Management Accounting - Natureview Farm - Swot

Background

Established in 1989, Natureview Farm (NF) is a small yogurt manufacturer which emphasizes the use of natural ingredients and a special process taken from the family yogurt recipe which produces high quality yogurt. This was the prime factor behind NF's remarkable growth in revenues from $100,000 to $13 million in a span of 10 years. Their current goal is to increase revenues to $20 million within the next two years. NF is considering expanding into the supermarket or strengthening its base in the natural foods channel.

1. Strategic Models Applied by Natureview Farm

In order to assess the strategic issues facing NF, it is important to be able to examine NF's operating environment, internal capabilities and competitiveness. This can be carried out by applying SWOT Analysis, Porter's Five Forces and Porter's Generic Strategies.

1.1 SWOT Analysis

The SWOT analysis is a strategic planning method used to analyze a company's strengths, weaknesses, opportunities and threats. It provides managers a simple way of understanding the current situation of the business. By understanding these four aspects, NF can effectively leverage its present strengths while permeating its weaknesses in order successfully benefit from prospective opportunities and taking into account future risks.

Positive Negative

Strengths

* Family yogurt recipe (emphasis on natural ingredients and a special process) gives it:

~ Strong reputation for high quality and great taste

~ Longer shelf life (50 days instead of competitor's 30 days)

* Strong operational efficiency

~ Use of creative, low-cost "guerilla marketing"

* Strong relationships with prominent natural food retailers

~ Retailers that include Whole Foods and Wild Oats ensures positive future prospects

* Holds highest market share in natural foods channel

Weaknesses

* Inadequate operational capacity

~ Unable to generate the volume requirements needed to meet consumer demand of other distribution channels

* Relatively smaller in comparison to its potential rivals in the supermarket channel

~ Limited financial capacity renders it unable to engage in regular trade promotions if it enters the supermarket channel

* Insufficient investment in advertising and research and development

~ Invests only 3% of total costs in R&D which renders NF unable to encourage product innovation

* Higher retail prices in the natural foods channel lowers overall profitability

 Heavy concentration on domestic market

 Low variety of products

 Lack of focus on advertising and R&D

 High retail prices from natural foods channel which reduces overall profit

 Increasing SG&A expenses

Opportunities

* Increasing demand from U.S households toward natural and organic food

* Growth in organic food market

~ Natural foods market expected to grow to $13.3 billion in 2003 which will benefit NF and its partners

* Advancement in technology

~ With new machineries launched in this market, production of yogurt can be more efficient

* Expand to the supermarket channel

~ Accounts for 97% of all yogurt consumed

Threats

* Robust competition from other distribution channels

~ Notable brands such as Dannon and Yoplait offer yogurt at competitive prices

* Existence of generic products

~ Most available in supermarkets and will increase price competition

~ Cost conscious consumers may opt to purchase cheaper yogurts

* Changes in economic environment

~ During recession, purchasing power of customers will lower and reduce demand for the more expensive organic products

1.2 Porter's Five Forces

Besides the SWOT Analysis which chiefly focuses on the current predicament of NF, it is important to pursue further analysis on the competition within the industry and its impact on profitability by employing the Porter's Five Forces model (Porter, 2008). By recognizing these forces, it would then be possible to develop a business strategy that will enable the company to take advantage or shield itself from these forces which will ultimately ensure