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Crown Cork & Seal

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by

Carlos Gonzalez

on 20 December 2014

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Transcript of Crown Cork & Seal

Crown Cork & Seal
Company introduction
Core business

SWOT
Strengths
Metal forming and Fabrication
High quality - Low cost Approach
Customer driven attitude
Strong position in 2 piece operations
Weaknesses
Relatively small manufacturer (ex.5)
Deeply rooted in traditional philosophy
Stay away of innovations (research, products, materials)
Opportunities
Chance to acquire part of Continental
Overseas Businesses
Diversifying radically
New Raw Materials (Glass, Plastic)
Threats
Consolidation - Vertical integration among customers (ex.1)
Strategic position of Reynolds Metals
Rising competence on Industry
Others competitors are already diversified
New Raw Materials (Glass, Plastic)
Pros and cons analysis of plastic and glass
To go or not go for the growing opportunities in plastic closure and containers, as well as glass containers
Acquire the Continental can company
Buy all of the Continental Can business
Alternatives and Decisions that Avery was facing
Past History and strategy
of Crown Cork & Seal

Any Questions or Comments?
Thank you for
your attention

Duvernois, Thomas
Gonzalez, Carlos E
Pesa, Oriol
Wang, Dan
Group 5
Porter's Forces
Rivalry among existing Competitors
Substitute Products
Aluminum has replaced steel
There are two materials that could seriously threat the use of aluminum:
Potential Competitors
Power of Customers
Some big brands among the customers (Coca-Cola, Pepsi Co.) Those customers maintain relations with more than one provider.
Manufacturing need to be relatively close (geographically) to the customers.
Some customers are establishing "captive" production of the cans (mainly brewers).
Vertical Integration (really dangerous)
Power of Suppliers
There are being some changes in the trends of the materials demanded
The aggregation level in the supply offer is high. (HHI: 2125)
Only three main aluminum suppliers collect 65% of market share:
- American National Can (25%)
- Continental Can (18%)
- Reynolds Metals (7%)
- Crown Cork & Seal (7%)
- Ball Corporation (4%)
- Others (100companies) (39%)
(market share)
Rivalry among players is increasing.
Strong Competition (HHI: 1063)
Operations margins have decreased (from 7% to 4%)
Five main Players:
There are some entry barriers that in principle should dissuade potential competitors to get into the industry
High entry costs (expensive machinery)
Fierce intern competition makes the industry to lose appeal
(Van Dorn Company and Heekin Can are strong competitors regionally)
- Alcan Aluminum
- ALCOA
- Reynolds Metals
* exhibit 3
- Glass (21%): Mainly employed in the brewery sector
In addition, Brewer companies are developing captive
can production
- Plastic (18%): Could be a big player if some problems are solved
* exhibit 5
* exhibit 1
Pros:
Getting more market share
Light weight & Convenient Handling

Cons:
Not completed loop of recycle
Allowed carbonation to escape in less than 4 months

Situation:

Slow growth and industry decline in metal containers in the 1900s
Plastics continue to grow due to the characteristics of light weight and convenient handling
The cost advantage of glass due to consistently declining resin prices
Continuing margin squeeze in metal containers
Competitors had aggressively expanded in a variety of directions


Pros:
Getting more market share
Expansion in world wide
Increasing the productivity
Getting plastic container line manufacturing from Continental can
Increasing bargaining power against from supplier and customer because of the larger market share

Cons:
Acquiring conflict in culture
Capital structure to very high levels
Diversified customer base in various countries, demands, different packaging preferences and standards lead to higher operating cost
Opportunities:
Crown will be co-equal leader in the world with American National.
Challenges:
Can Crown take enough cost out of Continental to develop a competitive advantage or will the acquisition of Continental destroy Crown's efficiency?
The European operation is large ($1.5 billion in sales), manpower intensive (10,000 workers), and runs head to head with American National.
Pass on the European Operation and Consider the Remaining Parts
Acquire Continental Canada Part
Opportunities:
Make Crown be the leading supplier of all types of cans in Canada
Prevent American National from consolidating Canada to their advantage

Acquire Continental U.S. Part
Challenges:
Is not a easy decision to make
Strong competition from antitrust reason (25% market share)
Large capital investment (sales of $1.3 billion)

Company history
1892 : setting-up of the company
1920's : nearly bankrupted due to the run out of patents
1927 : bought by a competitor ( McManus)
1930's : Crown prospered
1946 : company ran on momentum after McManus'death.
1957 :Crown teetered on the verge of bankruptcy & Connelly took over the presidency
Connelly's measures
Policy of the common sense :
pare down the organization
introduced the concept of accountability with Crown Managers
Reduced company's debt
Connelly's strategy
Products & Markets
: emphasize the areas Crown knew best, conversion to aluminum, invest heavily abroad
Manufacturing
: increase number of plants, plants very small, activity increased, quality improvement process
R&D
: enhance the existing product line, research teams close with customers
Marketing & customer service
: putting the customer first.
Finance
: Reduce the debt / equity ratio
Pros:
Getting more market share
Declining resin prices
A love affair with the "long neck" bottle in beer category
Cons:
Heavy weight
Transportation cost

- Plastic:
- Glass:
Acquire Continental Canada first, then think about U.S. Part
What Crown really did
1990 : Crown acquired major portions of former industry leader Continental Can Company

1992 : Crown acquired CONSTAR International ( plastic containers company)
Today :
global leader in food and beverage cans with 149 plants, 22 000 employees, $ 8.5B revenue
1989: Current industry and company situation
The metal Container industry
Industry Structure
Industry Trends
Plastics

Growing market troughout the 80's.
Light weight and convenient handling.
Problems with: retaining carbonation and preventing infiltration of oxygen.
Recycle → Not a closed loop system.
Glass

14% of domestic soft drink sales. Expensive manufacturing.
Lost advantage with plastic: declining resin prices.
Outperforming metal in the beer category → “long neck” bottle.
In-house manufacturing
25% of the total can output in 1989.
Large food producers and brewers → High-volume, single-label production runs.
Extended in beer industry.
Soft drink industry: small local bottlers.
Soft drinks
Aluminum cans
Soft drink industry: largest end-user of packaging → aluminum cans.
Huge aluminum penetration due to:
1. Weight advantage
2. Eease of handling
3. Graphic options on multipack can containers.
4. Consumer preference.
5. Vending machine market.
Diversification &
Consolidation
Low margins, excess capacity and rising costs.
Diversifying across containers or non-packaging businesses.
Examples:
American Can→ Insurance, financial services…
National Can→ glass, plastic, and different purpose containers.
Ball Corporation→ High Tech market.

· 61% of all packaged products in US 1989

Metal cans : 2 o 3 piece models
Crowns (bottle caps)
Closures (screw caps, bottle lids).

Steel & Aluminum

Beverage
Food
General Packaging Industries


Crown Cork & Seal in 1989
· Old strategy : dictated by the former CEO John F. Connelly.
· Huge changes in the industry.
· New opportunities:
Bidding for Continental Can
Diversify beyond metal cans (little growth potential expected)
· Further analysis required

Competitors market
· 12.2 billion U.S. metal can industry in 1989:

25% -
American National Can
(Pechiney International, world’s largest beverage can producer)
18%-
Continental Can

7%-
Reynolds Metals
7%-
Crown Cork & Seal
4%-
Ball Corporation

Pricing
· Very competitive pricing - Volume discounts.
· Decreasing operating margins to 4%
· Raw aluminum prices.
· Production capacity.
· Major brewers producing containers
· Consolidation of soft drink bottlers → high volume, price discounts
·
Can manufacturers contributed
lowering the price to protect market share

Customers
·Few large companies and bottlers ·Working with many suppliers.
Suppliers
· Steel 29% → Lower price.
· Aluminum: Lighter, better quality, economical to recycle, friendlier to taste. Beverage preferred
· Alcoa: $9.8 billion sales
· Alcan: $8.5 billion sales
· Reynolds Metals: $5.6 billion sales

Distribution
Manufacturing
Plants close to customers → Long distances would be unprofitable.
· Foreign markets served by joint ventures, overseas firms…

· Two-piece can lines + peripheral equipment: $20-$25 million. (1 to 5 lines per facility)

· Three-piece can line: $1.5-$2 million. + 1 finishing line per each 5 manufacturing.
Minimum $7 million facility.
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