Distribution Case Study

Division A - Group VIII

Shalini Ghosh B013
Karan Gulati B016
Shalyn Mardolkar B037
Pooja Motwani B042
Himanshu Sethi B054
Anirav Bhargava H007
How has Nature view succeeded in the natural foods channel?

Better Growth Rate

• In previous 5 years, yogurt sales through supermarkets had grown an average of 3% per year, while sales
through natural food stores had grown 20% per year.

Quality and Taste

• The brand grew to national distribution due to its emphasis on natural ingredients and its strong
reputation for high quality and taste
Natural and Organic Foods
• Growing awareness amongst consumers and Nature view’s unique health promoting qualities were
more important than price
• It also enabled natural food retailers to charge more
Cost and Margins
• Low-cost and creative ”guerrilla marketing” tactics aided growth via natural channels
• Margins were 7%, 9%, and 35% for wholesalers, distributors and retailers respectively

Distribution Channel
• Intermediaries in the channel would break cases to order fewer items than a full case
• Distributor delivered the products to individual stores, stocked shelves, and also completed the paperwork
• Natural food retailers didn’t charge slotting fee but a one-time allotment of free case of product for every SKU
authorised for distribution in its first year
What are the two primary types of growth strategies under consideration by Nature view?
Growth Objective – Increase revenue to $20million by 2001

Product/SKU Expansion Channel Expansion

Market Penetration Strategy Market Expansion Strategy

• Only focus on existing distributor – natural • Focus on entering new distribution channel -
food retail chains supermarkets
. • Focus on SKU expansion . • Also create SKU’s and streamline flavours

• There is no channel conflict and higher • Considerable increase in reach to new segment –
margins are observed, less trade promotions 46% buy food from natural
. • Is currently market leader in the natural food . • Will get first mover Natural Yogurt in supermarkets

• Will lose out on first movers advantage • Very high Slotting fees for each SKU
• Limited reach to the customer • Only one organic yogurt allowed – Horizon Organic
. . • High Potential for Channel conflict - Pricing
 How do the three options compare financially in terms of yearly revenue, gross margin,
required investment, and profit potential?

Option 1 Option 2 Option 3

Year Year Year

Option 1 Option 2 Option 3
2000 2001 2000 2001 2000 2001
Selling Price 0.46 0.46 Selling Price 1.67 1.67 Selling Price 1.84 1.84
Units sold 35000000 42000000 Units sold 5500000 5500000 Units sold 1800000 2070000
Revenue (A) 16100000 19320000 Revenue (A) 9185000 9185000 Revenue (A) 3312000 3808800
Cost Price 0.31 0.31 Cost Price 0.99 0.99 Cost Price 1.15 1.15
COGS (B) 10850000 13020000 COGS (B) 5445000 5445000 COGS (B) 2070000 2380500
Gross Profit (A-B = C) 5250000 6300000 Gross Profit (A-B = C) 3740000 3740000 Gross Profit (A-B = C) 1242000 1428300
Expenses Expenses Expenses
Slotting Expenses 1200000 Slotting Expenses 2560000 Advertising Expenses @1.2 mil per
Advertising Expenses @1.2 mil per Advertising Expenses @1.2 region per year
region per year 2400000 2400000 mil per region per year 480000 480000 Marketing expenses 250000 250000
SG&A 320000 640000 SG&A 160000 320000 Complimentary cases expense@
Brokers Fee @4% sales 644000 772800 Brokers Fee @4% sales 367400 367400 2.5% of sales 82800 95220
Total Expenses (D) 4564000 3812800 Total Expenses (D) 3567400 1167400 Total Expenses 332800 345220
Net Profit (C-D) 686000 2487200 Net Profit (C-D) 172600 2572600 Net Profit 909200 1083080
Profit Margin 4% 13% Profit Margin 2% 28% Profit Margin 27% 28%
What are the strategic advantages and risks of each option? What channel management
and conflict issues are involved?

Option I : Expand 6 SKUs of 8-oz • Supermarket retailers would likely authorize only one organic yogurt brand
• Chances of higher discounts and promotions in supermarket due to channel
conflict with natural organic food stores

Advantages Risks
Consumers in North East and West Region are It has the highest level of competitive
most likely to purchase organic Yogurt trading promotion and marketing spending

8-oz cups represents the largest dollar & unit share Expenses will increase by $320,000
of the refrigerated yogurt market, providing ($200,000 for sales staff, $120,000 for
significant revenue potential marketing staff)

Potential for high growth expected Direct competition with National brands
1.5% market share after 1 year(35 million units) such as Dannon and Yoplait

Potential for high revenue with dollar share of 75%

Option II : Expand four SKUs of the 32-oz. • Slotting expenses will be higher
size nationally • Hire experienced salesperson for sophisticated supermarket channel
• Ability of sales team to achieve full national distribution in 12 months

Advantages Risks
Lesser competition as 32oz pack is not the main New users may not want to purchase large
sales gainer for national players 32oz quantity of product

Lower on average trade promotion expense and Low Dollar share of 32 oz cups and high
Higher profit margin for 32oz versus 8oz sales force expansion cost$160,000

The management team assumed to sell The objective of pursuing full national
approximately 5.5 million incremental unit in the distribution within 12 months is difficult to
first year. achieve
Option III : Introduce two SKUs of a • Enhancement of channel partnership
children’s multi-pack into the • Hire experienced salesperson for sophisticated supermarket channel
natural foods channel

Advantages Risks
Natural foods channel is growing faster than R&D and operation would need to develop
supermarkets and this can be leveraged the multipack product which will be high cost

Natureview Farm’s all-natural ingredients would There is low revenue as compared to the
provide the perfect positioning from which to launch other options
its own multi pack product offering into their core Customer demand is variable
channels
Can use current relationships within nature foods Will lose first mover advantage in
channel supermarkets
What action plan should the company pursue?

Comparison Option 1 Option 2 Option 3

Gross Profit 31060000 27850000 19934500
Gross Margin 38% 41% 38%

Our recommendation: Option 1

Reach : Expanding 6 SKUs of 8 oz with a projected Gross Profit of $31060000 is beyond the target revenue of
$20000000 by the end of 2021

Demand : 8 oz SKU has the highest demand

Advantage : First mover advantage since first natural product to enter supermarket and In a supermarket-
enhanced exposure it will have an edge due to increasing number of customers

Risks : Bit risky but potential of revenue generation in the long term is high since two of its competitors- Silk
Soymilk and Amy’s Organic Foods had increased revenues by over 200% within two years of entering into
supermarkets
What changes in the current marketing mix, sales, brand, and channel partner arrangements
do you recommend in order to implement the action plan?

Product Price
8 oz yogurt cups $0.78 per cup

Marketing Mix

Place Promotion
In-store promotions, preferably joint
Presence in supermarkets in
promotions
North-east and West
Focus on multiple communicating
regions among competitors
strategies to fit the image of targeted
customers at supermarkets
 Channel Partner Arrangements
• Provide products at lower cost to
natural food retailers to better
compete with supermarkets
• Work with retailers, distributors and
wholesaler to reduce costs and
maintain margins.
• Make deals with retailers to get
better shelfs, sampling, coupons to
make consumers aware
• Improve expertise in respect to
brokers and salespeople
Sales
Analyse the sales by better
developed technology for
data that can be used for
forecasting demand.
Brand
Position itself the same as
the premium products
Thank you!