The "Natureview Farm" case study by Karen Martinsen Fleming centers around a small Vermont-

based yogurt manufacturer, Natureview Farm, which is facing a critical decision on how to grow its
revenue by over 50% before the end of 2001. The company, known for its natural and organic yogurt
products, has built a strong brand in the natural foods channel but is now considering whether to
expand into the supermarket channel to meet its aggressive revenue target.

Key Elements of the Case

1. Company Background:

o Founded: 1989

o Product: Natural, organic yogurt

o Current Revenue (1999): $13 million

o Target Revenue (End of 2001): $20 million

o Reason for Revenue Target: The company received an equity infusion from a venture
capital firm in 1997, which now seeks to cash out. To maximize its valuation,
Natureview needs to grow its revenue significantly.

o Key Strength: Natureview's yogurt has a longer shelf life (50 days) compared to
competitors like Dannon, Yoplait, and Breyers (30 days).

2. Strategic Challenge:

o Natureview must decide whether to expand into the supermarket channel, a

significant shift from its current focus on natural food stores, to meet its $20 million
revenue target.

3. Options Available:

o Option 1: Expand into the supermarket channel with 8-ounce multipacks.

 Projected Revenue: $13 million

 Gross Margin: 25%

 Slotting Fees: $80,000 for eight SKUs

 Pros: Largest revenue potential, access to a broader customer base.

 Cons: High entry costs, risk of brand dilution, lower margins.

o Option 2: Expand into the supermarket channel with 32-ounce sizes.

 Projected Revenue: $6 million

 Gross Margin: Slightly better than Option 1

 Pros: Leverages a successful product, lower risk.

 Cons: Lower revenue potential, still faces brand dilution risks.

o Option 3: Focus on expanding within the natural foods channel.

  Projected Revenue: $5 million

 Gross Margin: 35%

 Pros: Builds on brand strength, maintains high margins, minimal risk of

brand dilution.

 Cons: Limited market size, may not meet aggressive revenue targets.

4. Market Context:

o Total U.S. Yogurt Market (1999): $1.8 billion

o Market Segmentation:

 Supermarkets: 97% of yogurt sales.

 Natural Food Stores: 3% of yogurt sales but growing at 20% per year,
compared to 3% growth in supermarkets.

o Customer Demographics: Natural foods shoppers are typically more educated, have
higher incomes, and prioritize organic and natural ingredients over price.

5. Financial Considerations:

o Slotting Fees: $10,000 per SKU per retail chain in the supermarket channel.

o Trade Promotion Costs: $8,000 per advertisement on average.

o Supermarket Margins:

 Distributor Margin: 15%

 Retailer Margin: 27%

o Natural Foods Channel Margins:

 Wholesaler Margin: 7%

 Distributor Margin: 9%

 Retailer Margin: 35%

6. Brand Considerations:

o Natureview is known for its premium, natural yogurt, and expanding into
supermarkets could dilute this brand image.

o The company has strong relationships with natural food retailers like Whole Foods
and Wild Oats, which have helped build its brand.

7. Strategic Decision:

o The decision revolves around whether to risk expanding into the supermarket
channel, which offers higher revenue potential but comes with significant risks and
costs, or to continue focusing on the natural foods channel, where the brand is
already strong but with limited growth potential.

Recommended Approach:
Given the need to reach $20 million in revenue and the various risks and benefits associated with
each option, the most balanced approach might involve pursuing Option 1 (Expanding into the
supermarket channel with 8-ounce multipacks). This option offers the highest revenue potential,
which is crucial given the venture capital firm's desire to exit. However, Natureview should mitigate
risks by:

 Selective Entry: Targeting specific supermarkets that align with Natureview's brand values
(e.g., those that emphasize organic and natural products).

 Phased Rollout: Start with a regional rollout to manage costs and monitor brand impact.

 Strong Marketing: Emphasize the natural, premium quality of Natureview’s yogurt to

maintain brand integrity.

This strategy balances the need for aggressive revenue growth with the preservation of the brand's
core values, which is essential for long-term success.

Conclusion:

In summary, the "Natureview Farm" case revolves around the strategic decision of how to grow
revenues while balancing brand integrity and financial viability. The case highlights the complexities
of channel expansion, the importance of brand positioning, and the financial implications of strategic
decisions in a competitive market. This analysis should prepare you for a detailed discussion in your
class, focusing on the strategic options, financial considerations, and the use of specific numbers
from the case to support your arguments.