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Crown Cork & Seal in 1989 Case

Case: Crown Cork & Seal in 1989

1. What are the industry structure and dynamics of the metal container

industry? What are the industry trends? Implications of these trends?

In order to analyze the industry structure it is necessary to assess the existent competitive

environment. There are five basic competitive forces that shape an industry: Bargaining power of

suppliers, bargaining power of customers, barriers to entry, threat of substitutes and intensity of

competitive rivalry. I will start by analyzing the bargaining power of suppliers; three aluminum

suppliers dominate the market, Alcan Aluminum (world’s largest marketer of primary

aluminum), Alcoa (world’s largest aluminum producer) and Reynolds metal (the only aluminum

company to produce cans in the United States). These three companies had significant bargaining

power over can manufacturers since they were responsible for a great part of the aluminum

production market and were the providers of the main material utilized to produce metal cans.

Some aluminum producers such as Reynolds Metal were even able to apply forward integration

into aluminum cans. Secondly, as far as the bargaining power of customers, there are four

major customers that play an important role in the industry; these are the Anheuser-Busch

Companies, Inc., PepsiCo, Inc., the Coca-Cola enterprise, Inc. and the Coca-Cola Company. The

companies enjoyed substantial bargaining power over can producers. Multiple relationships with

different suppliers allowed buyers to switch from suppliers that tried to raise prices or that

provided poor customer service. Thirdly, barriers to entry are high since the metal can industry

is better described as an oligopoly, where a few big companies dominate the market and

precluded small companies to acquire significant market share. The constants diversifications

and consolidations were also a hindrance for other companies to compete on the same level.

Fourthly, the threat of substitutes was elevated. Plastic was a strong possible substitute,

presenting lighter weight and easy handling but also not being able to retain carbonation and
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prevent oxygen infiltration at the level expected by brewers. An additional downturn of plastic

was the fact that it couldn’t provide perfectly flat bottoms required by standard production lines.

Another possible substitute was glass, a big threat for beer sales. Many customers indicated

having a preference for the “long neck” bottles. Finally, there is an intense competitive rivalry

among the market players. Five major firms control the industry, accounting for 61% of market

share. Prices within the industry are also very competitive and tactics such as volume discounts

are used to boost greater orders. Over capacity and shrinking customer base characterized the

industry.

The trends that might have a significant impact in the industry are such as the threat of

suppliers manufacturing in-house, the appearance of plastics as a packaging material, the

diversification and consolidation seen between major packaging producers, the still solid

competition from glass in the beer market and the development of soft drink industry as the

largest end user of packaging (which benefits aluminum). Some implications can arise from these

trends. In-house manufacturing represented a severe threat to can manufacturers since it allows

metal suppliers to skip one step of the chain and internally produce the cans that they would buy

from can makers. The new trend of plastics for packaging shook the container industry as

estimations for plastic bottle sales in the U.S showed very positive. Nevertheless, there are

serious environmental impacts associated with this material. Another seen trend between major

industry competitors is consolidation and diversification. Consolidation will lead into even fewer

players in the market with more market share and more power over the industry and

diversification will give companies a better chance of survival in a very competitive industry.

As far as glass consisting a trend, although glass bottles represented only 14% of the

market, there seem to be a very strong relation between beer customers and glass bottles. This

material was a strong option and could become a future niche for companies to focus on. The
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emerging of soft drinks in the beverage market strongly beneficiated aluminum, since it was the

primary material used to package soft drinks. This emergence could be a serious threat to other

materials, since it was light weighted, easy to handle and had a large variety of graphic options.

2. What strategy does CC&S have for competing in this industry? What

advantages does a firm the size of CC&S have for competing with American Can and

Continental Can?

Crown Cork and Seal was under the leadership of a very focused and talented manager, John

Connelly. He believed in reducing costs while also improving quality and customer service. The

essence of its successful strategy focused on having 26 manufacturing plants spread around the

country that would not only serve one customer but several at the same time. The objective was

to be close to the customer instead of to the supplier. Each of the 26 plants had a manager that

was an owner-operator; this was meant to make managers feel accountable for their decisions.

Another important part of this strategy was that the company was able to better answer its

customers’ needs and wants in a very flexible way and at a faster pace. Their Marketing strategy

was focused on customer satisfaction and the company offered excellent technical assistance.

Major competitors were not able to do the same due to their size. Also, the fact that the company

was considerate of the environmental impact caused by aluminum, and was positioned at the top

four aluminum recyclers.

The fact that CC&S is a smaller sized company works in its favor in a couple of situations.

For example, the smaller size of operations allows the company to have more flexibility as far as

answering buyer’s needs and wants while also giving the company the possibility of giving a fast

response to customers. American Can and Continental Can had a hard time applying these

measures since they had larger operations that translated into a great difficulty of quality control
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and customer management. Also, the fact that CC&S is not a pioneer but yet an excellent follower,

allows it to observe competitor’s mistakes and avoid risks of new decisions while also reducing

costs with R&D. This way the company was able to work closely with its buyers in special

requests. Additionally, the fact that CC&S is a comparatively smaller organization allows it to

focus on its core strengths, which are metal forming and fabrication and taking them to the

international market.

3. What are the major issues that William Avery faces in 1989? What advice

would you offer him about these issues?

As CC&S’s new CEO, William J. Avery is now responsible for making decisions that will

determine the company’s future. Firstly, he has to choose whether to continue Connelly’s

traditional strategy and let the company continue to do what it does best, metal forming and

fabrication. This decision might lead CC&S into a road of strategic flatness, as it is important to be

attentive and responsive to new trends that arise in the market. If he decides not to continue

Connelly’s strategy and possibly diversify the company’s business, one decision he would have to

make is whether to enter the plastic container market since it is a segment that is full of promise

and that has called the industry’s attention. Another possible choice would be to start working

with glass. There is still a market for glass with loyal costumers that are not willing to give up of

glass bottles. These costumers might have the potential of forming a niche market that CC&S

would serve in a near future. Avery also has to make a decision on whether to acquire Continental

Can Canada. If this business were to take place it would become CC&S’s greatest single presence

outside of the United States. In addition, Continental Can was also selling its European, Asian,

Latin American and Middle Eastern operations. Since the one part of Connelly’s strategy was to

explore international markets, the fact that Continental’s operations are available for sale could
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represent the gate door to achieve this strategy. Nevertheless, several mergers in the industry

had not been successful and Avery feared that a merger could signify greater difficulties while

expanding the business abroad or that the process of adaptation would take an endless amount of

time and money.

My recommendations would involve diversifying into the plastics containers segment

and/or a merger. Since many of CC&S’s competitors are becoming very large and powerful

corporations as a result of increasingly more common mergers and consequently, are absorbing a

great part of market share, I would recommend CC&S to merge with Continental Can in order to

raise its market share. There are many concerns around mergers such as the fact that in the

history of this industry, many mergers didn’t work well. Nevertheless, companies like American

Can that have gone through mergers are still holding strong and still carry a good reputation with

them. In my opinion, if Avery decides that the company should stick to its core business, the

company will face a big risk of seeing its growth continue to decline. Furthermore, this merger

would provide CC&S the opportunity of doing business internationally without having to start

operations from scratch. Another possibility would be to first acquire Continental’s operations in

Canada and Europe, learn how to do the business internationally, and later on expand to other

countries with a more experienced view of the business. Although a merger is a very long process

that requires a big portion of the company’s energy and resources I believe that it would be a

profitable decision in the long run. Another recommendations would be to diversify into plastics.

Since there is a big promise to the plastics’ market, being the growth leader in the container

industry, it is my opinion that the company should enter this market. Plastic packaging will

become widely used by consumers and a decision to work with this material could make possible

for CC&S to survive in the future.