Description
Crown, Cork and Seal in 1989. Describes the structure and recent trends of the metal container industry, Crown's successful strategy for competing in the industry, and John Connelly's leadership over more than 20 years.
Crown, Cork and Seal in 1989
Crown – Overview
• One of the World’s leading packaging manufacturers • Makers of 1 out of every 5 beverage cans in the World • Also produces aerosol cans, specialty packaging, can ends and crowns • 223 mfg. plants situated in 49 countries • 60% of revenues from outside US
Company History
• An Idea for better bottle cap gives rise to Crown, Cork And Seal Company 1891 • Bought By Competitor Charles McCanus due to bankruptcy following patent expiry 1927 • Diversification into Can-Making
1930
1957
• Bankruptcy again – Co. taken over by John Connelly
Connelly’s Strategy
Target Markets
•Domestic niche in growth segments •International – Pioneer rights •Exits Motor Oil Can Market
Financial Control
•Reduce debt •No Cash dividends •Stock Repurchase
Labor and Personnel
•Lean and Mean •Low Salaries •Stock Option incentives
Cost Efficiency and Improving Quality
Manufacturing
•Small plants located close to customer •Process innovation\cost reduction •Just in Time
R&D
•Work closely with customers •Not expend heavily on R&D
Marketing
•Close ties with customers •Provide technical assistance at customer’s plant
Was it finally time for CHANGE (1989)
• Growth Slow down in metal containers • Plastic was only growing segment • Problems in merger of America Can and National Can
Challenges
The Big Questions
• Should Crown diversify into Plastic Containers? • Should Crown Bid for Continental?
The Metal Container Industry
• Represented 61% of packaged products in US in 1989 • Included cans, crowns, screw caps, bottle lids etc for industrial and consumer goods • During 1980’s Aluminium can growth averaged 8% annually while steel shipment fell by average 3.1% per year • Aluminum took over steel in 1980 - 89
Metal Can Industry Structure
• Dominated by 5 firms – 61% Market Share • Pricing
– Extremely Competitive – Cost reduction attempts via volume discounts, over-capacity, shrinking customer base resulted in lower operating margins
• Customers
– Coca-Cola, Pepsico, Anheuser Busch etc
• Distribution
– Cost Components – Raw Material, Direct Labour, Transport – Manufacturing plants located close to customers to minimize transport costs – Aluminum was preferred over steel due to low shipping costs
• Suppliers
– Largest Aluminium Producers – Alcoa, Alcan, Reynolds Metals
Industry Trends
• In-house Manufacturing
– Captive Plants (25% of total can output)
– Followed by large brewers to reduce costs, but not widespread in soft-drink sector
• Plastics
– Initially showed great growth due to light weight, handling convenience resulting in customer acceptance – Challenges - Manufacturing difficulty, Carbonation retention, preventing oxygen penetration, recycling problem resulted in slow growth post 1987 – Market comprised mostly of small players with few exceptions e.g. Owens Illionis
• Glass
– Lost cost advantage on plastic due to rising resin costs – Metal was preferred for cans due to logistical, economic, transportation benefits etc
Diversification & Consolidation
• Reasons for Diversification
– Low Profit Margins – Excess Capacity – Rising Material Costs
• Diversification across
– Spectrum of Rigid Containers to supply major end-users (Foods, Beverages) – Non-Packaging Businesses (Energy, Finance)
• American Can ? Insurance, ultimately selling off can business to Triangle Industries • Continental ? Energy Exploration, Research, Transportation • National Can ? Glass Containers, Canning etc • Ball Corporation ? High–Technology Market
Major Competitors
Crown versus Larger Competitors in 1983
Revenues COGS Gross Margin SG&A Operating Income
CC&S American National ($ mm) % of Sales ($ mm) % of Sales ($ mm) % of Sales 1298 100% 3346.4 100% 1647.5 100% 1116 86% 2721 81% 1432.2 87% 182 14% 625.4 19% 215.3 13% 43.1 3% 501.8 15% 121.8 7% 138.9 11% 123.6 4% 93.5 6%
•CCS has higher operating income as compared to its competitors •Low investment in R&D has resulted in higher ROE for CCS (Exhibit 5)
Evaluation of Option – 5 Forces
Supplier Power • Acquisition of Continental Cans would reduce Supplier’s bargaining power in the metal can industry Buyer Power • Buyers pose a credible threat of backward integration • Continental acquisition would increase its market share thereby reducing buyer bargaining power Threat of Substitutes • Threat of Substitutes would be reduced by diversification into plastic containers
Evaluation of Option – 5 Forces
Potential Entrants
• Acquisition of Continental would further increase economies of scale • Access to newer distribution channels Industry Competitors • Continental has a market share of 18% in the metal can industry as compared to CCS’s 7%. So the acquisition would reduce competition for CCS
Possible Benefits of the Acquisition
• Post Acquisition : Double the sales to $ 3.6 billion • Analysts expect demand to increase from the soft drink business • CCS current debt to equity ratio is 12% which would rise to 38% post the acquisition • But the repayment of debt for the acquisition should be easy – Connelly’ frugality and Crowns’ strong cash flow • As a result of the acquisition, stock price could rise to $70
Parenting Matrix
Ballast Business Heartland Businesses (CCS acquisition of Continental Can Company) Alien Business Value Trap Business
Feel
Benefit
Recommendation
BID FOR CONTINENTAL CAN COMPANY TO EXPAND THE BUSINESS
What actually happened ?
• William Avery –CEO- 1989 • 1990 consolidation – acquired Continental Can • 1992 entered into plastic container industry – acquired Constar & became leader in PET products ( plastic ) • 1993 – food canning – acquired Van Dorn • 1996 – packaging – acquired Carnuad Metalbox
doc_103424820.pptx
Crown, Cork and Seal in 1989. Describes the structure and recent trends of the metal container industry, Crown's successful strategy for competing in the industry, and John Connelly's leadership over more than 20 years.
Crown, Cork and Seal in 1989
Crown – Overview
• One of the World’s leading packaging manufacturers • Makers of 1 out of every 5 beverage cans in the World • Also produces aerosol cans, specialty packaging, can ends and crowns • 223 mfg. plants situated in 49 countries • 60% of revenues from outside US
Company History
• An Idea for better bottle cap gives rise to Crown, Cork And Seal Company 1891 • Bought By Competitor Charles McCanus due to bankruptcy following patent expiry 1927 • Diversification into Can-Making
1930
1957
• Bankruptcy again – Co. taken over by John Connelly
Connelly’s Strategy
Target Markets
•Domestic niche in growth segments •International – Pioneer rights •Exits Motor Oil Can Market
Financial Control
•Reduce debt •No Cash dividends •Stock Repurchase
Labor and Personnel
•Lean and Mean •Low Salaries •Stock Option incentives
Cost Efficiency and Improving Quality
Manufacturing
•Small plants located close to customer •Process innovation\cost reduction •Just in Time
R&D
•Work closely with customers •Not expend heavily on R&D
Marketing
•Close ties with customers •Provide technical assistance at customer’s plant
Was it finally time for CHANGE (1989)
• Growth Slow down in metal containers • Plastic was only growing segment • Problems in merger of America Can and National Can
Challenges
The Big Questions
• Should Crown diversify into Plastic Containers? • Should Crown Bid for Continental?
The Metal Container Industry
• Represented 61% of packaged products in US in 1989 • Included cans, crowns, screw caps, bottle lids etc for industrial and consumer goods • During 1980’s Aluminium can growth averaged 8% annually while steel shipment fell by average 3.1% per year • Aluminum took over steel in 1980 - 89
Metal Can Industry Structure
• Dominated by 5 firms – 61% Market Share • Pricing
– Extremely Competitive – Cost reduction attempts via volume discounts, over-capacity, shrinking customer base resulted in lower operating margins
• Customers
– Coca-Cola, Pepsico, Anheuser Busch etc
• Distribution
– Cost Components – Raw Material, Direct Labour, Transport – Manufacturing plants located close to customers to minimize transport costs – Aluminum was preferred over steel due to low shipping costs
• Suppliers
– Largest Aluminium Producers – Alcoa, Alcan, Reynolds Metals
Industry Trends
• In-house Manufacturing
– Captive Plants (25% of total can output)
– Followed by large brewers to reduce costs, but not widespread in soft-drink sector
• Plastics
– Initially showed great growth due to light weight, handling convenience resulting in customer acceptance – Challenges - Manufacturing difficulty, Carbonation retention, preventing oxygen penetration, recycling problem resulted in slow growth post 1987 – Market comprised mostly of small players with few exceptions e.g. Owens Illionis
• Glass
– Lost cost advantage on plastic due to rising resin costs – Metal was preferred for cans due to logistical, economic, transportation benefits etc
Diversification & Consolidation
• Reasons for Diversification
– Low Profit Margins – Excess Capacity – Rising Material Costs
• Diversification across
– Spectrum of Rigid Containers to supply major end-users (Foods, Beverages) – Non-Packaging Businesses (Energy, Finance)
• American Can ? Insurance, ultimately selling off can business to Triangle Industries • Continental ? Energy Exploration, Research, Transportation • National Can ? Glass Containers, Canning etc • Ball Corporation ? High–Technology Market
Major Competitors
Crown versus Larger Competitors in 1983
Revenues COGS Gross Margin SG&A Operating Income
CC&S American National ($ mm) % of Sales ($ mm) % of Sales ($ mm) % of Sales 1298 100% 3346.4 100% 1647.5 100% 1116 86% 2721 81% 1432.2 87% 182 14% 625.4 19% 215.3 13% 43.1 3% 501.8 15% 121.8 7% 138.9 11% 123.6 4% 93.5 6%
•CCS has higher operating income as compared to its competitors •Low investment in R&D has resulted in higher ROE for CCS (Exhibit 5)
Evaluation of Option – 5 Forces
Supplier Power • Acquisition of Continental Cans would reduce Supplier’s bargaining power in the metal can industry Buyer Power • Buyers pose a credible threat of backward integration • Continental acquisition would increase its market share thereby reducing buyer bargaining power Threat of Substitutes • Threat of Substitutes would be reduced by diversification into plastic containers
Evaluation of Option – 5 Forces
Potential Entrants
• Acquisition of Continental would further increase economies of scale • Access to newer distribution channels Industry Competitors • Continental has a market share of 18% in the metal can industry as compared to CCS’s 7%. So the acquisition would reduce competition for CCS
Possible Benefits of the Acquisition
• Post Acquisition : Double the sales to $ 3.6 billion • Analysts expect demand to increase from the soft drink business • CCS current debt to equity ratio is 12% which would rise to 38% post the acquisition • But the repayment of debt for the acquisition should be easy – Connelly’ frugality and Crowns’ strong cash flow • As a result of the acquisition, stock price could rise to $70
Parenting Matrix
Ballast Business Heartland Businesses (CCS acquisition of Continental Can Company) Alien Business Value Trap Business
Feel
Benefit
Recommendation
BID FOR CONTINENTAL CAN COMPANY TO EXPAND THE BUSINESS
What actually happened ?
• William Avery –CEO- 1989 • 1990 consolidation – acquired Continental Can • 1992 entered into plastic container industry – acquired Constar & became leader in PET products ( plastic ) • 1993 – food canning – acquired Van Dorn • 1996 – packaging – acquired Carnuad Metalbox
doc_103424820.pptx