Metal Container Industry Case Study

Question 1:

What is your detailed analysis of the metal container industry and its drivers up until 1989?

Answer 1:

Structure:

The U.S. metal container industry was around $ 12.2 billion industry in 1989. 61% of the market share was held by the top 5 players (American National Can - 25%, Continental Can - 18%, Reynolds Metals - 7%, Crown Cork and Seal - 7%, Ball Corporation - 4%) and the remaining 39% was held by approximately 100 firms.

Approximately 120 billion cans were produced in 1989 compared to 88 Billion in 1981. Consumption of cans among the Beverage (beer and soft drinks) producers’ grew from 63% in 1981 to 72% in 1989.

Although the demand was growing, industry operating margins fell from approx. 7% to 4% in a span of 4 years from

These customers used to maintain relationships with more than one supplier because the cost of these cans represented 45% of the total cost of packed beverage.

Manufacturers located their plants near customers premises to minimize the transportation costs. The prime cost components of the metal can consisted of – (a) raw materials @ 65%; (b) direct labor @ 12%; (c) transportation @ approx. 7.5%. A two piece can line was costing $20 to $25 millon. A three piece can line was costing between $1.5 and $2 millon. By 1983, two-piece cans dominated the beverage industry where they were the can of choice for beer and soft drink

CC&S was on the verge of bankruptcy in 1957. After John took the charge of the company, he made significant changes in almost all the areas i.e. product lines, shutting bleeding plants, recycling, research and development, marketing & customer service, financing, improving performance and growing international market. As an industry analyst quoted “His strategy was a no-nonsense, back to basics strategy”.

Products and Markets:

Focusing on the strengths of CC&S and recognizing the massive potential of the soft drink business, Connelly led Crown design its equipment specifically to meet the needs of the soft drink producers with innovations such as two printers in one line and conversion printers which allowed rapid design changeover to be able to do ‘just in time delivery’. In the early 1980s Connelly directed CC&S from steel to aluminum cans.

Manufacturing:

Connelly made several changes like shutting down the Philadelphia facility, investing heavily in new and international locations. In a span of 13 years until 1989, CC&S grew from 9 locations to 26 locations in the US. It’s important to note that Connelly ensured that the plants were closer to the customer facilities. This enhanced the efficiency in delivering the goods to the customers and reduced the transportation costs as well. Connelly emphasized a lot on the improvising the quality of the goods yet maintaining the cost as low as