Natureview Farm

Natureview FarmBy : Deepanshu AggarwalIIT KANPUR

Agenda OverviewCompanyNatural/Organic market TrendsYogurt Market TrendsChallengesOption 1Option 1Option 1FinancialsRecommendations

CompanyFounded in 1989Manufaturers and marketers of refrigerated cup yogurt Differntiators: Natural ingredients Longer shelf life Reputation for high quality and great taste Key success factors: Strong brand Effective , low cost guerrilla marketing National distribution in natural foods channel Strong relationships with distributors

Natural/Organic Market Trends Organic foods market predicted to grow from $6.5 billion to $13.3 over 4 years.Gererally 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 products44% of consumers would like a wider selection of organic products in supermarkets.Supermarkets are moving toward attracting new customers by offering more organic products.

Yogurt Market TrendsConcentrated 4 competitors control over 50% shareSupermarkets = 97% of total sales (3% annual growth)Natural food stores = 3% total sales (20% annual growth)Factors in purchasing decisions: package type/size , flavour, price, freshness, ingredients, organic

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.

Option 1

Expand 6 SKUs of the 8-oz product line into one or two selected supermarket channel region

Option 2

Expand 4 SKUs of the 32-oz product line nationally

Option 3 Expand 2 SKUs of a childrens multi-pack into the natural foods channel

Financial of option 1 Sale price $0.78Retail margin$0.21Price to retail $0.57Distributor margin $0.09Price to distributor $0.48Mfc cost$0.31Gross profit NV$0.17Gross profit margin35.95%

Incremental unit sales(20% growth after year

Top line growth(increm, revenue)

Incremental production costs 20002001

35,000,000

$16,939,650

$10,850,0002002

42,000,000

$20,327,580

$13,020,0002003

50,400,000

$24,393,096

$15,624,0002004

60,480,000

$29,271,715

$18,748,8002005

72,576,000

$35,126,058

$22,498,5602006

87,091,200$42,151,269.89

$26,998,272.00Gross profitSG&A increase Trade promoAdvertisement in 2 regionSlotting fee$1,200,000$6,089,650$320,000$90,000

$2,400,000$7,307,580$640,000$90,000

$2,400,000$8,769,096$960,000$90,000

$2,400,000$10,522,915.20$1,280,000.00$90,000

$2,400,000$12,627,498.24$1,600,000$90,000

$2,400,000$15,152,997.89$1,920,000$90,000

$2,400,000Incremental cash flow

NPV$1,200,000

$27,184,767.45$3,279,650$4,319,096$5,352,498$6,752,915.20$8,537,498.24$10,742,997.8

Financials of option 2 Sales price $2.83Retail margin $0.76Price to retail $2.07Distributor margin $0.31Price to distributor $1.76MFC cost $0.99

Gross profit NV $0.77Gross profit margin 43.7%

Incremental unit sales(15% growth per year)Top line growth(increm, revenue)

Incremental production costs 20002001

5,500,000

$9,658,082

$5,445,0002002

6,325,000

$11,106,794.88

$6,261,7502003

7,273,750

$12,772,814.11

$7,201,0122004

8,364,813

$14,688,736

$8,281,1642005

9,619,534

$16,892,046

$9,523,3392006

11,062,465$42,151,269.89

$26,998,272.00Gross profitSG&A increase promo cost Advertisement in 2 regionSlotting fee$2,560,000,00$4,213,650$64,000,000$480,000,000

$160,000$4,845,044$640,000$480,000

$320,000$5,769,096$64,000$480,000

$480,000$6,422,915.20$64,000.00$480,000

$640,000$7,627,498.24$64,000$480,000

$800,000$8,152,997.89$1,920,000$90,000

$2,400,000Incremental cash flow

NPV$2,560,000

$20,044,533.32$3,509,082.50$3,981,044.88$4,547,801.61$5,223,571.85$6,024,707.62$6,970,013.72

Financial of Option 3Sales price $3.35Retail margin $1.17Price to retail $2.18Distributor margin $0.20Price to distributor $1.98Wholesaler margin $0.14Price to wholesaler $1.84MFC cost $1.15

Gross profit NV $0.69Gross profit margin 37.6 percent

Recommendation

Option 1:FinancialsOnly 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

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 promotionsSales: utilize more sophisticated technology to monitor sales trendsBrand: will remain premium through joint promotions with other premium products such as granola or organic fresh fruit Channel partner Arrangements:Lower MSRP for natural food retailers to better compete with supermarketsWork with retailer, distributer, and wholesaler to reduce costs and maintain margins Ex: case-breaking , shelf stocking, paperwork

Questions

Net marketing contribution = (sale revenue x % gross profit) marketing expenses Net marketing contribution (in thousands)200120022003200420052006Average Opt. 1$3,599.65$4,817.58$6,279.09$8,032.91$10,137.49$12,662.90$7,585.28Opt. 2$3,669.08$4,301.04$5,027.80$5,863.57$6,824.70$7,930.01$5,602.70Opt. 3$997.07$1,308.84$1,698.55$2,185.68$2,794.61$3,55.76$2,090.08

Thank you