Crown Cork and Seal Company: Summary of Case and Key Questions

Crown Cork and Seal Company: Summary of Case and Key Questions

Company Background Information and Historical ContextBy 1977 The Crown Cork and Seal Company was the fourth largest producer of metalcans and crowns. Under the leadership of John Connelly, the company had transformedfrom near-bankruptcy in 1957 to becoming a formidable force in the domestic andinternational metal container market. By 1976 Crown had revenues of $910 million, $343million 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; theremainder of their business came from bottling and canning machinery. In terms of product categories, cans were categorized as follows: Food cans, beverage cans, pet foodsand general packaged cans. The biggest growth category was beverage cans whichcomprised of soft drinks and beer. At the time of the case, Crown was considered to beextremely successful - their return on sales was twice that of their three largestcompetitors, and they enjoyed the highest profit growth over the last 10 years.Industry Characteristics and Value ChainCustomers: 80% output came from food and beverage companies who maintained atleast two suppliers and had significant power of them.Competition: Crown's current market share was 8.3%. Their three biggestcompetitors were American Can (16.6%), Continental Can (18.4%) and National Can:(8.7%). There also faced significant threats from customers backward-integrating intothe supply chain (e.g. Campbell soup started making their own cans) and fromaluminum producers like Alcoa grabbing market share.Suppliers: Big U.S steel companies and new entrants who supplied aluminum, fiber-foil and plastics.Crown's StrategyPhilosophy: Relentless focus on core strengths: product lines were based on metalforming and fabrication competencies with a single-minded focus on tin cans andcrowns. Since R&D was not their strength, they decided to be the "second" player,learning from other firm's mistakes and successes.

Culture: Customer-centric culture. Plants were spread out to be close to customers - this reduced transportation costs and allowed the company to react to customer needsquickly. Furthermore, each plant served multiple customers.Scope: Lots of emphasis was placed on international expansion, to tap into marketswhere packaged foods were being rapidly adopted.Operations: Plant sizes were small allowing them to be nimble and flexible.Key Industry TrendsThe threat of self-manufacturing from customers.Threat of new packaging materials - in particular aluminum started to become acompetitive alternative to steel cans for a variety of reasons (reduced transportationcosts due to lighter weight, safety, environmental impact, etc.). Also, competition began emerging from fiber foil and plastics.Packaging Revolution -- With companies differentiating on packing, two problemsemerged: 1 aluminum and plastics became better contenders for variability in packagingdesignCustomers started investing large amounts of R&D dollars in packaging making itharder for the smaller suppliers to compete.Future IssuesOzone scare that aerosols cause permanent damage to the ozone layer.Regulation around non-returnable cans -resulting in increased popularity of aluminum (aluminum had a larger network + higher recycle value).Strategic Questions:How would you characterize this industry? How attractive or unattractive is thisindustry?What do you think are the active ingredients that contributed to Crown's success?What do you think are the biggest threats to Crown going forward? Do you 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 industry at the time of the Crown, Cork and Seal case using Porter's 5 forces can be described as follows:Current PlayersThere was a high concentration of market share held by five companies in the metal canindustry. Collectively, the five companies held 61% of the market, with the remaining39% shared by approximately 100 firms. With the five firms holding a large marketshare, the competitive environment becomes more like a monopoly and therefore lesscompetitive. The rivalry among the five firms seems to have intensified due to thefollowing observed industry characteristics:1.The little growth potential for metal cans in the 1990s and the analysts'expectations of plastics as the "growth segment for containers."2.Since they all produced mostly two-piece cans and catered to the metal beveragecontainers market, there appears to be a low product differentiation among the five firms.3.The asset specificity of the industry creates a high exit barrier where theequipment is highly specialized that the firms may have a difficult time selling to buyersfrom other industries.4.Major customers producing their cans in-house that accounted for approximately25% of the total can output in 1989.Barriers to entryOne of the barriers to entry in the metal can industry at this time is the monopoly held bythe top five firms. It would difficult for a small start-up firm to have any real significantimpact on obtaining market share unless they come in on a large scale or if they have proprietary know-how. Another barrier would be asset specificity as mentioned innumber 3 above.Suppliers

The suppliers in the metal can industry are considered powerful since it is dominated by basically 3 aluminum companies and are a highly concentrated industry in itself.Although steel is another raw material used, its usage had declined over the years asaluminum was lighter, were of better quality, less effect on product taste, has "superior lithography qualities" and less costly to recycle. Also, the suppliers do not have tocompete with other products for sale to the metal can industry. The aluminum and steelcompanies serve as a check and balance for each other. The suppliers also pose a threatof entering into metal can manufacturing, such as Reynolds Metals, which make them a powerful supplier. BuyersThe buyers in the metal can industry could be considered to be powerful as they areconcentrated on the beverage and food/general packaging industries and the metal cans purchased are basically a standard or undifferentiated product. Because 45% of the totalcost of a packaged beverage is the can itself, the beverage companies maintainrelationships with more than one supplier in the metal can industry.SubstitutesThe possible substitutes for the aluminum beverage cans are plastic packaging containers,glass bottles and steel cans. The prices of the aluminum beverage can be controlled bythe prices of the