GROUP 2 SECTION G

Background
2

Natureview Farm, a Vermont-based producer of organic yogurt with $13 million in revenues, is the leading national yogurt brand (24% market share) sold into natural foods stores. It has achieved this through its special yogurt manufacturing process and through cultivating personal relationships with dairy buyers in the natural foods channel. In 2000, the company faces financial pressure to grow revenues to $20 million by the end of 2001 from $13 million due to a planned exit by its venture capital investors.

Problem Statement
3

Natureview Farm needs to choose between 3 pricing options to increase its revenues to $20million before the end of 2001 from $13 million reported in 1999.

SWOT

SWOT Analysis
4

STRENGTHS

WEAKNESSES

Long product shelf life Reputation of high quality, taste and natural ingredients Strong relationship with nature store retailers

Small manufacture, low funds and revenue Relies on brokers that may not be adequate for supermarket channel Current marketing strategy based only on nature store channel

SWOT

SWOT Analysis
5

OPPORTUNITIES

THREATS

Organic food market expected to grow to $13.3billion in 2003 Nature store channel sales up 20% 12.5% growth in 4 oz multipack Increase in consumer interest in organic food

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

Competitor Analysis
6

DIRECT CURRENT COMPETITORS PERFORMANCE SUPERMARKE TS NATUREVIEW 24% market (natural food store) $13 million revenue Many products and flavours 33% market share

STRENGTH & WEAKNESS Longer shelf life Only in natural food stores Market leader Artificial

IMAGE PERSONALITY

PAST/ CURRENT STRATEGY Build relationships

Quality, healthy, unique

DANNON

High visibility Follow consumer Something for trends everyone

YOPLAIT

Many products and flavours 24% market share

Brand name Artificial

Caring brand

Make gains on dannon Differentiation

Section G - Group 2

Length of Channels to Market

7

Supermarket Channel Manufacturer

Natural Foods Channel Manufacturer

Distributor

Natural Foods Wholesaler

Natural Foods Distributor

Retailer

Retailer

Customer

Customer

Channels
8

Supermarket Channel

Charged lower retail price -$0.74 per cup One-time slotting fee for each SKU charged only in the first year it was introduced Requires trade promotions Involves 3 parties in the distribution channel Heavily dependent on brokers knowledge Distribution margin- 15% Retailer margin-27% Charged higher retail price - $0.88 per cup Lower price sensitivity Requires a one-time allotment of one free case of product for every new SKU authorized for distribution in its first year Involves 4 parties in the distribution channel Distribution margin- 9% Wholesaler margin- 7% Retailer margin-35% Section G - Group 2

Natural Foods stores

Channels (Cont)
9

Other Channels

Warehouse Clubs Convenience Stores Drug Stores Mass Merchandisers

Option 1 - Expand 6 SKUs of the 8 oz product line

into 1 or 2 selected supermarket channel regions
10

Pros 8 oz. cups represent largest dollar and unit share of market Supermarkets fear losing market share to natural food competitors

Cons Highest level of competitive trade promotion and marketing spend Possible channel conflict between supermarkets and natural food stores

Other natural foods brands have successfully expanded to supermarkets

First-Mover Advantage Supermarkets may only authorize one organic yoghurt manufacturer

Promotion and lower price at supermarkets may hurt the brand

Little experience in dealing with supermarket chains Balance between self presence and slotting expense

Option 2
Expand 4 SKUs of the 32 oz product line nationally
11

Pros

Cons

32-oz cups generate an above average Higher slotting fees due to national gross profit margin (43.6% versus 36% for distribution 8-oz line) Fewer competitive offerings in this size Competitive advantage due to long shelf life of product Lower promotional expenses than Option-1 National distribution will be challenging within 12 months No guarantee that customer awareness of the brand would grow Possible channel conflict between supermarkets and natural food store Promotion and lower price at supermarkets may hurt the brand

Option 3 Expand 2 SKUs of a children's

multipacks into the natural foods channel
12

Pros Naturview already has strong relationships with leading natural foods channel retailer More time to prepare the company for moving into the supermarkets Naturview Product positioning is ideal for a childrens multipack product launch Financially attracted High margin 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

Low sales and marketing expenses

Option 1- Rate 6%
13
2001 no. of units retailer's selling price 35000000 0.74 2001 37100000 0.74 2002 39326000 0.74 2003 41685560 0.74

natureview's sp
manufacturing cost per unit sales brokerage fees slotting cost sg&a advertising trade promotion manufacturing cost total cost profit npv

0.51
0.31 17850000 714000 1200000 320000 2400000 90000 10850000 15574000 2276000 $1,22,24,533.21

0.51
0.31 18921000 756840 0 320000 2400000 90000 11501000 15067840 3853160 Section G - Group 2

0.51
0.31 20056260 802250.4 0 320000 2400000 90000 12191060 15803310.4 4252949.6

0.51
0.31 21259635.6 850385.424 0 320000 2400000 90000 12922523.6 16582909.02 4676726.576

Option 2 - Rate 4%
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2001 no. of units retailer's sp 5500000 2.7 2002 57,20,000.00 2.7 2003 59,48,800.00 2.7 2004 61,86,752.00 2.7

natureview's sp
manufacturing cost per unit sales brokerage fees slotting fees SG&A advertising cost marketing expense manufacturing cost total cost profit NPV

1.84
0.99 10120000 404800 2560000 160000 1024000 480000 5445000 10073800 46200 $70,76,658.13

1.84
0.99 10524800 420992 0 160000 1024000 480000 5662800 7747792 2777008 Section G - Group 2

1.84
0.99 10945792 437831.68 0 160000 1024000 480000 5889312 7991143.68 2954648.32

1.84
0.99 11383623.68 455344.9472 0 160000 1024000 480000 6124884.48 8244229.427 3139394.253

Option 3
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2001 no of units sold retailer's sp natureview's sp manufacturing cost per unit total sales 1800000 3.35 1.84 1.15 3312000 2002 2070000 3.35 1.84 1.15 3808800 2003 2380500 3.35 1.84 1.15 4380120 2004 2737575 3.35 1.84 1.15 5037138

Recommendation Option 1
16

Option 1 & 2 achieve the incremental revenue 7 million dollars whereas Option 3 does not. For Option 1, the NPV is higher by $5.1 million than Option 2, so we recommend this option. Consequently it will provide Natureview into the new channel, secure a first movers advantage and also position itself in the 8 oz category.

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