Business Objective and Market Analysis
The business objective for Natureview is to reach $20 million in revenue by the end of 2001. To achieve this goal, we need to critically assess the placement of Natureview in the two dominant distribution channels to date. Supermarket
Currently, 97% of all yogurt consumed is distributed through supermarkets , representing a large consumer base and revenue generation opportunities. Research shows that 46% of organic food consumers purchase organic products at a supermarket . As consumers are increasingly interested in purchasing organic foods, supermarket chains will continue to look for ways to offer more organic products to avoid losing market share to other retail channels. Industry experts predict that supermarkets will grow their unit volume of organic yogurt by 20% per year from 2001 to 2006 . Furthermore, 44% of consumers identified a need to expand current selection of organic products in supermarkets . This data indicates a great untapped opportunity for organic yogurt manufacturers – whoever can be the first to enter the supermarket channel will be able enjoy a first-mover advantage and address the unmet needs of consumers.
However, there are some downsides to the supermarket channel. First, yogurt sales in supermarket are currently dominated by a few key players, namely Dannon (33% share) and Yoplait (24% share). Additionally, category growth for 8 oz. and 32 oz. yogurt in 1999 was modest – 3% and 2% respectively5. There have also been rumors that other natural food competitors are considering selling their products in supermarkets, making it essential to enter this market first, if so desired, as supermarkets would likely authorize only one organic yogurt brand. Second, success in the supermarket channel requires small manufacturers to depend heavily on its broker’s knowledge and relationships. Third, supermarkets charge a one-time slotting fee of $10,000 per SKU, per retail chain in the first year, thereby increasing the entrance cost. Manufacturers also risk paying this slotting fee again if the product is removed from the shelf and put back on in the future. Finally, the average retail price point for 8 oz. and 32 oz. yogurts in supermarkets is about 18% lower than that in natural food stores, thus reducing the profit margin. Natural Food Stores
Currently, Natureview is the market leader (24% share) of organic yogurt sold in the natural foods channel, followed by Horizon Organic and Brown Cow (19% and 15% respectively). As the organic food market is expected to grow rapidly from $6.5 billion in 1999 to $13.3 billion in 2003 , there is a huge revenue generation potential for organic food manufacturers. In the yogurt category, natural food stores grew at 20% per year whereas supermarkets grew modestly at 3% per year over the last five years . Furthermore, the profit margin per unit of yogurt sold in natural food stores is higher than supermarkets as shoppers at natural food chains are typically less price sensitive to the higher retail price for the products.
Although natural foods channel is growing almost seven times faster than supermarket channel, natural food stores still represent a smaller consumer base as compared to supermarket chains as only 29% of organic food consumers currently purchase organic products at natural food chains . Investment Considerations
In determining Natureview’s direction, our primary decision factor is to ensure the $20 million in sales revenue goal is attainable. This must come from a combination of organic and external growth opportunities. Once the $20 million sales revenue goal has been met, Natureview should focus on secondary factors such as long term profits, margins, and startup costs.
We have several benefits on our side. First, organic growth is predicted to be very high within the existing natural foods channels. Yogurt sales through natural food stores have grown 20% per year, almost seven times the...
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