CROWN, CORK
AND SEAL IN 1989
Submission by: (Group 6)
1. Ayushi Puri (PGPBL0233)
2. Kanhaiya Bharadwaj (PGPBL0240)
3. Satyam Agarwal (PGPBL0250)
4. Srikar T (PGPBL0255)
5. Sumit Raj (PGPBL0256)
UNDERSTANDING THE PROBLEM STATEMENT
• Crown Cork and Seal is a manufacturer of metal cans and closures. The CEO of the business is evaluating the future proposition of the business given that
analysts see little growth potential for metal cans going forward and forecast plastics as the growth segment.
• Porter’s 5 Force analysis has been used to understand the industry structure and problem in hand.
THREAT OF NEW ENTRANTS (LOW) THREAT OF SUBSTITUTES (LOW)
Low profit margins - - Use of plastic packaging (9% in 1980 to 18% in
Excess capacity already in place - ’89)
Rising material and labour costs - - Use of glass bottles for domestic soft drink sales
COMPETITIVE RIVALRY
Probability of consolidation via mergers - - 5 firms dominate market with
Investment is high for two-piece cans - cumulative share of 61%
- - 7% Increase in beverage can
production between 1987 & 89
- Falling operating margins (7% in
BARGAINING POWER OF BUYER (HIGH) 1986 to 4% in 1989) BARGAINING POWER OF SUPPLIER (HIGH)
Consolidation in buyers from 8,000 to 800 in 1989 - Overcapacity and shrinking - 2 players dominate 65% of raw material
- customer base requirements
Captive production by buyers (mainly Brewers - - Suppliers entering into forward integration
Prices sensitivity is very high - - Increase in price of raw material
Changing demand for type and material of cans - - Companies offer volume discounts
Price Sensitivity -
WHAT DOES CROWN CORK AND SEAL HAVE?
FINANCIAL STRENGTH COMPETITIVE ADVANTAGES
Lower Financial Leverage as compared to competitors (reduced Second mover advantage
from 42% to 18%)
Good Liquidity due to disinvestment Traditional strength in metal forming and fabrication
Flexibility and quick response to customer’s need is emphasized in its
ROE of 15.8% is one of the highest in the industry
manufacturing
65% of revenue is driven by its core can manufacturing business International presence with 42% revenue and 54% of sales from foreign
market
FINANCIAL
STRENGTH
+ COMPETITIVE
ADVANTAGE
= LONG-TERM
SUCCESS
WHAT ARE THE OPTIONS AVAILABLE FOR FUTURE GROWTH?
Acquire Continental Cans: in parts or whole
1 • Become Largest player in Canada and largest single player outside of the United States
• Continental’s USA business—with estimated revenues of $1.3 billion in 1989—would double
DIVERSIFICATI
the size of Crown’s domestic operations
ACQUISITIO
ON
Undertake Product Diversification and expand into plastic and glass
2 • Growth of plastic usage in packaging is high - 9% in 1980 to 18% in 1989
• Less competition as all the players are below $100Mn
WHICH ARE THE FACTORS THAT THE COMPANY NEED TO CONSIDER?
Utilize Core Competencies and Strengthen Business?
Focus on specialized products and increase capacity to generate more revenue?
Select focus markets for growth - Domestic or International or both?
WHAT ARE THE PROS AND CONS OF A;L OPTIONS AVAILABLE?
Plastic Glass Acquisition
Pros Pros Pros
• High growth (9% in 1980 to 18% in 1989) • Beer consumer had love affair with ‘long • Crown cork will get 18% of the market
• Plastic bottle sales in the United States neck bottle’ share that will roughly add $400 million
were estimated to reach $3.5 billion in Cons sale .
1989. • • It will make crown largest single
No logistic benefits.
• presence outside US.
Widespread acceptance among customer • No compactness in inventory.
due to light weight and convenient • Enhances the bargaining power against
handling. • Soft drink bottler preferred metal cans suppliers and buyers.
compared to glass bottles.
• No big players for large scale production. Cons
Only 7 companies had sales over $100 • Low filling rates.
• Differences in the culture.
millions.
• In-house manufacturing was increasing
Cons
substantially
• Plastic recycling was not a closed loop
system.
• Carbonation retention was low.
Action Plan
1 2 3
Analysis Dive into the
Buy Continental Can
plastic industry
Avery should use the Porter Avery should not venture into To improve the world-wide
Five forces to determine the plastic industry as it has presence Crown industry should
company’s current health and always believed and leveraged acquire Continental can. It will
position its core competencies to its help Crown with enhance market
advantage. share and will enhance revenue in
Its decision should consider its
long Term.
vision while considering the Although the growth is
alternatives promising there is uncertainty No new Process required as it
in terms of requirements already has excellence in can
manufacturing
