Natureview Farm

Natureview Farm is the brand name organic yogurt company that began manufacturing in 1989. Currently it is the leading natural yogurt brand in the market because its sales make up 24% of the natural foods channel. Natureview has been successful for a few reasons. Firstly, Natureview uses milk from cows that are not treated with rGBH (artificial growth hormone that increases milk production). Because of this difference along with production techniques, Natureview is able to create a yogurt with the shelf life of 50 days. This is 20 days longer than their larger competitors. Also, due to the longer shelf life they are able to have fewer production plants allowing them to save on cost.
Secondly, because Natureviews emphasis is on natural
ingredients they have built a strong reputation for high quality and great taste. Natureview also used “Guerilla Marketing” or innovative unconventional, and low cost ways to get their brand name to natural food stores like Whole foods and Wild Oats. This has allowed them to build strong relationships with natural food channels and increase their revenues from $100,000 to $13 million over the past 10 years.
Finally, Natureview has been able to cover all segments of the market. For example, they offer a 32oz size package for the heavy user (8% of the market with 2% growth), 8oz package for the users who primarily are looking for a healthy snack or lunch alternative (74% of the market with 3% growth), and the 4oz and 2oz packages that target children and parents who wanted a healthy (less messy) snack for their children (9% of the market with 12.5% growth).
Natureview is faced with a difficult decision. They need to grow their revenue to $20 million by the end of 2001. They have three options which all offer great benefits as well as risks.
Option 1 is to choose six of the top selling yogurts from their brand and integrate the 8oz line into the traditional supermarket channel in one or two channel regions. The benefits to this option would be that the 8oz line represents the largest dollar and market share amount, allowing for potential growth in revenue. Also Natureview has looked at competitors like Silk soymilk and Amy’s organic foods that successfully expanded their distribution to include supermarkets and both increased their sales by 200% in two years. Finally, it is rumored that other natural food competitors are soon going to be expanding into the supermarket channel. Therefore, if Natureview was the first mover then they would have an advantage. Although all the above ideas are benefits there however risks and costs involved in option 1. For example, it is estimated that Natureview will have to invest around 1.2 million dollars a year per region in advertising. Also their sales, general and administrative expenses (SG&A) would increase by about $320,000. Although option 1 expects large growth it is also dependent on their brokers to use existing relationships with supermarkets in the target regions in order for their product to even be accepted.
The second option also involves infiltration into the supermarket channels but instead of using the 8 oz line they would offer the 32oz line.
The benefit of this option is the fact that many of Natureviews competitors do not offer the 32oz option. Because Natureview has a longer shelf life it believes it can sell about 5.5 million units in 64 supermarket retail chains across the USA. Also because their distribution would be across a larger number of retailers, total marketing fees would equal $120,000 a year per region which is 10% of option 1’s marketing costs. Yet, Natureview is concerned that it will be difficult to enter a new market with a multi-use size. Also Natureview believes that in order to reach the number of supermarkets intended it would need to increase it SG&A by
$160,000.
Finally, the last option would not look at integrating the supermarket channel.
It would look at introducing 2 children’s multi-pack products to the current channel. Natureview believes that this would be beneficial because it already has a strong relationship with the leading natural food channel retailers. They believe that entering the supermarket channel may harm these relationships. Also natural food channels are growing 7 times as fast as the supermarket channels are and Natureview is developing several new products that can boost their sales in this thriving channel. The financial potential for the 2 multi-pack children’s packages are believed to grow the gross profitability of the line to 37.6%. Also the marketing and sales expenses are much lower at about $250,000. Finally, the current functions and resources of Natureview were able to create the multi-pack products without any SG&A costs. However, Natureview is not convinced that the deciding factor should be the loss of potential relationships with current natural food channels. They believe that they can manage the channel conflicts even thought they are unsure if their distribution and marketing departments could handle the demands the supermarket channel would create upon staffing and
resources.
Upon the review of the 2 options, I believe that Natureview should pursue the 3rd option because it allows them to thrive while continuing to keep their vision. Natureviews CEO is looking for a resolution that keeps their customers, distributors, and suppliers pleased while increasing their revenue by 7 million. I feel option 3 meets both these criteria. If Natureview pursues option 3 then it will be able to keep its current relationships intact while also growing its revenue. Also option 3 is less risky than options 1 and 2 because it involves using the same channels that they already have a relationship with. It allows for Natureview to use money towards the creation of their multi-pack children’s package and less towards SG&A and marketing. Rather than trying to promote new products into a new market, Natureview can concentrate on increasing their shelf space within the current natural food stores they supply. The new children’s multi-pack is projected to increase gross profit by 37.6%. Option 3 also allows the company to manage for the insecurities the company has around its ability to meet the distribution and cost demands that come along with supplying to supermarket channels. Finally, I believe that because the natural food markets are growing at a rate 7 times faster than supermarkets then Natureview will not only see a short term return but also a long term one as well.