CASE STUDY

NATURE BROS. LTD.

TABLE OF CONTENTS
1. INTRODUCTION AND BACKGROUND:.........................................................3
2. CRITICAL ANALYSIS:...................................................................................3
2.1 2004 OBJECTIVES....................................................................................4
2.2. 2005 OBJECTIVES...................................................................................6
3. FINANCIAL NEEDS AND PROJECTIONS......................................................10
4. NEW PRODUCT DEVELOPMENT................................................................10
5. PLANT AND EQUIPMENT...........................................................................10
6. RECOMMENDATION AND CONCLUSION:...................................................10
LIST OF EXHIBITS
1.
2.
3.
4.
5.

Exhibit
Exhibit
Exhibit
Exhibit
Exhibit

1
2
3
4
5

Balance Sheet 2003

2004 Sale Projection
2005 Sale Projection
2004 Pro Forma Total
2005-2008 Pro Forma Income Statement

1. INTRODUCTION AND BACKGROUND:

In this case study of Nature Bros. Ltd. A man named Dale Morris were
interested in cooking created a new seasonal salt mix. He had already
developed many herbs and spices, and had lot of knowledge about health
hazards of typical American diet. Once his mother found that she had high
blood pressure mirrors decided to create low slat seasoning mix based on
native yeast extract that could be used to replace salt in most cases. Then
this mix is used in all the recipes except the pumpkin pie everything from the
turkey and dressing to the vegetables as of time meal progressed and
unanimously in favor of his secret ingredient. He had a hard time to
convincing them it was his invention and has only 10% salt. Everyone
wanted a sample to try at home. In the next two years Morris tested his
product in friends, family and neighbors and lead to perfection. His small
kitchen turn in to a small assembly line for the production of gift wrapped
bottle of mix. In this all process he found an opportunity to sell his product
commercially to raise the funds his current operation could only support the
sales effort of the church women for a short time. To commercialize his
operation at large scale he decided to test the market. The charity sale was a
huge success (the best the women had ever experienced), and, based on
this success, Morris moved to create his own company name Nature Bros.
Ltd. and named his product as Nature Bros. Old Fashioned Seasoning. He
incorporated the company in 1995. Morris used most of his savings to
develop and register the trademarks, for packaging, and for product displays.
He researched the cost of manufacturing and bottling his product in large
quantities and concluded that he just didnt have the cash to get started.
For several years he concentrated on his career, becoming a regional vice
president of the insurance company he worked for. He continued to make
Nature Bros. Seasoning in small batches, mainly for his mother and
business associates. These users eventually enabled Morris to get financial
support for his company. To raise $65,000 to lease manufacturing equipment
and building space, he sold stock to his mother and to two other regional
vice presidents of the insurance company. For their contributions, each
became the owner of 15 percent of Nature Bros. Ltd. The process of getting
the product to the retail market began in August 2002, and the first grocery
store sales started in March 2003. These demonstrations proved as popular
as the first Thanksgiving dinner trial nearly 10 years earlier. Dale Morriss
product was a hit, and in a short time he was able to contract with food
brokerage firms to place his product in stores in a 10 state region. More
capital is needed to support the current markets and expand both markets
and products. Two new products are being developed: a salt-free version of
the original product and an MSG-based flavor enhancer that will compete
with Accent. Morris worked with a business consultant in drawing up a
business plan to describe his company, its future growth, and its capital
needs. To follow the success of previously generated efforts of Mr. Morris he

need to adopted the strategy by considering. Is it be the right decision for

this entrepreneur that lead to the success.
1. Is the capital sought appropriate for the circumstances? If more
information is needed, what is and how it could should Morris approach
be obtained.
2. What sources for this amount of capital?
3. Based on the current balance sheet [Exhibit-1], how much equity
should he give up for the investment?
2. CRITICAL ANALYSIS:
Mr. Morris planned the objective of the year 2004 and 2005 from previous
generated success. The balance sheet of 2003 is displayed in Exhibit-1.
The balance sheet of 2003 shows the current ratio of 1.88 which is a strong
position so they need to concentrate on the growth, the growth of the
company could be though the further investment the investment in the term
of equity. But a loss of $29,276.53 indicate that they need to improve the
product and sale volume.

2.1 2004 OBJECTIVES

The companys objectives for 2004 are to stabilize its existing markets and to
achieve a 5 percent market share in the category of seasoned salt, a 10
percent market share in salt substitutes, and a 5 percent market share in
MSG products. Although the original product contains less than 10 percent

salt, the company has developed a salt-free product to compete with other
such products. The sales projection of 2004 and 2005 are displayed in
Exhibit-2 and -3 respectively.

The sale projection of 2004 shows that the set objective of to capture the
market share of 5% for seasonal salt 10% for salt substitute and 5% for MSG.
In this category different state are targeted in seven markets. The companys
product is much more versatile than competitors products and have a price
advantage of 10 to 20 cents, to take the advantage of the situation they
need to have aggressive marketing campaign. In summary, 2004 will be
spent solidifying the companys present market positions. The dollar volume
for the seasoned salt category in the seven markets the company is in will
amount to $7,931,889 in 2004. Nearly 100 percent warehouse penetration
should be achieved in 2004 in these markets.
2.2. 2005 OBJECTIVES
The company interested to open eight new markets in 2005 that include Los
Angeles, Phoenix, Portland, Sacramento, Salt Lake City, San Francisco,
Seattle, and Spokane. These new markets make up 17.1 percent of grocery
store sales, in the category of seasoned salt, these markets have a dollar
volume of $15,218,886 a year. Salt substitutes sell at a volume of
$10,064,028, and the MSG category $3,285,528. With proper advertising, the
companys shares forecast in our current markets will also be realized.

The Exhibit-3 Display the 2005 sale projection

A 5 percent penetration of the seasoned salt category is a very conservative

projection considering the strong health consciousness of the West Coast.
This would result in sales of $760,943 in that category.
A 10 percent penetration is targeted in the salt-free category. Using
aggressive marketing, price advantage at retail, and better packaging, the
company will be well positioned against the lower-quality products of our

competitors. With the dollar volume of this category at $10,064,028, a

conservative estimate of our share would be $1,006,420.
In the category of MSG, a 5 percent share will be achieved. In 2005 should be
around $9,522,472, and our market share at 7.5 percent would amount to
$714,185. The dollar volume for the salt substitute category would be
$6,220,748, giving sales at 12.5 percent of $775,593. In the MSG category, a
7.5 percent market share of the $2,055,864 volume would give sales of
$154,189. The companys total sales for the existing markets in 2005 will be
in excess of $1,643,967. The totals for 2005 sales of Nature Bros. Old
Fashioned Seasoning will be $1,475,128. Nature Bros. Salt-Free volume
should be $1,784,013. The sales of Enhance, our MSG product, should be
$318,465. This will give us a total sales volume of $3,557,606 for all three
products in 2005.
Attractive packaging, aggressive marketing, high quality, and a retail price
advantage of 30 to 40 cents per unit will enable the company to realize a 5
percent market penetration. This share of the West Coast markets will
generate sales of $164,276. Total sales of all three products in these eight
new markets will be around.

The company plans to continue to solidify the markets previously established

through the use of coupons, co-op advertising, quality promotions, and wordof-mouth advertising. Market share in these original markets should increase
by another 2.5 percent in 2005.

The Exhibit-5 display the Pro Forma Income statement of Nature Bro. Ltd.
Which represent the continuous improvement in the health of business as
sales are being increased and cost of good is being improved over the time
31.36% to 30.65% from 2005 to 2008 respectively. Gross profit will improved
to 524.94% during this period and net profit improve from 22.78% to
24.09%.

3. FINANCIAL NEEDS AND PROJECTIONS

In this plan, Morris indicated a need for $100,000 equity infusion to expand
sales, increase markets, and add new products. The financial need is fulfill
through the issue of new equity offence.
4. NEW PRODUCT DEVELOPMENT
The next new product targets a different market segment but can be brought online
for about $25,000 by using our existing machinery, types of containers, and display
pieces. A highly respected broker felt that the product would be a big success. The
broker previously represented the only major producer of a similar product, Pet Inc.,
which had sales of $4.36 million in 1985. The company can achieve at least a 5
percent market share with this product in the first year. The companys product will
be at least equal in quality and offer a 17 percent price advantage to the consumer,
while still making an excellent profit.

5. PLANT AND EQUIPMENT

Currently the Nature Bros. Ltd. Is working on a leased plant with a capacity of
300,000 units a month they need an additional investment of $15,000 for an
automatic conveyer system and a big product mixer. Their main advantage is low
cost of production. The company could meet the target of $4 million sales per year.
They also need to purchase another filling machinery with capability of filling two
cans at once with over all speed of 75 cans per minutes that result in increase the
capacity from 300,000 to 720,000 units a month and a seaming machine is also
required to do so. That both would cost of $22,000 approximately. This investment
of $37,000 would lead to increase the production of 300,000 per unit to 720,000
unit per month. Now company is working in a single shift the can have the
opportunity to double the shift to double the production.

6. RECOMMENDATION AND CONCLUSION:

The new market expansion, new production development and purchase of
new plant can enhance the productivity and sales volume. That the
fulfillment of the growth of need of Nature Bros. Ltd. Although new product is
not supporting the target sale but having the potential of waste sales and
improve the position in future. Currently our offered products are old fashion
seasoning, salt free old fashion seasoning and enhancer. The company have
decided to increase the market share by having different marketing
strategies as our product are higher in quality and having a price base
advantage over the competitors product. So all of the previous efforts have
been done with advertising if aggressing advertising is started then market
position would improve over the period of growth the market expansion, new
product development and purchase of new pant is best on behalf on the
Nature Bros. Ltd. And will help to improve the market share, sale volume,

and market position in future. The successive sale in 2005 through 2008 is
proof through the Pre Formed Income that shows improvement as of 2003
balance sheet. So the Nature Bros. Ltd. Have two option either to expand or
stop the operations the decision to the problem is to grow in term of new
market expansion, new production development and purchase of new plant.