Financial Analysis

Financial Analysis

Introduction

The case here deals with the yogurt manufacturing company called Natureview Farms inc. where currently their Vice president marketing and management overall are facing a problem were they have to comply by their set targets. The target which they have in mind is to increase revenue by 50% by the end of 2001. Now the case here deals with the option that whether the Natureview Farms Inc. should move into the supermarket channel in order to increase its revenues or opt for other possible options.

How has Natureview succeeded in the natural food channel?

As it can be seen in the case study, 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 Natureview 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. For each item or SKU (stock keeping unit) they carried, supermarket chains aimed to maximize sales volume and inventory turns.

Supermarkets carefully monitored sales trends, especially of new items, by region, area, and store, using sophisticated scanner technology. Their relatively streamlined distribution systems also allowed supermarkets to maintain lower prices. Suppliers to supermarkets typically sent products to a large distribution center, which in turn shipped directly to the supermarket chain's warehouse.

This facilitated efficient distribution to the individual stores. At each step, the distributor and the retailer charged a markup on products that flowed through their warehouses or stores. The typical distributor margin in this channel was 15%, and the typical retailer margin was 27%. These margins were consistent across yogurt product type. A supermarket would charge $0.74 for the same cup of yogurt priced at $0.88 in a natural foods store. In order to sell its yogurt into supermarkets, Natureview would be required to pay a one-time “slotting fee” for each SKU only in the first year it was introduced and then to participate in regular trade promotions—both uncommon practices in the natural foods channel. The supermarket retailer charged this slotting fee in order to set up a slot throughout its distribution system for the new SKU and then monitor its sales trends. 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 ...