Natureview Farm is a small yogurt manufacturer with annual revenues of $13 million. It produces three different size cups – 8 oz. cup, 32 oz. and 4 oz. cup multipack. However, Natureview’s goal is to increase its annual revenue to $20 million in two years. With a solid relationship with its current, successful strategy in the natural foods channel it is considering expanding into the supermarket channel. Conversely, it does not want to hurt the company brand it has created as a premium yogurt brand in the natural foods market and betray those loyal, natural foods customers who made their business what it is today.
In the case, Natureview is considering three options to expand its operations to reach its $20 million annual goal:
- Expand six SKUs of the 8-oz. product line into one or two selected supermarkets. The reasons behind this option are:
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- Eight-ounce cups represent the largest dollar and unit share of the refrigerated yogurt market, providing significant revenue potential.
- Other natural food brands had successfully expanded their distribution into the supermarket channel. As a leading natural foods brand for yogurt, they can capitalize on the growing trend in natural and organic foods in supermarkets.
- A major Natureview competitor plans to expand into the supermarket channel. Supermarket retailers would likely only have one organic yogurt brand. Therefore, there is a first-mover advantage.
- Expand four SKUs of the 32-oz. size nationally. The reasons behind this option are:
- Currently generated an above-average gross profit margin for Natureview (43. 6% vs. 36. 0% for the 8-oz. line).
- Fewer competitive offerings in this size and Natureview had a strong competitive advantage in their product’s longer shelf life.
- Although slotting expenses would be higher, promotional expenses would be lower since the 32-oz. size was promoted only twice a year.
- Introduce two SKUs of a children’s multi-pack into natural foods channel. The reasons behind this option are:
- Company had strong relationships with leading natural food channel retailers, and expansion into supermarket channel could potentially jeopardize the relationship.
- Distribution targets were very achievable for the two SKUs.
- Gross profitability of the line would be 37. % while expenses would be lower; quite attractive. This option may even yield the strongest profit contribution of all strategies taken into consideration.
- Natural foods channel was growing seven times faster than the supermarket channel.
For each of the alternatives provided above, these are the issues that need to be encountered respectively:
- It has the highest level of competitive trading promotion and marketing spending. It would require quarterly trade promotions and a meaning marketing budget. It would also cost Natureview $1. M per region per year. Its SGA would also increase by $320,000 annually. Therefore, it would be a costly approach. Also, to achieve its target, Natureview needed to take advantage of its relationships with the top 11 supermarket retail chains in the Northeast and the top 9 chains in the West and occupy majority of the retail space.
- The difficulty was that new users would not readily “enter the brand” and adopt a multi-size product. Furthermore, to achieve full national distribution within 12 months it would be a difficult task in of itself.
- Natureview would need to hire more sales personnel who had experience selling to more sophisticated supermarket channels and establish relationships with the supermarket brokers. This would increase SGA expense costs by $160,000. To add to the complexity of the decision, a competitor was rumored to be launching a line called Bright Vista, which would directly compete with Natureview. Moreover, supermarkets were considering launching their own private-label versions of organic yogurt. Therefore, launching the 32-oz. has its issues of being less noticed in a myriad of different products available.
- Introducing the multi-packs requires R&D and Operations costs. It also conflicts with the premium brand positioning it had worked hard to establish due to supermarkets’ emphasis on sales promotions and inconsistent prices. There were also fears that Natureview’s marketing department was unprepared to handle the demands on resources and staffing that entering the supermarket channel would impose. Supermarket distributors were more demanding in logistics and technology than what Natureview was familiar with. However, it is thought that soon, natural foods channel would embark on similar demands.
After reviewing all the alternatives and its issues and benefits, I found that moving into supermarkets could have both positive and negative repercussions. Refraining to expand into supermarkets could put Natureview at a competitive disadvantage, considering there are rumors of Natureview’s competitors expanding into supermarket channels. 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. Two natural food companies have already entered supermarkets and in doing so have increased their revenues by over 200%.
Executing a first mover strategy would be crucial if this plan were to be implemented in order to gain brand equity from new consumers who are transitioning into the organic food market. Furthermore, because price inhibits 58% of consumers from buying organic products, Natureview would 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 to take in. The goal is to obtain an increase in revenues by at least $7M. Costs incurred would be at least $2. M annually just expanding into two regions. Therefore, if Natureview would expand to all four regions, they would incur $5. 2M in just marketing and SGAs. It is quite an expensive approach, especially since there is the fear that your current customers may disown your brand and look for others. You’ll be charging less per unit and you lose the distinctive brand value that’s associated with your brand, which is a premium yogurt manufacturer. Alternatively, my recommendation would be to introduce the multi-packs for children. Your current 8-oz. product is a cash cow; leave it that way.
The method to expand would be to enter a product development strategy and use the same channels for distribution. You’ve built a strong relationship with natural food retailers; continue it by product differentiating. Implement the multi-packs as an option for consumers in the natural food retailers and continue to keep the premium price brand positioning. The last thing you want to do is enter a price war; therefore, keep the same channel distribution you are using but instead, introduce new products through product differentiation.
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