Crown Cork & Seal in 1989
MGMG555 Competitive Strategy and Industry Structure
Instructor: Sarayuth Saengchan, Ph.D.
College of Management, Mahidol University
Trimester: 3/2013 Date: 01/02/2014
Member
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Agenda
Crown Cork & Seal in 1989 Background
Problem Statement
Recommendation
Analysis
SWOT Analysis
Five forces
Value chain
Strategy
Corporate Strategy
Business Strategy
Functional Strategy
Crown Cork & Seal in 1989
Background
Industry Structure
Crown Cork & market share
Seal Ball Corporation
Renolds Metals 5% 5%
5%
Centinental Can
13% American
National
44%
Other
28%
Five firms dominated the $12.2 billion U.S. metal can industry in 1989, with an aggregate 61% market share
Price
Pricing is very competitive.
To lower costs, managers sought long runs of standard items and
offer volume discounts.
Can industry operating margins fell from
7% to 4% between 1986-1989 because of
7%
7% increase in beverage can production
capacity between 1987-1989
15% increase in aluminum can
sheet price after guaranteed
volume prices
Increase number of the major brewers
producing containers in house
The consolidation of soft drink
bottlers throughout the decade
4%
Customers
Top U.S. Users of Containers, 1989
Coca-Cola Company
Anheuser-Busch Companies Inc.
PepsiCo Inc.
The Seagram Company, Ltd.
Distribution
Manufacturers located their plants close to customers to minimize transportation costs
The primary cost components of the metal can include
Labor
12%
RM 65 %
Transporta
tion 7.5%
Foreign markets were served by
joint ventures, foreign Beverage can producers preferred
subsidiaries, affiliates of U.S. aluminum to steel because of lighter
firms and local overseas firms. Cost weight and lower shipping costs
Manufacturing
Beverage segment used two-piece cans
: The two-piece can line with the peripheral equipment
cost about $20-25 million per line
Food and general packaging segment used three-piece cans:
The three-piece can line with the equipment cost about
$8.5-9 million per line
Most plants had 12 to 15 lines for the increased flexibility of handling more
than one type of can at once
Suppliers
In 1970, steel accounted for 88% of metal cans, but dropped to 29% in 1989
Being lighter, more consistent quality and more economical to recycle, by 1989
aluminum accounted for 99% of the beer and 94% of the soft drink metal can
The country’s three largest aluminum producers were
Compara ve Sale Performance of Major Aluminum
Suppliers, 1988 (dollars in millions)
Alcan Aluminum ALCOA Reynolds Metalsa
9,795.30
8,529.00
7,767.00 5,467.00
6,797.00 5,718.00
5,567.10 5,956.00 5,750.80
4,667.20 5,162.70
4,283.80 3,728.30
3,638.90 3,415.60
1988 1987 1986 1985 1984
The metal container industry trend
In-house
manufacture
Plastics
Glass
Soft drinks &
aluminum cans
Diversification
& consolidation
In-house
manufacture
• Producing cans for their own company use—accounted for
approximately 25% of the total can output in 1989.
• Much of the expansion in in-house manufactured cans, occurred at
plants owned by the nation’s major food producers and brewers.
• Brewers found it advantageous to invest in captive manufacture because
of high-volume, single-label production runs.
• Soft drink bottlers were also geared to low-volume, multilabel
output, which was not as economically suitable for the in-house can
manufacturing process.
Plastics
Plastics was the growth leader
in the container industry.
1980 1989
• Share 9% • Share 18%
Plastics could retain carbonation and
prevent infiltration of oxygen less than 4
months while aluminum cans held
carbonation for more than 16 months
U.S. brewers expected beer containers to
have at least a 90-day shelf-life.
Glass
Glass
Glass bottles accounted Soft drink bottlers
for only 14% of domestic preferred the metal can
soft drink sales to glass because of a
variety of logistical and
economic benefits:
faster filling speeds
lighter weight
compactness for inventory
transportation efficiency
Soft drinks &
aluminum cans
The soft drink industry of metal
cans shipped accounted for
29% in 1980
42% in 1989
Aluminum’s penetration could be
traced to several factors:
(1) weight advantage over glass and steel
(2) ease of handling
(3) a wider variety of graphics options
provided by multipack can containers
(4) consumer preference
Aluminum’s growth was also
supported by the vending
machine market
Diversification
& consolidation
Low profit margins, excess capacity, and rising material
and labor costs prompted a number of corporate diversifications and
subsequent consolidations throughout the 1970s and 1980s.
For example, American Can reduced its dependence on domestic
can manufacturing, moving into totally unrelated fields, such as
insurance.
Major Competitors
Company History
1891 : Crown Cork & Seal Company
1920 : Patent ran out, competitive became serve and nearly
bankrupted the company
1927 : Crown was brought by Charles McManus
1930 : Crown prospered, selling more than half of the United States
and world supply of the bottle cap --- McManus anticipated the
success of the beer can and diversified into can making
1946 : McManus died, the company ran on momentum
Try to expand into plastic and ludicrous diversification into metal
bird
1955 : Partnership with Connelly Container, Inc.
1956 : Connelly began buying stock and was asked to be an outside
director
1957 : Crown teetered on the Verge of bankruptcy John Connelly took
over the president.
His recue plan was simply -- just common sense--
John Connelly’s action
To pare down To institute the Focused on the
the organization. concept of company’s debt.
accountability.
Reduce HQ staff Paid off the bank
by half to reach Establishing Crown Introduced sale
a lean force of 80. managers as forecasting dovetailed
Abandoning its “owner operators” with new product
paternalistic culture and inventory control.
to simply functional Plants managers
organization. take responsibility “Climbed out of the
Reduce payroll for plant profitability coffin and was sprinting”
by 24% and and including
eliminated 1,647 jobs. allocated costs.
Connelly’s Strategy
Research and Development (R&D)
Crown’s technology strategy focused on enhancing the existing product line. We
do have tremendous skills in die forming and metal fabrication.
Marketing and customer service
Crown’s manufacturing emphasis on flexibility and quick response to customer’s
needs supported its marketing emphasis on putting the customer first.
Financing
Connelly then steadily reduced the debt/equity ratio from 42% in 1956 to 18.2% in
1976 and 5% in 1986.
International
Between 1955 and 1960, Crown received what were called “pioneer rights” from
many foreign governments aiming to build up the industrial sectors of their countries.
Performance
Connelly’s strategy met with substantial success throughout his tenure at Crown.
Avery’s Challenge
Growing opportunities in plastic closures and
glass containers.
Acquisition of Continental Can Canada
(CCC)
Problem statement
Problem Statement
Entrance into the Acquire the
plastic container Continental can
industry company
Recommendation
Recommendation
Entrance into the plastic container industry
Pros Cons
•Market gap in the container
• Portion of metal can more than
industry plastic container
• Decreasing shipping cost • Not completed loop of recycle
because of lightweight • Not core competency
• Developed in various pattern •Allowed carbonation to escape in
•Made of natural resources less than 4 months
(Petroleum)
Recommendation
Acquire the Continental can company
Pros Cons
•Getting more market share
• Acquiring conflict in culture
•Getting plastic container line
• Strong competition
manufacturing from Continental
can • Increasing trend of in-house
•Increasing bargaining power can manufacturing
against from supplier and
customer
•Expansion in world wide
Analysis & Strategy
SWOT Analysis
Strength Weekness
• Cost efficiency • Lack of product diversity
• Product differentiate • Short of R&D
• Customer relationship
• Environmental care
Growth Strategy:
Expansion Globally
Opportunities Threats
• Slow growth rate
• Chance to consolidation • Substitutable
• Globalization /Pioneer • Emerging plastic market
rights • Challenge from
buyers/providers
Five Forces Analysis
(Low)
Threat of New
Entrants
(High) (High) (High)
Bargaining Bargaining
Rivalry among
Power of Power of
Existing Firms
Suppliers Buyers
(High)
Threat of
Substitute
Products
Five Forces Analysis
Rivalry among Existing Firms (High)
- 5-6 big competitors
- Also be supplier => Reynolds Metals
- New production technology => Reynolds Metals
- New product design => Ball Corporation
Bargaining Power of Buyers (High)
- Top 5 soft drinks (Coca- Cola Company , Anheuser-Busch
Companies Inc., Pepsi co Inc., and Coca-Cola Enterprises
Inc.)
Five Forces Analysis
Bargaining Power of Suppliers (High)
- Big 3 aluminum packaging producer => Alcoa, Alcan and
Reynolds Metals
- Only one aluminum can producer => Reynolds Metals
Threat of Substitute Products and Services (High)
- Plastic and glass
- Plastic => 18% growth in 1989 (from 9% in
1980), lightweight and more convenient
Threat of New Entrants (Low)
- Vertical and horizontal integration
Crown Cork’s Value Chain
focused on
enhancing the
1.reduced (payroll by existing product line
24%) 1,647 jobs.
2. Change Divisional
Line to “Owner
Operators”
Sale Forecasting +
Manufacturing
1.closing down the
Philadelphia facility
emphasized quality, flexibility
2. new and flexibility, quick and quick response
geographically response to customer needs to customer’s needs
dispersed plants
Corporate Strategy
Combination Strategy
Growth Expanding more market share.
Stability Product and market are rarely change.
Retrenchment Changes in consumer behavior.
Business Strategy
Cost-Leadership Diversification
Recycle New material packaging
(Green technology) (Plastic and glass)
R&D
Supply chain
Business Strategy
Product & Services Marketing Management
Concentric
diversification New Market Innovation
strategy
R&D Production
Recycle (Green Supply chain
technology)
Functional Strategy
Marketing &
Manufacturing R&D Product Service
Quality, Flexibility, and Innovation on customer Focus on metal forming
international markets
Quick requests & Fabrication
Good Relationship with
Customer
