CASE STUDY

Case Study

Case Study

Analyze each of the alternative actions presented in the case. Discuss strategic advantages and risks of each alternative. What channel management and conflict issues are involved? How do three options compare financially?

Answer:

The alternative actions presented in this case that Natureview adapted were that in 1999, when sales through the dominant two distribution channels—supermarkets and natural foods stores—were combined, supermarkets sold 97% of all yogurt

consumed, and natural food stores sold the balance.

However, Natureview did not consider entry into these channels because, relative to the supermarket channel, these channels offered limited revenue generation potential; the company's product was not a strong fit for the narrow product offering afforded to consumers through these channels; and

volume requirements were prohibitive in certain channels.

Warehouse clubs, for example, required multiple unit packages, 24 cups of 8-oz. cups per carton, but Nature view did not view its brand as developed enough to generate the consumer demand necessary to meet this volume requirement. In the previous five years, yogurt sales through supermarkets had grown an average of 3% per year, while sales through natural food stores had grown 20% per year. Because consumers were increasingly interested in natural and organic foods, well-managed natural foods retailers were thriving. Yogurt was an important product in the overall dairy portfolio of natural foods retailers, since stores earned a higher margin on yogurt than on any other dairy product.

Strategic Advantages and Risks

Supermarket Channel

Large consumer products manufacturers, such as Procter & Gamble and Coca Cola, had dedicated sales forces that called directly on category buyers who ultimately controlled dairy product placement in their stores. By contrast, smaller manufacturers like Nature view Farms used sales brokers to sell their yogurt to both natural foods and supermarket chains. These influential brokers, representing several brands of consumer products, used their relationships to arrange discussions between retail chains, wholesalers, and manufacturers, in addition to performing numerous other services for manufacturers.

For these services, brokers charged manufacturers such as Natureview a fee or commission that varied from product to product. For yogurt, the broker's fee was 4% of manufacturer's sales. If Natureview Farm chose to expand into the supermarket channel, it would depend heavily on its broker's knowledge of promotional and merchandising requirements.

If the SKU did not prove profitable for the supermarket within the year, the supermarket would discontinue the product and would require a new slotting fee payment in the event the manufacturer sought reauthorization of the SKU. For refrigerated yogurt, the slotting fee averaged $10,000 per SKU per retail chain. For instance, Natureview would need to pay each supermarket chain $80,000 to introduce eight different flavors in the 8-oz. size.

Natural Foods Channel

Natural foods chains typically charged higher retail prices for the same products than supermarkets did, due to lower price sensitivity among natural foods customers as well as differences in the distribution system. Distribution in the natural foods channel involved four, instead of three, parties. A manufacturer like Natureview first shipped products to a natural foods ...