Natureview Farm, Inc. is a small yogurt manufacturer established in Cabot, Vermont, in 1989. The company’s founder developed a family recipe of yogurt made of natural ingredients, and Natureview began manufacturing refrigerated cup yogurt without adding any artificial components. The average shelf life of Natureview Farm’s yogurt is 50 days, while its competitors’ yogurts have only a 30-day shelf life. In 2000, Natureview produced twelve flavors in 8-oz. cups, equal to 86% of its revenues, and four yogurt flavors in 32-oz. cups, which is 14% of revenues. The company has earned $13 million by this time, while ten years ago, its revenue was $100,000. Natureview Farm settled strong connections with such huge natural food vendors as Whole Foods and Wild Oats.
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Natureview Farm aims to grow its incomes to $20 million by the end of 2001. The issues to be addressed are: a venture capital (VC) firm needs to profit from its investments in the company, and Netureview has to find a way to increase its revenues by 50% by the end of 2001. The question arises: should Natureview Farm expand into a supermarket chain or not?
Successes of the Natureview Farm
From a marketing perspective, Natureview Farm succeeded in the natural foods channel, using sales brokers who distributed its yogurt to the natural food stores. The paper will discuss the main secrets of its success further. Natureview Farm produces only natural yogurt and does not add artificial flavors to its products like other manufacturers do. In addition, yogurt prices are affordable according to the natural foods channel. Its low-cost “guerilla marketing” helped promote Natureview yogurts and allowed it to grow to national distribution. The company attained a positive reputation with its high-quality and tasteful yogurts. Introducing a new product – “fruit on the bottom yogurt” – helped increase Natureview Farm’s revenues. The longer shelf life of its yogurts is another advantage over the competitors. All these aspects made Natureview succeed in the natural foods channel.
The role of the company’s staff should not be underestimated when talking about its success. The vice president of marketing, Christine Walker, conducted a meeting and considered three different options for the company’s growth plan. She summarized the main points of each of the proposed projects and identified their strengths and weaknesses. The company’s chief financial officer, Jim Wagner, had established financial controls that helped the company achieve steady profitability. The work of these and other staff members and the high-quality products and strong reputation allowed Natureview Farm to achieve success in the natural foods channel.
Strategic Advantages and Risks of the Three Options Presented
The first option is to enlarge six stock-keeping units (SKUs) of the 8-oz. product line in the West and Northeast supermarket regions. Its main advantage is that it seems to earn the highest revenue and profit. At the same time, if Natureview Farm enters the supermarket distribution channel, it will need to make changes in its current operations. The launch expenditures and the promotion expenditures will increase significantly, whereas supermarket yogurt sales will only grow by about 3%. Horizontal channel conflicts will also occur because supermarkets usually sell the same products for lower prices. Supermarkets will gain more power because of their ability to drive higher sales, and the company will need to readjust its prices accordingly. All these risks should be considered when deciding on the best option.
The second option focuses on the expansion of four SKUs of the 32-oz. product line nationally. This option has a high revenue too, but its profits will be lower. As in the previous case, the company will enter the supermarket channel with all the risks mentioned above, which means that the supermarkets will gain more power and negatively influence Natureview Farm’s price policies. The marketing expenses will be only 10% of those projected for the 8-oz. size in every region, representing $120,000 per year. At the same time, the risk exists that the new users will not be ready to use a new multi-use size. Besides, it is not easy to attain full national distribution in one year. The company will need to employ sales professionals and develop contacts with supermarket dealers. Thus, the second option will increase sales, general, and administrative (SG&A) expenses by $160,000.
The last option will present two SKUs of a children multipack into the natural foods field. The advantages of this option are an attractive financial potential and the strongest profit contribution. Since the natural foods channel is growing seven times faster than supermarkets, it will succeed if the company develops some new products for this field. However, one can identify this option with several risks. Natural foods channel will start making demands like those the marketing director Riley feared from the supermarkets. Moreover, this option will not help the company achieve its objective in one year.
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Which Option to Choose?
Having reviewed all pros and cons of the three options, one can conclude that the first option is the best one for Natureview Farm’s growth. This option allows reaching the target objective of the revenue and go beyond because 8-oz. size yogurt is in highest request on the market. The supermarkets will increase the number and variety of customers. As a natural yogurt manufacturer, the company will take the lead in this field to enter supermarkets. Although this option has some risks, in the long-term view, it will generate the highest revenue.