Indian River Case

Introduction

Indian River is a long-standing citrus produce and citrus juice manufacturer.  Due to current dips in the entire citrus juice market, Indian River asked our consultant team to evaluate whether or not they should proceed when an entirely new to market product that they could produce: a citrus-lite juice.

Within this case that we worked on for Indian River, we will discuss (1) their background and current market stance, (2) the major decision of going forward with the citrus-lite effort, (3) related decisions to the citrus-lite effort, (4) what techniques we use within each analysis, and (5) our final recommendations and conclusions.  

Background

History

Indian River was established by Matthew Stewart in 1929 as a citrus fruit producer.  In 1965 they began producing frozen citrus juice following the industry boom.  They are located in Florida’s Indian River County and continue to produce both citrus fruit and citrus juice today.

Market

While Indian River is a well-established producer in the industry, they are by no means a dominating giant within an $11 billion juice market.  As of 2013, the U.S. orange juice market sold 18 million gallons of concentrated orange juice nationwide and dominated the fruit juice market by taking a whopping 35% of the market.  Although a tremendous amount, the annually total of gallons sold has slowly dropped during the past eight years.

Direct Competition

Tropicana, Minute-maid, and Simply Orange dominant the market due to Pepsi Co. owning Tropicana and Coca-Cola owning both the Minute-maid and Simply Orange fruit juice product lines.

Indirect Competition

The drop in the overall orange juice market is due to other fruit juices (i.e.-pomegranate) and beverages (i.e. vitamin water, red bull) becoming popular.  Pomegranate, dragon fruit, passion fruit, and other exotic juices have gained popularity within recent years.  Those newly popular fruits in-conjunction with the high-energy drink boom (i.e., Red Bull) have taken a toll on the citrus juice market.

Introduction to Decisions

In order to maintain their competitiveness within the fruit juice market, Indian River is contemplating introducing the first ever light calorie citrus juice: “Citrus-Lite”.  They contacted our consulting team in order to lay out the consequences of accepting or rejecting their Citrus-lite effort as well as some related decisions to this situation which involve financial analysis for decisions to be made.  The final decision could be pivotal to the growth and sustained competitiveness of Indian River within the entire juice industry.

Problems and Decisions

Indian River’s primary problem and decision is to determine whether or not the company should undertake the new lite orange juice by rejecting or accepting the project.  Concerns affecting this decision include:  the potential cannibalization of the new product line, the firm’s expected inflation rate averaging 5 percent per year over the next four years, and the expected annual 2 percent cash operating cost increase. In order to successfully evaluate this decision, our consulting team estimated the project’s operating cash flows to determine the projected NPV, IRR, MIRR, and payback period.