oz. cups). Competition was lesser for 32-oz. line in the supermarkets channel.

2. Natural Foods Channel – Introduction of two SKUs of a children’s multi-pack into natural food
channel. The reasons that would support entering natural foods channel are -
 Natureview had strong relation with retailers from natural food channel and yogurt is
important both for revenue and profit for natural food retailers. Natureview had full
knowledge about this channel but lacked proper skillset to enter supermarkets.
  Natureview’s natural ingredients would be perfect for positioning into its core sales channel
of natural foods and their sales team were also confident enough to achieve distribution for
the two new SKUs.
 The financial aspect for this option was appealing because projected total yearly revenue for
the two multi-pack SKUs would be in approximation of 10% of the natural foods channel and
potential incremental volume would be 1.8 million.
 The natural foods channel was growing at a rate of seven times more than supermarkets. The
five-year projected CAGR of Natureview for natural foods channel is 15%.

Q3. What are the strategic advantages and risks of each option? What channel management and
conflict issues are involved?

Ans.

1. Option 1: 8-oz product line expansion through supermarket in two specific regions.
Advantages
 Provides the best possible balance between the slotting expense and the number of
products required to gain shelf visibility (6 SKUs of the best-selling products).
 Would give them a first mover advantage over its major rival as there were rumors of
them expanding to the supermarket channel but supermarkets would prefer to keep only
one organic fruit yogurt brand.
 Organic yogurt unit volume growth in supermarkets was expected to be 20% per year,
with incremental projected sales being 35,000,000 units.
 Due to the relatively shorter length of distribution network of supermarkets the product
would be available at $0.74 compared to $0.88 at the natural foods store, a pricing
change which will be welcomed by customers.
 Supermarkets had the technology to track the sales and thus target consumers more
effectively and efficiently than the natural foods channel.
Risks
 Entry into the supermarket channel would mean that they will be heavily reliable on the
brokers for their expertise and connections to negotiate deals with the top retailers.
 8-oz products required the maximum amount of trade promotions and marketing
spending, which would increase the costs to Natureview. It was estimated that it would
cost $3.04 million (1200+1200+320+200+120) per year for quarterly sales promotions
and hiring additional marketing and sales staff to manage the operations in the two
regions.
 There was high competition in this product line as they would have to compete with
Dannon, Yoplait and private label brands, the retailers would be biased towards the
private label brands as they had higher margins.
 There is a chance that the product fails, and retailer removes the product from his
merchandise leaving the company estranged.
 Because of the extensive focus on sales, the company can loose its positioning as a
premium brand.

2. Option 2: 32-oz product line expansion through supermarket nationally.

Advantages
  The margins of the 32-oz product line were better than that of the 8-oz products and
thus offered a better return on investment.
 There were fewer competitions in the 32-oz product line and since, Natureview’s
products had better shelf life they had an advantage over its competitors.
 It could raise Natureview’s brand awareness levels in consumers preferring organic
products, across the nation.
 It was estimated that they would increase the sales by 5.5 million units in a year by
expanding in 64 supermarket chains across the country.
 Promotional expense was relatively lower, only 10% ($120,000) of that in option one,
because it was promoted only twice a year.
 More effective and efficient, region wise customer targeting was possible.
 Pricing advantage compared to the natural foods channel, $2.70 as compared to $3.19
in the natural foods channel.

Risks
 Only 8 % of Natureview’s customers bought the 32-oz products, which was for multiple
usage and mostly used in recipes. So, to achieve the revenue target they would have to
bring in new customers, but the new customers will want to start with a lesser quantity
to reduce their financial risk.
 The sales team capability to start distribution across the country, in a year was also
questionable and would require hiring of experienced sales staff which would increase
the expenses and reduce profitability.
 Higher slotting expense as it was a nationwide expansion.
 If the product fails the supermarket retailers will simply not include it in their SKUs and
Natureview would have to pay the slotting fees again, incurring additional cost.

3. Option 3: Children multipacks in the natural foods channel.

Advantages
 Natureview could leverage the existing relationship with the natural food retailers to
bargain better long-term deals and reduce their costs, as Yogurt was an important
product for them as it had better margins (35% for retailers).
 The incremental sale was projected at 1.8 million units with the gross profitability of
37.6%.
 The sales and marketing expense were also lower and thus this option would yield the
maximum profitability out of the three options.
 The natural foods channel was growing seven times faster than the supermarket channel
due to the growing trend of health-conscious consumers who wanted healthy and
organic food options and would prefer a natural food channel over the supermarket.
 It would also not require any additional sales, general and administrative expenses,
because the systems were already in place.
Risks
 Threat of new entrants such as
Channel management and conflict issues

 If Natureview selects the supermarket chains they risk harming their existing
relationship with the natural foods channel, they would not be pleased with the product
being available in the supermarkets at lower rates and can resort to discontinuing
Natureview’s products in their stores and replacing them with competitor brands.
 Supermarket distributors were more demanding in the sense that they wanted a
marketing and sales plan in place and for it to be logical and backed by numbers to be
able to launch their product, this was new for Natureview and they did not have the
capability to handle the distribution to such distributors.
 Apart from this if Natureview picks the supermarket channel it risks losing its premium
positioning due to the push strategy implemented by the supermarket retailers which
would lead to lower prices and consumers drawing perceptions on the quality of the
product relative to the prices, as the prices are lower consumers might feel the quality
has declined and will switch to competitor brands instead.

Q4. What action plan should the company purse?

The Natureview should go with the first action plan, below are the reasoning for the same: -

 As mentioned in the case the north-eastern and west had the potential for the natural and organic
foods than other region’s people. They should try to focus on the top 11 northeast supermarket
retail chains and the top 9 chains of the west.
 Using sales promotion, direct marketing, personal selling to make the targeted customers aware
of the product.
 Using their strong relationship with the leading natural foods channel retailers to further extend
towards super market channels.
 Give offers, samples and coupons to attract the customers and make them aware of the product.
 Get the best shelf spaces by giving money to the retailers.
 Higher brokers and consultants to further increase the visibility and sales of the products.