The Issues Faced by Natureview Farm

Topics: Revenue, Supermarket, Generally Accepted Accounting Principles Pages: 7 (1002 words) Published: April 2, 2014

Natureview Farm
Analyze the Case

Natureview Farm manufactures and markets refrigerated cup yogurt. Unlike most yogurts on the market, the company specializes in organic yogurt. The company uses natural ingredients without adding the artificial thickeners that are used by most yogurt brands. Furthermore, they use milk from cows that were not treated with rGBH, which increased the average shelf life to 50 days. All of these allowed Natureview Farm to succeed in the natural foods channel. Due to these natural ingredients, along with a strong reputation, the Natureview brand quickly grew in the natural foods channel. Furthermore, this growth was aided by their “guerilla marketing” technique, which was creative but low in cost.

Define the Issues

The company is currently facing the issue of determining the best way to increase profits to $20 million by the end of 2001. Natureview Farm is currently debating between three options expand 6 SKUs of the 8 ounce size into eastern and western supermarket regions, expand 4 SKUs of the 32 ounce size nationally into supermarket channel, and introduce 2 children’s multipacks into natural foods channel. Each of these options comes with their own risks and benefits (See Appendix 1). Therefore, the company is currently debating between two main growth strategies, product development and market development (See Appendix 2). Also, it is imperative for the company that while achieving this top line growth, they also keep in mind their customers, suppliers, and distribution partners in making this decision.

Analysis

The increased revenue growth of $7 million is a bold attempt for any company, let alone trying to achieve this growth within a year. The first step in the analysis was to determine the total amount of costs associated with each option (See Appendix 3). After this step, we the total revenue and total profit was calculated (See Appendix 4). From this analysis it is evident that option three will not generate enough revenue to meet the desired $20 million. Therefore our options become limited to options one and two. Although we can see that option one generates the most revenue, the costs are extremely high, and therefore very risky. Due to this, the profit potential for option one and two become very close. The last financial analysis implemented was a pro forma analysis, looking at the projected growth of each of the options (See Appendix 5). As we can see with the expected growth of 12.5% option three will be the best option in the future, but it does not meet the time constraint the company is currently facing.

Finally, an analysis needs to be done to discover what is the best option for the company to not harm the relations it has currently built with their stakeholders. From the research done in the paper The Benefits of Governing with a Trust-Centric Strategy, loss of trust can have a negative impact on brand preference (39%) and purchases (53%). Therefore, it is imperative to keep the trust that has been built between various stakeholders. When analyzing the options from this perspective, the best choice would be option three, since Natureview Farm already has strong relationships with leading natural foods channel retailers. Furthermore, entering into the supermarket channel may affect the relationships they currently have.

Recommendation

Through the entire analysis, it becomes evident that the best option for the company to pursue is option two. It generates enough revenue to reach the $20 million goal, with much less risk. There is a lower upfront investment, and there are also fewer competitive offerings in this size. Furthermore, with the product being at a 32 ounce size, the longer shelf life becomes much more attractive. There is also a lesser chance of harming relationships that have already been established between Natureview Farm and natural food retailers. The product would only be offered in the 32 ounce size...
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