Natureview is facing a rather daunting challenge ever since its inception in 1989. The farm’s attempt to maintain its profitability saw the hiring of Jim Wagner as chief financial officer whose central role was to formulate and implement strategies that would ensure continued growth in profits.
It is in this regard that Wagner’s recommendation for an equity infusion from a venture capital to help fund strategic plans sailed through the board meeting unopposed. Now, the venture capital firm wants to withdraw its cash investments from Natureview.
To counter the potentially devastating financial blow about to be dealt on Natureview, the management has limited options: to find another investor or put itself up for acquisition (Fleming, 2007). The management preferred the second option and that meant that Natureview had to increase its revenues in order to achieve the highest possible valuation.
It is in this regard that Wagner advised the management to increase the firm’s revenues from $13 million to $20 million before the end of 2001 (Fleming, 2007). The first option was not preferred because finding an alternative investor would be difficult unless the venture capital firm cashed out first (Fleming, 2007). This would leave Natureview in a critical position.
Natureview Farm is facing imminent insolvency should the venture capital firm cash out. Although Natureview has been realizing increased profits every year, the decision to enlist a venture capital firm to finance its strategic programs is likely to plunge it into financial abyss.
To avoid this problem, the management has to find ways and means of increasing its revenues so as to achieve the highest possible valuation as it prepares for takeover. Thus, a $7 million increase is required in order to put the farm firmly on track (Fleming, 2007).
This problem was brought about by the inappropriate strategies that were used to diversify Natureview’s sales. The farm’s chief financial officer blundered by outsourcing finance to fund strategic investments. Apparently, these strategic investments have not yielded enough revenues to enable the farm stand on its own feet. Instead, they have resulted into financial dependency on the venture capital firm.
Natureview Farm management is sharply divided on the marketing strategies to be implemented. The bone of contention revolves around the option of venturing into supermarkets as a way of increasing sales. Whereas the option has great potential in boosting sales, it would shake Natureview to its very core as a breach of confidence with the long-time business partners, the retailers (Fleming, 2007).
Natureview’s condition was precipitated by stiff competition from other organic food manufacturers. The natural foods market was concentrated by four top competitors: Dannon, Yoplait, Breyers and Columbo (Fleming, 2007). The four competing companies dominated a fair share of the market. This could have slowed down the rate of growth of the profits for Natureview.
Another cause for the declining sales could have been the change in consumer tastes and preferences. Among the factors considered by customers before buying yoghurt included package type, flavor, taste, and price among others (Fleming, 2007).
It was observed that 6 oz and 8 oz yoghurt cups were the most popular product sizes, followed by multipacks consisting of 4 oz cup servings (Fleming, 2007). Natureview Farm management may have failed to notice the changes in tastes and preferences of the customers and adjust accordingly.
Weather changes could also have impacted on Natureview’s sales. There are some weather patterns that do not favor the consumption of yoghurt, especially the cold seasons. During such seasons, customers would prefer hot drinks rather than have yoghurt.
Weather changes could have pushed Natureview to venture into other investments in order to raise their sales. Meeting the challenges associated with new business ventures may have had a far-reaching impact on the farm’s financial position. This must have forced the management to resort to external financing.
To compete favorably with the four top firms, Natureview should consider improving on the quality of their yoghurt products in order to make them more appealing to customers. The management could also embark on an extensive marketing campaign targeting all sections of the society. Repackaging of their brands is also another viable alternative.
Stiff competition and changes in consumer tastes and preferences played a major role in pushing Natureview into a financial dependency due to insufficient profits. Therefore, the strategic plans put in place by Wagner could not produce enough finance to cover the costs.
That is why cash out by the venture capital firm would sound a death knell for Natureview Farm. In trying to adapt to the changes in customer preferences, the farm may have encountered more expenditure, hence lessening their profit margins.
Concerning the changes in consumer tastes and preferences, Natureview should conduct regular market research to establish current trends on the market. Information gained from these studies is very crucial as it would help the manufacturers create yoghurt brands that meet the changing consumer tastes and preferences. As for weather changes, Natureview could consider expanding their production scope to include hot drinks suitable for cold weather conditions.
However, the decision to use supermarkets as outlets of the products received strong resistance from some members of the management team. This was informed by the CEO’s assertion that they should keep in mind the role played by their distribution agents, who have been the retailers (Fleming, 2007).
Some members, like Christine Walker, could not come to terms with the possible repercussions of such a move. Christine Walker wonders whether such a cause of action would result into price concessions, and worse still whether the retailers would feel betrayed and pull yoghurt products from Natureview off their shelves (Fleming, 2007).
The chief goal of the plan to bail out Natureview Farm is to raise the $20 million revenue sales needed to put the farm in a better financial position in preparation for acquisition. In addition to this, the farm needs to keep up with its competitors and formulate appropriate policies that would safeguard it from the ravages of a concentrated market. Most importantly, Natureview Farm must struggle to remain solvent.
In order to achieve these goals, three possible approaches may be considered. The first option is to expand six SKUs of the 8 oz product line into selected supermarket regions (Fleming, 2007). This is because the 8 oz yoghurt cups represent the largest dollar and unit share and thus has a significant revenue potential.
Secondly, there are other natural foods companies that have successfully expanded into supermarket channels and experienced a 200% revenue increase within the first two years (Fleming, 2007). Thirdly, Natureview would enjoy the first-mover advantage since no other natural foods farm had ventured into supermarkets.
The second approach is to expand four SKUs of the 32 oz nationally. This option is informed by three reasons. One, the 32 oz cups are currently generating an above-average gross profit margin for Natureview Farm (Fleming, 2007).
This is in spite of their representation of a smaller dollar and unit share of the yoghurt market. Two, there is less competition on the 32 oz yoghurt package. This would be further ameliorated by the fact that Natureview products have a longer shelf life than most of their competitors.
This puts Natureview at a strong competitive advantage. Lastly, it would enjoy lower promotional expenses since the 32 oz cups are promoted only twice in a year. It would lessen production costs and hence reduce dependency on external sources of finance. Reduction in operating expenses translates into increased profits.
The third approach is to introduce two SKUs of a children’s multi-pack into the natural foods channel – and discard the supermarket options (Fleming, 2007). This is informed by various reasons. First, Natureview already has strong relationships with the leading natural food retailers.
Entry into the supermarket arena would compromise this strong solid base. Yoghurt is a source of both revenue and profits to the retailers. Second, Natureview’s all-natural ingredients are a perfect base for launching the children multi-pack products.
Third, children’s multi-pack has an attractive financial potential with the projected yearly revenue for the two multi-pack SKUs approximated at 10% of the natural food dollar category sales (Fleming, 2007).
The fast rate of growth of the natural foods channel will further boost yoghurt sales. This is especially important since Natureview is already venturing into some new products, as stated earlier in this paper. Furthermore, industry market research has shown that that the projected unit growths CAGR of yoghurt in the natural foods channel is 15% (Fleming, 2007).
In general, these steps will help Natureview Farm achieve its objectives, which include staying financially afloat as well as providing quality products to its customers (Fleming, 2007). The farm will also be able to fulfill its mission of financial independence.
However, these plans are, to some extent, fraught with risks. The greatest risk is unprecedented losses occurring as a result of unexpected competition from other firms. This is because supermarkets are already stocked with alternative products from other companies.
A good example of such products is soft drinks from the coca cola company. Therefore, the expansion of six SKUs of the 8 oz cups into supermarkets should be done with a lot of care. Research needs to be conducted in order to establish the viability of this action.
The expansion of the four SKUs of the 32 oz nationally could lead into further costs that would reduce the anticipated profit margins. Natureview would need to find ways of minimizing costs in order to attain financial freedom. Extensive marketing procedures required for this move could further dent the farm’s financial outlook.
Natureview would consider liaising with nationwide distributors who also engage in marketing promotions. The fast growth of natural foods channels may be suddenly checked by unforeseen economic problems such as inflation and recession. Natureview Farm needs to develop a solid financial base, which would act as a sure back up should economic disasters strike.
Finally, the expansion of the six SKUs of the 8 oz cups would be the best option since it would rake in the highest anticipated incremental retail unit sales of $35 million (Fleming, 2007).
Fleming, K. M. (2007). Natureview Farm. Brief Cases No. 2073. Harvard: Harvard Business Publishing.