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Natureview Farm Case Study

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Information about Natureview Farm Case Study

Published on June 9, 2016

Author: RajatNagar2

Source: slideshare.net

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1. Natureview Farm

2. Agenda • Overview –Market –Nature/Organic Market trends –Yogurt Market trends –Challenges • Option 1 • Option 2 • Option 3 • Financials • Recommendation

3. Company • Founded in 1989 • Manufacturers and marketers of refrigerated cup yogurt • Differentiators –Nature Ingredients & longer shell life –Reputation for high quality & great taste

4. Continuation • Key success factors –Strong brand –Effective, low cost “guerrilla marketing” –National distribution in natural food channels –Strong relationship with distributors

5. Natural/Organic Market Trends • Organic foods market predicted to grow from $6.5 billion to $13.3 over 4 years. • Generally organic products customers tend to be more educated, earn higher incomes, be older and live in the northeast and west. • 67% of households consider price as a barrier to purchase of organic products.

6. Continuation • 44% of consumers would like a wider selection of organic products in supermarkets. • Supermarkets are moving toward attracting new customers by offering more organic products.

7. Yogurt Market Trends • Concentrated – 4 competitors control over 50% share. • Supermarkets = 97% of total sales (3% annual growth). • Natural food stores = 3% total sales (20% annual growth) • Factors in purchasing decisions: -Package type/Size, flavor, price, freshness, ingredients, organic.

8. Natureview • Challenge : identify path to grow revenues by over 50% within 23 months. • Goal : Attain highest possible valuation in order to secure new investors or position itself for acquisition.

9. Option 1 Expand 6 SKU’s of the 8-oz product line into one or two selected supermarket channel region. Pros:  8-oz cups represent largest dollar and unit share of market  Supermarkets fear losing market share to natural food competitors  Other natural food brands have successfully expanded to supermarkets Cons:  Highest level of competitive trade promotion and marketing spend  Possible channel conflict between supermarkets and natural food stores  Promotion and lower price at supermarkets may hurt the brand

10. Option 2 Expand 4 SKU’s of the 32-oz product line nationally. Pros:  32-oz cups generate an above- average gross profit margin (43.6% vs 36% for 8-oz line)  Fewer competitive offerings in this size  Competitive advantage due to long shelf life of product  Lower promotional expenses than option 1 Cons:  Higher slotting fees due to national distribution  National distribution will be challenging within 12 month  No guarantee that customer awareness of the brand would grow  Promotion and lower price at supermarkets may hurt the brand

11. Option 3 Expand 2 SKU’s of a children’s multi-pack into naturals food channel Pros:  Natureview already has strong relationships with leading natural foods channel retailers  More time to prepare the company for moving into supermarkets  Financially-attractive  High margins- 37.6% Cons:  Fast growth of natural foods channel will lead to demands equal to those of supermarkets  Miss opportunity to enter supermarkets before competitors

12. Financials of Option 1 Sale price $0.78 Retail margin $0.21 Price to retail $0.57 Distributor margin $0.09 Price to distributor $0.48 Mfc cost $0.31 Gross profit NV $0.17

13. Incremental unit sales(20% growth after year Top line growth(increm, revenue) Incremental production costs 2000 2001 35,000,00 0 $16,939,6 50 $10,850,0 00 2002 42,000,0 00 $20,327, 580 $13,020, 000 2003 50,400,00 0 $24,393,0 96 $15,624,0 00 2004 60,480,0 00 $29,271, 715 $18,748, 800 2005 72,576,0 00 $35,126, 058 $22,498, 560 2006 87,091, 200 $42,15 1,269.8 9 $26,99 8,272.0 0 Gross profit SG&A increase Trade promo Advertisement in 2 region Slotting fee $1,200,0 00 $6,089,65 0 $320,000 $90,000 $2,400,00 0 $7,307,5 80 $640,000 $90,000 $2,400,0 00 $8,769,09 6 $960,000 $90,000 $2,400,00 0 $10,522, 915.20 $1,280,0 00.00 $90,000 $2,400,0 00 $12,627, 498.24 $1,600,0 00 $90,000 $2,400,0 00 $15,15 2,997.8 9 $1,920, 000 $90,00 0 $2,400, 000 Incremental cash flow NPV $1,200,0 00 $27,184, 767.45 $3,279,65 0 $4,319,0 96 $5,352,49 8 $6,752,9 15.20 $8,537,4 98.24 $10,74 2,997.8

14. Financials of Option 2 Sale price $2.83 Retail margin $0.76 Price to retail $2.07 Distributor margin $0.31 Price to distributor $1.76 Mfc cost $0.99 Gross profit NV $0.77

15. Incremental unit sales(15% growth per year) Top line growth(increm, revenue) Incremental production costs 2000 2001 5,500,000 $9,658,08 2 $5,445,00 0 2002 6,325,000 $11,106,7 94.88 $6,261,75 0 2003 7,273,750 $12,772,8 14.11 $7,201,01 2 2004 8,364,81 3 $14,688, 736 $8,281,1 64 2005 9,619,53 4 $16,892, 046 $9,523,3 39 2006 11,062, 465 $42,151 ,269.89 $26,998 ,272.00 Gross profit SG&A increase promo cost Advertisement in 2 region Slotting fee $2,560,0 00,00 $4,213,65 0 $64,000,0 00 $480,000, 000 $160,000 $4,845,04 4 $640,000 $480,000 $320,000 $5,769,09 6 $64,000 $480,000 $480,000 $6,422,9 15.20 $64,000. 00 $480,000 $640,000 $7,627,4 98.24 $64,000 $480,000 $800,000 $8,152, 997.89 $1,920, 000 $90,000 $2,400, 000 Incremental cash flow NPV $2,560,0 00 $20,044, 533.32 $3,509,08 2.50 $3,981,04 4.88 $4,547,80 1.61 $5,223,5 71.85 $6,024,7 07.62 $6,970, 013.72

16. Financials of Option 3 Sale price $3.35 Retail margin $1.17 Price to retail $2.18 Distributor margin $0.20 Price to distributor $1.98 Mfc cost $1.15 Gross profit NV $0.69

17. Recommendations Option 1 • Financials • Only a regional distribution instead of national which should make it easier to implement • Competitors are going to move into the supermarket space and we may miss a huge opportunity by not taking the risk • Higher slotting fees, but more visibility of the product

18. Recommended Adjustments What action plan should the company pursue? • Marketing mix: 8-oz, $0.78, located in-store with other major yogurt manufactures, in- store promotions • Sales: utilize more sophisticated technology to monitor sales trends • Brand: will remain premium through joint promotions with other premium products such as granola or organic fresh fruit

19. Continuation • Channel partner Arrangements:  Lower MSRP for natural food retailers to better compete with supermarkets  Work with retailer, distributer, and wholesaler to reduce costs and maintain margins  Ex: case-breaking, shelf stocking, paperwork

20. Net Marketing contribution= (Sales revenue * % gross profit) – Marketing expenses Net Marketing contribution (in thousands) 2001 2002 2003 2004 2005 2006 Averag e Opt. 1 $3,599. 65 $4,817. 58 $6,279. 09 $8,032. 91 $10,137 .49 $12,662 .90 $7,585. 28 Opt. 2 $3,669. 08 $4,301. 04 $5,027. 80 $5,863. 57 $6,824. 70 $7,930. 01 $5,602. 70 Opt. 3 $997.07 $1,308. 84 $1,698. 55 $2,185. 68 $2,794. 61 $3,55.7 6 $2,090. 08

21. DISCLAIMER Thank You for your time!! -Created by Rajat Nagar, IIT Kanpur, during a marketing Internship by Prof. Sameer Mathur, IIM Lucknow.

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