Founded in 1989, Natureview Farm, Inc. is a small yogurt manufacturer. The current management team consists of, Barry Landers, CEO, Jim Wagner, CFO, Christine Walker, VP of marketing, Walter Bellini, VP of sales, Jack Gottlieb, VP of operations, and Kelly Riley, assistant marketing director. In 1997, Natureview received equity from a venture capital firm to help fund strategic investments. With proper management and necessary strategic investments, Natureview was able to grow its revenue from less than $100,000 in 1989 to $13M in 1999.
The problem the current management team is faced with now, in early 2000, is that the venture capital firm wants to cash out and Natureview needs to find another investor or position itself for acquisition. In order to do so, Natureview needs to increase its annual revenue from $13M to $20M, by the end of 2001. NaturevieWs success in the natural foods channel is as a result of its emphasis on natural ingredients and its strong reputation for high quality and great taste.
The special process and natural ingredients used by Natureview results in a unique mooth, creamy texture and an average shelf life of 50 days versus its competitors’ products that have a 30 day shelf life. Additional contributors to its success were the expansion of additional flavors and cup sizes, strong relationships with leading natural food retailers, and gorilla marketing tactics. Natureview entered the market with 8-oz. and 32-oz. cup sizes of plain and vanilla yogurt. They now offer 12 flavors in 8-oz. cup size which represents 86% of revenue, and 4 flavors in 32-oz. up size ontributing 14% of revenue. Currently, NaturevieWs products are only available in natural food chain stores, and Natureview has strong relationships with the top two, Whole Foods and Wild Oats. Chartered with the difficult task of developing a strategy to achieve $20M in revenues by the end of 2001 , the management team developed three options for consideration. The first option, recommended by Walter Bellini, is to expand into two select supermarket channel regions (eastern and western) with six SKUs of its 8-oz. roduct line. The conservative projections of sales for this option of 35 million units will result in an incremental $16. 1M of revenue (net manufacturers selling price after channels to market markup) resulting in approximately $29. 070M in annual revenues. The second option, recommended by Jack Gottlieb, is to expand four SKU’s of the 32-oz. size nationally. The projections of sales for this option of 5. 5 million units will result in an incremental $9. 240M of revenue resulting in approximately $22. 214M in annual revenues.
The third option recommended by Kelly Riley, is to xpand its presence in the natural food channel by introducing two SKU’s of a new children’s multi-pack product line, which is a six pack of 4-oz. cups. The projections of sales for this option of 1. 8 million units will result in an incremental $3. 186M of revenue resulting in approximately $16. 317M in annual revenues. In both the first and second option, expansion into the supermarket channel may cause channel conflict for Natureview and risk to its 24% of yogurt sales through the natural food channel.
Retail supermarket prices are generally 15% lower than the natural food hannel which may force NaturevieWs traditional channel to lower their prices or supermarket channel now could have longer term impact since supermarket retailers will likely authorize only one organic yogurt brand, giving the first brand to enter the channel a significant first-mover advantage. Additional advantages to the first and second option are that supermarkets sold 97% of all yogurts consumed with 46% of organic food consumers purchasing from a supermarket, compared to 29% at a natural food channel.
Additional risks of entering the supermarket channel are the ayment of one-time “slotting fees” of $10,000 per SKU per retail chain, incremental SG&A and advertising costs, heavy reliance on broker’s knowledge of promotional and merchandising requirements and a concentrated market with four leading competitors where the top two represent over 50% of the market. Specific to option one, additional advantages are the 8-oz. yogurt cups represent 74% of total category supermarket sales in US dollars growing at a rate of 3% per year. Additional advantages of option two are in 32-oz. ogurt cups the most important purchase riteria were brand, expiration date, and price, giving Natureview an advantage with its 50 day average shelf life and the average gross profit margin of 43. 6% versus 36. 0% for 8-oz. line. Advantages to option three are lack of disruption to existing relationships; the multi-pack represented 9% of category sales and is growing by more than 12. 5%, and potential to yield strongest profit contribution of all the strategies outlined. The disadvantage with option three is that the company will not hit its revenue goal.
In my opinion, the company should pursue option one, because n order to attract an investor or get acquired, the annual revenue production of $20M is required. Despite some potential channel conflict and decline in existing natural channel sales, option one would still allow them to achieve this target. Other natural food brands including Silk Soymilk and Amy’s Organic Foods have had proven success in the supermarket channel, increasing revenues 200% within two years. Natureview may experience the same success by being the first organic yogurt product in supermarket retail locations.