Crown Cork & Seal Case Study

1. 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

2. Member
5550182
5550470
5550481
5550485
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3. Agenda
 Crown Cork & Seal in 1989 Background
 Problem Statement
 Recommendation
 Analysis



SWOT Analysis
Five forces
Value chain
 Strategy



Corporate Strategy
Business Strategy
Functional Strategy

4. Crown Cork & Seal in 1989
Background

5. Industry Structure
Crown Cork & market share
Seal
Ball Corporation
5%
5%
Renolds Metals
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

6. Price
Pricing is very competitive.
To lower costs, managers sought long runs of standard items and
offer volume discounts.
7%
15% increase in aluminum can
sheet price after guaranteed
volume prices
Can industry operating margins fell from
7% to 4% between 1986-1989 because of
7% increase in beverage can production
capacity between 1987-1989
Increase number of the major brewers
producing containers in house
The consolidation of soft drink
bottlers throughout the decade
4%

7. Customers
Top U.S. Users of Containers, 1989
Coca-Cola Company
Anheuser-Busch Companies Inc.
PepsiCo Inc.
The Seagram Company, Ltd.

8. Distribution
Manufacturers located their plants close to customers to minimize transportation costs
The primary cost components of the metal can include
RM 65 %
Labor
12%
Transporta
tion 7.5%
Foreign markets were served by
joint ventures, foreign
subsidiaries, affiliates of U.S.
firms and local overseas firms.
Cost
Beverage can producers preferred
aluminum to steel because of lighter
weight and lower shipping costs

9. 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

10. 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
9,795.30
8,529.00
5,567.10
7,767.00
6,797.00
4,283.80
1988
1987
ALCOA
5,956.00
4,667.20
3,638.90
1986
Reynolds Metalsa
5,467.00
5,718.00
5,750.80
5,162.70
3,728.30
3,415.60
1985
1984

11. The metal container industry trend
In-house
manufacture
Plastics
Glass
Soft drinks &
aluminum cans
Diversification
& consolidation

12. 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.

13. 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.

14. Glass
Glass
 Glass bottles accounted
for only 14% of domestic
soft drink sales
 Soft drink bottlers
preferred the metal can
to glass because of a
variety of logistical and
economic benefits:




faster filling speeds
lighter weight
compactness for inventory
transportation efficiency

15. 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

16. 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.

17. Major Competitors

18. Company History
1891 :
1920 :
Crown Cork & Seal Company
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--

19. John Connelly’s action
To pare down
the organization.
Reduce HQ staff
by half to reach
a lean force of 80.
 Abandoning its
paternalistic culture
to simply functional
organization.
To institute the
concept of
accountability.

Reduce payroll
by 24% and
eliminated 1,647 jobs.


Establishing Crown
managers as
“owner operators”
Focused on the
company’s debt.
Paid off the bank
Introduced sale
forecasting dovetailed
with new product
and inventory control.

Plants managers
“Climbed out of the
take responsibility
for plant profitability coffin and was sprinting”
and including
allocated costs.


20. 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.

21. Avery’s Challenge
 Growing opportunities in plastic closures and
glass containers.
 Acquisition of Continental Can Canada
(CCC)

22. Problem statement

23. Problem Statement
Entrance into the
plastic container
industry
Acquire the
Continental can
company

24. Recommendation

25. Recommendation
Entrance into the plastic container industry
Pros
•Market gap in the container
Cons
• 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)

26. Recommendation
Acquire the Continental can company
Pros
•Getting more market share
•Getting plastic container line
manufacturing from Continental
Cons
• Acquiring conflict in culture
• Strong competition
can
• Increasing trend of in-house
•Increasing bargaining power
can manufacturing
against from supplier and
customer
•Expansion in world wide

27. Analysis & Strategy

28. SWOT Analysis
Strength
Weekness
•
•
•
•
• Lack of product diversity
• Short of R&D
Cost efficiency
Product differentiate
Customer relationship
Environmental care
Growth Strategy:
Expansion Globally
Opportunities
Threats
• Chance to consolidation
• Globalization /Pioneer
rights
•
•
•
•
Slow growth rate
Substitutable
Emerging plastic market
Challenge from
buyers/providers

29. Five Forces Analysis
(Low)
Threat of New
Entrants
(High)
Bargaining
Power of
Suppliers
(High)
Rivalry among
Existing Firms
(High)
Threat of
Substitute
Products
(High)
Bargaining
Power of
Buyers

30. 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.)

31. 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

32. Crown Cork’s Value Chain
focused on
enhancing the
existing product line
1.reduced (payroll by
24%) 1,647 jobs.
2. Change Divisional
Line to “Owner
Operators”
Sale Forecasting +
Manufacturing
1.closing down the
Philadelphia facility
2. new and
geographically
dispersed plants
emphasized quality,
flexibility, quick
response to customer needs
flexibility
and quick response
to customer’s needs

33. Corporate Strategy
Combination Strategy
Growth
Expanding more market share.
Stability
Product and market are rarely change.
Retrenchment
Changes in consumer behavior.

34. Business Strategy
Cost-Leadership
Recycle
(Green technology)
R&D
Supply chain
Diversification
New material packaging
(Plastic and glass)

35. Business Strategy
Product & Services
Concentric
diversification
strategy
Marketing
New Market
Management
Innovation
R&D
Production
Recycle (Green
technology)
Supply chain

36. Functional Strategy
Manufacturing
Quality, Flexibility, and
Quick
R&D
Innovation on customer
requests
Product
Focus on metal forming
& Fabrication
Marketing &
Service
international markets
Good Relationship with
Customer