Nature View free essay sample

SUMMARY: Natureview Farm,a Vermont-based producer of organic yogurt with a $13 million revenue ,is the leading yogurt brand sold in natural food stores and has a 24% market share. it has achieved this through its special yogurt manufacturing process and a good rapport with the dairy buyers in the natural foods channel. As of the year 2000, the company faces a financial pressure to increase its sales to $20 million by the end of 2001 due to a planned exit by its venture capital investors . Natureview’s Vice-President of Marketing, Mrs. Christine Walker, faces the immediate decision of whether or not to try and achieve this revenue growth by venturing into the supermarket. PROBLEM STATEMENT: To assess whether NatureView should venture into the supermarket, to achieve the revenue target of $20 million. DISCUSSION OF ALTERNATIVES: OPTION 1: Expansion of 6 SKU’S of the 8-oz. product line into one or two selected supermarket channel regions. Scenario where two regions (North East and West) have been selected: ANTICIPATED REVENUE FOR THE YEAR 2001 19992000 REVENUE1300000035000000*. We will write a custom essay sample on Nature View or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page 74=25900000 COST OF GOODS SOLD (63% OF REVENUE)819000016317000 GROSS PROFIT48100009583000 EXPENSES ADMIN22100004410000 SALES1560000 MARKETING390000390000 R D390000390000 AD IN TWO REGIONS2400000 SKU COSTS (60000*20)1200000 TOTAL45500008790000 NET PROFIT260000 (2%)793000 (3. 06%) Here, 35000000 has been considered to be the absolute, rather than incremental sales because of the following reason. 19992000 SALES VOLUME (IN UNITS)2300000000(3 % growth) 2369000000 SHARE OF SUPERMARKET (97% OF SALES VOLUME)22310000002297930000 ANITCIPATED SHARE OF NATURE VIEW (1. 5% SHARE)34468950 (approximates to 35000000 units) Although the projected revenue figures look positive, there is no definite information on the kind of impact this would have on the natural foods channels. Moreover, this might lead to the dilution of brand value due to the possible existence of two different price points of the same commodity albeit in two different channels. OPTION 2: Expansion of SKU’s of the 32-Oz. size nationally. EXPECTED REVENUE5500000*2. 70 = $14850000 COST OF GOODS SOLD 14850000*100/143. 6 = $10341225. 63 GROSS PROFIT14850000 – 10341225. 63 = $4508774. 3 ADDITIONAL EXPENSES SALES$160000 MARKETING120000*4 = $480000 SKU COSTS (40000*64)$2560000 TOTAL$3200000 NET ADDITIONAL PROFIT$1308774. 3 (11% of the revenues) Notwithstanding the net additional profit, this option is laced with many challenges. Scale required for launching this option is huge and the company doesn’t seem to be prepared to handle the sales and marketing efforts on such a large scale. Training of a new sales force, to achieve full national level distribution in 12 months could be tough. OPTION 3: Introduce 2 SKU’s of children’s multipack into the natural foods channel. Estimated Revenue on incremental sales of 1. Million units: 1800000 * 3. 35 $6197500 Cost of Goods Sold: . 100*6197500/137. 6 = $4503997. 09 Gross Profit margins: $1693502. 90 Additional expenses incurred: Cost of complimentary cases:2. 5/100 * 6197500 = $154937. 5 Marketing expenses: $250000 Profit margin: $5792562. 5 (93% of the estimated revenue) But this figure is sans the cost which would be incurred on Research and Development and on Op erations. This proves to be the most satisfying option, where the target revenue is achieved by a greater margin and without undertaking any ambitious challenges. CONCLUSION: Expansion into supermarkets might have both positive and negative repercussions. Refraining from expansion, would lead to Natureview losing out the first mover’s advantage. Supermarkets are potentially a huge market for organic yogurt, considering 97%of all yogurts were purchased through this channel and 46% of organic food consumers shop at supermarkets. There have been instances of two natural food companies entering supermarkets and increasing the revenues by more than 200%. But in the case of Nature view, current pricing inhibits 58% of consumers from buying organic products. Natureview might have to execute a competitive pricing strategy against non-organic yogurts. However, the expenses associated with it (i. e. the trade promotions and SGAs) are quite expensive. The goal is to obtain an increase in revenues by at least $7M. Costs incurred by expanding into two regions would be around $ 8. 79 million. Expansion into all the 4 regions, would result in even more. There would be a lingering fear of losing out customers, due to the dual pricing of the same products, which would come into play once the products are launched in the super market. Major part of the revenues for Natureview is being generated from 8 oz. . Hence, keeping the channel strategy the way it is, would prove a better proposition in the long run. Expansion by the means of diversifying the product range in the same channel, at present looks like the best option. Strong relationship exists between the natural food retailers, which can be fortified by introducing multi-packs as an option for consumers of the natural food retailers. This can help us to maintain the premium price band positioning, instead of resorting into a price war. Also, no major organizational restructuring would be required in this case.