Crown Cork and Seal Company: Summary of Case and Key Questions
Company Background Information and Historical Context By 1977 The Crown Cork and Seal Company was the fourth largest producer of metal cans and crowns. Under the leadership of John Connelly, the company had transformed from from near-b near-bankr ankrupt uptcy cy in 195 1957 7 to becomin becoming g a formid formidabl ablee force force in the domest domestic ic and international metal container market. By 1976 Crown had revenues of $910 million, $343 million of which came from international markets – making them the largest international producer. They derived 65% of total sales from tin-plated cans and 29% from crowns; the remainder of their business came from bottling and canning machinery. In terms of product categories, cans were categorized as follows: Food cans, beverage cans, pet foods and general general package packaged d cans. cans. The bigges biggestt growth growth catego category ry was bevera beverage ge cans which comprised of soft drinks and beer. At the time of the case, Crown was considered to be extre extreme mely ly succ succes essf sful ul – thei theirr retu return rn on sale saless was was twic twicee that that of thei theirr thre threee larg larges estt competitors, and they enjoyed the highest profit growth over the last 10 years. Industry Characteristics and Value Chain Customers: 80% output came from food and beverage companies who maintained maintained at least two two suppliers suppliers and had significant significant power of them. Compet Competiti ition: on: Crown’ Crown’ss current current market market share share was 8.3%. 8.3%. competitors were American American Can (16.6%),
Their Their three three biggest biggest
Continental Can (18.4%) and National Can:
(8.7%). There also faced significant threats from customers backward-integrating into the suppl supply y chain chain (e.g. (e.g. Campbel Campbelll soup star started ted makin making g their their
own cans) cans) and and from
aluminum producers like Alcoa grabbing market share. Suppliers: Big U.S steel companies and new entrants who supplied aluminum, fiberfoil and plastics. Crown’s Strategy Philosophy: Philosophy: Relentle Relentless ss focus on core core strengths: strengths: product product formi forming ng and fabrica fabricatio tion n competenc competencies ies crowns. crowns. Since R&D R&D
lines were were based on metal metal
with with a single single-mi -minde nded d focus on tin cans cans and
was not their strength, strength, they they decided decided to be the the “second” “second” player, player,
learning from other firm’s mistakes and successes.
Culture: Customer-centric Customer-centric culture. Plants were spread out to be close to customers – this reduced reduced transpor transportati tation on
costs and and allowed allowed the company company to react react to customer customer needs needs
quickly. Furthermore, each plant plant served multiple customers. Scope: Lots of emphasis was placed on international international expansion, to tap into markets where packaged foods foods were being rapidly adopted. Operations: Plant sizes were small allowing allowing them to to be nimble and flexible. flexible. Key Industry Trends The threat of self-manufacturing from customers. Threat of of new packaging packaging materi materials als – in partic particular ular aluminum aluminum competitive competitive alterna alternative tive to steel steel cans costs due
started started to become become a
for a variety variety of reasons reasons (reduced (reduced transpor transportati tation on
to lighter lighter weight, weight, safety, safety, environment environmental al impact, impact, etc.). etc.).
Also, competition competition
began emerging from fiber foil and plastics. Packaging Revolution -- With With companies differentiating differentiating on packing, two problems problems emerged: 1 aluminum and plastics became better contenders for variability in packaging design Customers started investing investing large amounts of R&D dollars dollars in packaging making it harder for for the smaller suppliers to compete. Future Issues Ozone scare that aerosols cause permanent damage to the ozone layer. Regulation Regulation around non-returna non-returnable ble cans cans –result –resulting ing in in increased increased
popularity popularity of
aluminum (aluminum (aluminum had a larger network + higher recycle value). Strategic Questions: How would would you charact characterize erize this this industr industry? y? How attra attractive ctive
or unattract unattractive ive is this this
industry? What do you think are the active ingredients that contributed to Crown’s success? What do you you think are are the biggest biggest threats threats to Crown going going forward? forward? Do you think think Crown should invest in aluminum? Do you think Crown can continue to grow by pursuing the same strategy? If you don’t think so, what should Crown do to win in this industry?
Report 2
The changes taking place in the metal container container industry at the time of the Crown, Cork and Seal case using Porter's 5 forces can be described as follows:
Current Players There was a high concentration of market share held by five companies in the metal can industry. industry. Collective Collectively, ly, the five companies companies held 61% of the market, market, with the remaining remaining 39% shared by approxima approximately tely 100 firms. firms. With the five five firms holding holding a large market share, the competitive environment becomes more like a monopoly and therefore less compet competiti itive. ve. The rivalry rivalry among among the five firms firms seems seems to have have intens intensifi ified ed due to the following observed industry characteristics: 1.
The little gro growth potential for for metal can cans in the 1990s and the the analysts'
expectations of plastics as the "growth segment for containers." 2.
Since Since they they all all pro produc duced ed mos mostl tly y twotwo-pi piec ecee cans cans and and cat cater ered ed to to the the meta metall bever beverag agee
containers market, there appears to be a low product differentiation among the five firms. 3.
The asset spec pecificity of the indu ndustry creates a high exit barrier where the
equipment is highly specialized that the firms may have a difficult time selling to buyers from other industries. 4.
Majo Majorr cust custom omer erss prod produci ucing ng the their ir cans cans in-h in-hou ouse se tha thatt accou account nted ed for for app appro roxi xima mate tely ly
25% of the total can output in 1989.
Barriers to entry One of the barriers to entry in the metal can industry at this time is the monopoly held by the top five firms. It would difficult for a small start-up start-up firm to have any real significant impact on obtaining market share unless they come in on a large scale or if they have propr propriet ietary ary know-how. know-how. number 3 above. Suppliers
Anothe Anotherr barrie barrierr would would be asset asset specif specifici icity ty as mentio mentioned ned in
The suppliers in the metal can industry are considered powerful since it is dominated by basica basically lly 3 alumin aluminum um compani companies es and are a highly highly concent concentrat rated ed indust industry ry in itself itself.. Although steel is another raw material used, its usage had declined over the years as aluminum was lighter, were of better quality, less effect on product taste, has "superior lithogr lithograph aphy y qualiti qualities" es" and less less costly costly to recycl recycle. e. Also, Also, the suppli suppliers ers do not have to compete with other products for sale to the metal can industry. The aluminum and steel companies serve as a check and balance for each other. The suppliers also pose a threat of entering into metal can manufacturing, such as Reynolds Metals, which make them a powerful supplier.
Buyers The buyers in the metal can industry could be considered to be powerful as they are concentrated on the beverage and food/general packaging industries and the metal cans purchased are basically a standard standard or undifferentiated product. Because 45% of the total cost cost of a packa package ged d bever beverage age is the the can can itse itself lf,, the the beve bevera rage ge comp compan anie iess main maintai tain n relationships with more than one supplier in the metal can industry.
Substitutes The possible substitutes for the aluminum beverage cans are plastic packaging containers, glass bottles bottles and steel cans. cans. The prices of the aluminum aluminum beverage beverage can be controlled controlled by the prices of the possible substitutes.
Report 3
Executive Overview In April of 1957, when Crown Cork & Seal was on the edge of bankruptcy, John Connelly Connelly took over presidency presidency with with intent to save the company. company. By the end of 1957, Crown had "climbed out of the coffin coffin and was sprinting." Connelly's unique leadership is what contributed to the success of Crown. In May of 1989, Connelly stepped down from his posit position ion as chairm chairman an appoint appointing ing his long-t long-tim imee discip disciple le Willi William am Avery Avery as chief chief executive officer. Avery had plans to assess Connelly's long-followed long-followed strategy because of the industry industry changes that were taking taking place. Since Connelly Connelly got into the business business in 1957, the metal can industry had been greatly redefined as both suppliers and customers of can makers moved into can-making can-making themselves themselves.. With the changes that that were taking place, Avery wondered if it would be a good idea for Crown to bid on all or part of Continental Continental Can (one of their competitor competitors), s), whose operations operations were up for sale. Avery was also faced with the decision to break Crown's tradition and increase its product line beyond the manufacture of metal cans and closures. Little growth potential was was seen in the metal can industry, and plastics were forecasted as the growth segment for containers. Crown's competitors had been expanding aggressively in a variety of directions, and Connelly Connelly remained careful careful and thrived. Because Because Crown had done the same thing for so long, Avery wondered if it was time time for them to to change. If Crown acquired Continental Can Canada, Canada would become Crown's largest single presence outside of the U.S. and would double the size of Crown's domestic domestic operations operations.. However, However, most mergers mergers in this this indu indust stry ry had had not not work worked ed out out well well,, and and Aver Avery y had conce concern rnss about about taki taking ng two two companies from completely different cultures and bringing them together.
Analysis The use of Porter's 5 Forces Model gives an analysis of the industry for Crown Cork Cork & Seal and an overview overview of where where it is positi positioned oned within within it. There There is a strong strong competitive force among the top competitors within within the metal container industry. industry. This is because the industry makes up 61 percent of all packaged products in the United States
and is also only dominated by five firms; which is very minimal compared to an industry as restaurants. The 4 rivaling competitors of Crown, making up the rest of the the industry, incl include ude:: Amer Americ ican an Natio National nal Can, Can, Cont Contin inent ental al Can, Can, Reyn Reynol olds ds Meta Metals ls,, and and Ball Ball Corporation. The threat of new entrants into the metal can industry industry is quite weak though. This is due to the fact that start-up start-up and manufacturing costs are very high. Can production lines can cost anywhere between $16-25 million making it very difficult for the average Joe to start a company from ground ground up. This threat threat however, however, is quite opposite opposite from the threat threat of substitute products. This threat is very strong for this industry, industry, which results mainly mainly from the existence existence of plastic and glass container containers. s. The growth of plastic plastic containers containers is the industry's major worry; mainly because it is more lightweight and convenient than metal cans or glass by consumers. Analyzing the competitive force of suppliers and buyers are the last of Porter's analysis. analysis. The force force of suppliers suppliers in the the metal can industry industry is is normal to to strong. This is beca becaus use, e, alth althou ough gh it is very very inex inexpen pensi sive ve for for compan companie iess to swit switch ch supp suppli lier erss from from alum alumin inum um to stee steel, l, the the consu consume merr actu actual ally ly pref prefer erss the the alum alumin inum um can. can.
It is more more
lightweight and economical to recycle. A strong force of suppliers suppliers is also a result result of the metal can industry only being supplied by 3 aluminum producers. The force of buyers is normal to strong as well because the soft drink and beer companies are very large and purchase a sizable amount from the metal can industry. It is also indicated by the fact that those beverage companies purchase their packaging from a few large firms in the industry. industry. It would be a definite strong strong force if they purchased purchased from a large number of firms. By looking at Porter's 5 Forces Model, it is noted that Crown Cork & Seal lies within the five dominant firms firms of the industry. industry. This indicates that the the company does have the opportunity to compete compete and even become the leader of the industry. To be the leader; however, will depend on Crown's strategy.
Problem Statement One problem that Crown Cork and Seal faces is that the industry is becoming more competitive through through acquisitions and mergers. These acquisitions and mergers in
the 1980s served to shift, as well as consolidate power, at the top of the county's leading manufa manufactu cturer rers. s.
Some Some of these these acquisiti acquisitions ons and merger mergerss includ includee such such compani companies es as
Americ American an Nation National al Can and Contine Continenta ntall Can, Can, which which are two major compet competito itors rs for Crown Cork and Seal. Peter Kiewit Sons Inc. purchased Continental Group in 1984, and turned sales of 3.3 million in 1988. Another problem serving Crown Cork and Seal is that the industry has become less dependent dependent on can sales alone. They have diversifi diversified ed across the spectrum spectrum of rigid containers to supply all major end-use markets (food, beverages, and general packaging), others others divers diversifi ified ed into into non-pack non-packagi aging ng busines businesses ses such such as energy energy (oil (oil and gas), gas), and financial services. The product line of the the worlds largest can maker, maker, American National Can, is steel cans, glass containers, and caps and closures served the major beverage, food, pharmaceuti pharmaceuticals, cals, and cosmetics cosmetics market. market. This goes to show that even the world's largest can maker doesn't solely rely on the sales of its cans. Another reason why Crown Cork and Seal should not to depend on can sales alone is the rise of in-house manufacturing and plastics. plastics. Production of cans at "captive" "captive" plants-those producing cans for their own company use-accounted for approximately 25% of the total can output output in 1989. Many brewers brewers found it advantage advantageous ous to invest in captive manufacturer because high-volume, single-label production runs made them more profitable. This trend is taking away a lot of business from the can manufacturer industry, weakening weakening future growth growth potential. potential. Plastics Plastics were also the growth growth leader in the 1980s. They went from 9% market share of the container market in 1980 to 18% in 1989.
Recommendations Crown Crown Cork Cork & Seal, Seal, under under the supervis supervision ion of Bill Bill Avery, Avery, should should step step outsid outsidee the traditional traditional strategi strategicc boundaries and draft a new blue print for the future. future. Over the last few years, many of the companies in competition with Crown have either merged with another company or began pursuing other ventures outside outside the can industry. All are still holding holding strong as reputable reputable companies. companies. If Crown continues continues to just stay put where they they are and continue making what they are producing now, the growth of the company will continue to diminish.
We recommend that Crown merge with Continental Can to build a company with unlimited possibilities. With the work ethic already instilled instilled in the employees of Crown and with the direction that Bill Avery has receive from innovator John Connelly, success from from the merger merger could be very very likel likely. y. By merging merging with with Contin Continent ental, al, Crown Crown would would expand their their market share in numerous numerous other countri countries. es. Although Although it may take a lot of time and energy, we believe that a merger would prove profitable in the end.
Options Since the business of cork sealing and aluminum production is so diverse and expansive, there are several options of ways to take control of the market. The first option would be to merge. Merging with a major distributor and making the Crown Cork and Seal Company a subdivision of say a company like Coca Cola, would have a great impact on the sales and conditions of selling products to consumers. Combining two great assets to the consumer market would make distribution easier; make flow of products in and out of factor factories ies flow flow faster faster and smooth smoother er than than being being shipped shipped between between check check points points of the production process. Another option would be to switch to plastics. This is a much diversified market as well. Plastics account for around one half of the distribution for almost all of the major distributors listed in our text. Switching to plastics might be an alternative solution at the moment, but plastics may not always be as lucrative market as everyone believes it is. Another option is to simply just stay put. Don't diversify into any other type of business, or merge with another company and continue day to day sales and services as normal. The last option that we came up with is to combine merging and switch to plastics. This would work on both ends of the spectrum of alternatives. At one point we are going to merge with other companies and continue to make the same products, but at the same time we are going to switch to plastics so that we can diversify into the market more. If predictions end up being right, that corks for wine and other bottles will soon not exist and everything will be going to twist offs or pressure sealed, then it might be a wise decision to switch to plastics and merge with a large corporation.
Implementation and Control In order to create a strategic plan of implementing our plan to merge, Crown Cork and Seal should swap and interlace managers from both companies in order to create balance between manager levels at each company. The Board of Directors will be consolidated with cross-over training training and implementation. Training sessions will will be held for all of the employees. A SWOT analysis will will be conducted for each location, location, resulting in the shut down of unprofitable plants and the consolidation of more human and financial capital. This process will be done by selling off the equipment and machinery of the weaker plants. However the original strategy of Crown Cork and Seal will remain in action. The expected results of implementi implementing ng this merge will have short-term short-term and longterm term effect effectss on Crown. Crown. The short-t short-term erm effect effectss will be the loss loss of money money from the acquisitio acquisition n of Continental Continental Can Company. Company. The long-term long-term effects effects beyond a five year scope, the company will aim to become the leader of the metal can industry.
