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Natureview Farm’s Dilemma i

Natureview Farm’s Dilemma

Hasan Rehman

Sadiq Ali

Khadija Jordan

AMBA 603, Section 9035

Dr. Tom L. Trittipo

February 27, 2009


Natureview Farm’s Dilemma 1

Introduction and Natureview Farm’s Problem

Founded in 1989, Natureview Farm Inc. was a small yogurt manufacturer that had

recently been facing some economic challenges. Despite its growth over the last 10 years, it had

been struggling with implementing an effective marketing strategy that could guarantee the firm

a decent amount of profitability. Fleming (2007) revealed that in 1997, Natureview Farm had

sought an “equity infusion from a venture capital (VC) firm to fund strategic investment,” and

now that the firm had grown considerably by 2000, the VC firm wanted to “cash out” the money

it had invested in Natureview Farm (p. 1). To pay out this money, Natureview Farm’s CEO

Barry Landers wanted to come up with and implement a strong marketing plan that would grow

the firm’s revenues by 50%, a jump from $13 million in 1999 to $20 million, by the end of 2001

(Fleming, 2007, pp. 1-2).

SWOT Analysis

The SWOT analysis, defined by Kotler & Keller (2009) as “the overall evaluation of a

business’s strengths, weaknesses, opportunities and threats,” of Natureview Farm is depicted in

Appendix A and is explained below:

Strengths

According to Fleming (2007), Natureview Farm’s biggest strength was its products’ shelf

life, averaging about 50 days, which was considerably higher than that of any of its competitors’,

which average around 30 days (p. 2). This strength helped the firm grow rapidly over time,

increasing its revenues from less than $100,000 to $13 million in 10 years (Fleming, 2007, p. 2).

The firm had the highest market share in the natural foods channel, owning about 24% of the
Natureview Farm’s Dilemma 2

channel, and certainly had the potential to grow further to compete the firms with higher market

shares in the supermarket channel (Fleming, 2007, p. 12).

Weaknesses

As per Fleming (2007), the biggest weakness of the firm was its inability to maintain a

consistent level of profitability (p. 1). This weakness limited the company’s revenues and cash

flow, due to which it struggled when its VC firm wanted to cash out its investment from

Natureview Farm (Fleming, 2007, p. 1). Natureview Farm had negligible market share in the

supermarket channel, which constituted about 97% of the national yogurt sales, thus making it an

infamous brand on the national level (Fleming, 2007, p. 3).

Opportunities

The current need for an aggressive marketing strategy to increase Natureview Farm’s

revenues by 50% laid out many opportunities for the firm. It was a chance for the firm to create a

stronghold in the natural foods channel and/or to aggressively enter into the supermarket channel

and make its appearance known on the national level. Because of consumer interest in organic

foods, the natural foods channel had a 20% growth in its yogurt sales per year over the last five

years (Fleming, 2007, p. 3). This meant that being a leading market shareholder the firm could

expect a proportional increase in its sales through this channel.

Threats

The market conditions and channel differences posed a substantial threat for Natureview

Farms. It was already low on cash flow since its VC firm wanted to cash out on it, and to pay

them off it only had the choice to implement an aggressive marketing strategy to increase its
Natureview Farm’s Dilemma 3

revenues. The market conditions resembled a double edged sword, since if Natureview Farm

would prefer to stay in the natural foods channel, it wouldn’t be able to increase its sales

substantially, and if it would prefer to enter the supermarket channel, it would risk the loss of its

relationship with natural foods channel that it had created as a leading market shareholder.

Industry Analysis

Natureview was a leader in the natural foods channel with 24% market share and

reporting $13 million in revenues in 1999 (Fleming, 2007, p. 2). On the whole, the natural foods

channel accounted for only 3% of national yogurt sales but the channel sales had been growing at

a rate of 20% per year in the previous five years as opposed to 3% growth of the supermarket

channel (Fleming, 2007, p. 3). The future of the organic food market (and thus of the natural

foods channel) looked bright, as it was expected to grow from $6.5 billion in 1999 to $13.3

billion in 2003 (Fleming, 2007, p. 2).

As per Fleming (2007), “46% of customers bought organic foods at a supermarket, 25%

at a small health food store and 29% at a natural foods supermarket,” and 71% of the heavy and

29% of the light organic food consumers bought organic dairy, especially yogurt (p. 3). In the

yogurt categories, the 6-oz and 8-oz yogurt categories growing at 3% per year represented 74%

of total yogurt sales, multipacks growing at 12.5% per year represented 9% and 32-oz packs

growing at 2% per year represented 8% of total yogurt sales (Fleming, 2007, pp. 3-4). Nature

produced twelve refrigerated yogurt flavors in 8-oz cup (accounting for 86% of company

revenues) and four in 32-oz cup (14% of company revenues), thus pretty much in line with the

market statistics (Fleming, 2007, p. 2).


Natureview Farm’s Dilemma 4

Alternatives’ Analysis

Potential for each option is directly commensurate with the amount of forethought,

planning and calculated risk the executive team at Natureview Farm is willing to take. This

answer then comes down to how urgent of a situation is the company actually in, or perceives

they are in, based on the fact their capital is running extremely low and acquisition is a real

possibility unless the company can significantly increase its cash flow and top line. Appendix B

contains the cost structure for the 3 types of products in the two market channels, and calculates

Natureview Farm’s margins for the products in their respective channels.

Option 1 – Expand Six 8-oz Flavors in the Supermarket Channel

The first option is the riskiest but has the largest potential payoff by far and includes

sizable investment by the company to make it happen. This option is to expand the six top

selling SKUs of their 8 oz. cup into one or two carefully selected supermarket channels in the

region. The advantages of option 1 are that as per Exhibit 2, 8 oz. yogurt cups represent the

largest dollar and unit share of the refrigerated market, providing the highest revenue potential

(Fleming, 2009, p. 10). Another advantage is that the precedent of a natural food manufacturer

moving into the supermarket arena has been set, and these companies have enjoyed revenue

boosts of over 200% within two years with the calculated risk of moving in this direction

(Fleming, 2009, p. 6). Lastly, there would be a decided first mover advantage if other organic

yogurt companies were considering this move, because most supermarkets would most likely

only carry one organic brand and Natureview could be it (Fleming, 2009, p. 7).

The disadvantages of this option are that it is a decidedly more costly plan to implement.

It would require an extensive marketing and advertising plan and a beefed up sales and broker
Natureview Farm’s Dilemma 5

team to handle the new and larger supermarket accounts. Supermarkets also require some

guaranteed trade promotions to take place which could further erode profitability if sales didn’t

pan out according to projections as well as slotting fees to even get the project considered.

Lastly, by entering into the supermarket channel Natureview does run the risk of alienating its

traditional and first relationship with the natural foods channel. This is because supermarkets

would typically sell natural food products at significantly lower prices because they do not have

to contend or deal with natural foods distributors. However, this option provides the best

potential, far and away of the other two options.

Option 2 – Expand Four 32-oz Flavors in the Supermarket Channel

The second option is to expand Natureview’s four SKUs of 32 oz. multiuse cups

nationally. The advantages of this option are that there is far less competition in the 32 oz. size so

Natureview would almost immediately stand alone in the supermarket segment. Also, the

companies’ product that would directly compete with Natureview has a much shorter shelf life,

meaning they could ship less frequently. Also, marketing and promotional expenses would be

far less with this option because the 32 oz. product was only promoted twice in their last year.

Disadvantages of this option and that the company leaders are considering is whether or

not a new/prospective consumer would jump into the product by trying a multi-use size instead

of a single serving option. Also option 2 would present much higher slotting fees because this

option has Natureview’s yogurt expanding into 64 supermarkets across the country that would

each require a fee. Also due to the massive new relationships that would need to be built and

maintained via this new channel, new and experienced sales and advertising talent would need to

be acquired to ensure this happens. Lastly, this option also includes the risk of souring
Natureview Farm’s Dilemma 6

relationships in the natural food world by introducing their product to supermarkets. Option 2

offers the second highest potential return.

Option 3 – Introduce Two Children’s Multipacks in the Natural Foods Channel

The third and last option is also the one with the lowest amount of risk, which therefore

gives the lowest potential return for implantation. This option is to create and introduce two new

SKUs of a multipack children’s yogurt to the natural foods channel as opposed to going through

supermarkets as in the other two options.

Advantages of this option are that for one, very little infrastructure would have change in

order to implement this plan. The relationships are already established in the natural foods

world, which meant no new personnel would have to be hired, the premium ingredients of the

product would mean it would fit right along with current product offerings, and lastly the natural

foods channel was still growing and yogurt sales are a big part of that. Lastly no channel conflict

would exist with this option.

The only real disadvantage, because of its low risk, is the fact that the product would

actually have to be developed from scratch, which would take time, but fortunately for the

company, no additional resources.

Recommendations

In order to prevent acquisition and basically stay in business, there is a current need for

an aggressive marketing strategy to increase Natureview Farm’s revenues by 50%. Since the

increase is so drastic and the timeframe is so short, this calls for an aggressive and perhaps more

risky plan of action. Therefore, the best option for Natureview to implement is Option 1. This
Natureview Farm’s Dilemma 7

option will yield the company the highest revenue, because 8 oz. yogurt cups represent the

largest dollar and unit share of the refrigerated market. Further, the history of natural food

manufacturers moving into the supermarket arena shows companies that have increased their

revenue by a significant percentage in a short period of time (within two years). Also,

Natureview would have the opportunity to further compete with other products as the only

organic product offered and thus further increase their revenue and marketing scope. The

disadvantages of this option, initial cost for implementation and extensive marketing, are a given

in a dire situation such as Natureview’s. However, the benefits of this option outweigh the

negatives as they would significantly cover the initial costs of implementation and marketing

expenses.

There will need to be a change made to partner arrangements for the future in order to

implement this option and keep Natureview’s profitability up. One of the reasons that the

company found itself in this mess to begin with was due to the fact that Jim Wagner suggested

and implemented an equity infusion from a venture capital firm and once that firm needed to

cash out they were left high and dry (Fleming, 2007, p. 1). One recommendation would be to

seek out funds and infusions from a number of investors, instead of just one, so that if one has to

cash out, there are additional partnership agreements to fall back on. This will prevent Naturview

from being faced with the option of having to find an additional investor in the midst of losing

revenue or position itself for acquisition. Natureview should also implement a task force whose

sole obligation is to develop innovative ways to increase revenue on an ongoing basis. That way,

new ideas, strategies and products are always in the pipeline and Natureview won’t have to wait

until they get into a dire situation to come up with options.

Conclusion
Natureview Farm’s Dilemma 8

As a conclusion, it’s pretty apparent that expanding six flavors of the 8-oz product line is

the best option for Natureview Farm, as it generates the highest revenue and the market demand

forecast is favorable for the company’s endeavors in the supermarket channel. Moreover,

Natureview is expected to receive the first mover’s advantage if it decides to pursue this option

before any other organic food companies do it. Also, the product choice for this channel is

perfect as well, as the demand for the 8-oz product line is growing at the fastest rate as compared

to other product lines, and Natureview Farm will certainly reap the benefit of making the right

choice at the right time.

Appendices
Natureview Farm’s Dilemma 9

Appendix A – SWOT Analysis for Natureview Farm

Strengths Weaknesses

 High quality product/Long shelf life  Owns Small portion of the yogurt

(50 days) market

 Rapid growth; Revenues grew from  Inconsistent level of profitability

$100K to $13M in 10 years

 natural foods channel leader

Opportunities Threats

 Natural food’s sales expected to grow  Low cash since VC firm needs to cash

by 20% out

 Chance to expand business into Super  Limited sales if prefer natural foods

Market and/or natural foods channels channel over supermarket channel

 Damage to natural foods channel

relationship if chose Super Market Channel

Appendix B – Natureview’s Cost Structure


Natureview Farm’s Dilemma 10

Supermarket Channel 8oz 32 oz Input Data Source

Retail Price $0.74 $2.70 Exhibit 3


Retail Margin 27.0% 27.0% Text - Supermarkets
Retail Purchase Price (RPP) $0.54 $1.97
Distributor Margin 15.0% 15.0% Text - Supermarkets
Distributor Purchase Price (DPP) $0.46 $1.68
Manufacturer Sales Price (MSP) 0.459 1.675
Cost Per Unit 0.31 0.99 Exhibit 3
Contribution per Unit Sold 0.149 0.685
Manufacturer Gross Margin 32.49% 40.91%

Natural Foods Channel 8oz 32oz Multipack

Exhibit
Retail Price $0.88 $3.19 $3.35 3
Retail Margin 35.0% 35.0% 35.0% Text - Nat Foods
Retail Purchase Price (RPP) $0.57 $2.07 $2.18
Natural Foods Distributor Margin 9.0% 9.0% 9.0% Text - Nat Foods
Natural Foods Distributor
Purchase Price $0.52 $1.89 $1.98
Wholesaler Margin 7.0% 7.0% 7.0% Text - Nat Foods
Wholesaler Purchase Price
(WPP) $0.48 $1.75 $1.84
Manufacturer Sales Price (MSP) 0.484 1.755 1.843
Exhibit
Cost Per Unit 0.31 0.99 1.15 3
Contribution per Unit Sold 0.174 0.765 0.693
Manufacturer Gross Margin 35.96% 43.58% 37.60%

References
Natureview Farm’s Dilemma 11

Keller, K. & Kotler, P. (2009). A Framework for Marketing Management. New Jersey: Pearson

Prentice Hall.

Fleming, K. M. (2007). "Natureview Farm," Case Studies, Harvard Business School, June 7,

2007, Cambridge, pp 1-12.