CROWN CORK & SEAL CASE STUDY

Business Strategy
PGEMP Batch-28 Group-3 Jignesh Shah- PGEMP28/A/31 Kevin Fernandes- PGEMP28/A/08 Vinay Bidaye- PGEMP28/A/03 Bhavesh Thakkar- PGEMP28/A/37 SandeepYamgekar- PGEMP28/A/40

Date: 28/04/2011

 Five Force Analysis

Substitute
1. Shifting to glass & plastic (non biodegradable and not suited to carbonated drinks) Increase switching cost due to change in machine

Suppliers Factors Affecting rivalry

1. 2. Limited players 25% American National , Continental -18% & Reynolds 7%, Crown & Seal -7%, Ball Corp- 4% Low exit barriers Intermittent over capacity Large volume -120 billion cans Al can 8 % growth rate, Steel can reduction of 2.6% Consolidation Continental can bought by Kewiet & American national can sold to french company 1. 2. 3. Dominated by 3 Al Suppliers Price increase by 15% Forward Integration by Reynolds

2.

3. 4. 5. 6. 7.

Customers
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Backward integration by Soft drink Manufacturers by 25% 55% of the beer can market share by backward integration Required delivery of finished goods at short notice Low switching cost to other can suppliers No brand identity Buyers volume 120795 millions of can Low volume soft drink bottlers Can constituted 45% of the beverage cost Easy substitution with other can manufacturers High demand for competitive price

New Entrants
1. 2. 3. 4. Entry barrier investment 20-25 million dollars Entry Barrier Distribution Entry barrier-Low profit margin Low product design cost

Metal Can Industry Scenario

 Market
12.2 billion market with 8% growth rate in US Huge untapped developing markets with high potential ( 62 plants generating 44% of sales & 54% of operating profits Limited no. of major players

Metal Can Industry Scenario

 Financials

Low profit margins in US ranging from 4-7% Huge investment

Others 39%

American national can 25%

Continental can 18%

Ball Corporation 4%

Crown Cork 7%

Reynolds 7%

 Crown Cork Financials

Healthy & consistent ROE of 14% Low /consistent ROS of 4-5% Operating ratio of 8-9% consistently , however high operating ratios of 15-18% from the rest of the world markets Low SGA per sale of 3% vis--vis 5-8% in the industry ( American can company around 15%) Very low debt to equity ratio Consistent cost of goods per sale of 85% International operating ratios is consistently improving from 14% to 18% (1986 to 1988)

Recommendations


Due to high volume ,low margin business Crown cork needs to expand & gain on volumes .

To pick the opportunity of taking over Continental can which catapults the market share from 7% to 25% making it on par with American National Can

 

The low debt equity helps raise funds for this take over Aggressive expansion in international markets returning 18% operating ratios

De risking by relocating old manufacturing plants from US to developing countries.

 

Expansion into food & other packaging industry. Diversify into plastic can business to supplement the soft drinks business

What Set Of Choices & Fundamental Policies Did Connelly Undertake?

          

Pare down the organization Instituted the concept of accountability Restructured the manufacturing lines Emphasized cost efficiency, quality and customer service as essential ingredients He made the employees as owner operators and created trust and support to the employee. Emphasized on tin plated cans & crowns Expansion to international markets with heavy investment abroad Expand national distribution Locating the plants close to customer Serving multiple customers 24 hours operation of the plant with 12hours shift

What Set Of Choices & Fundamental Policies Did Connelly Undertake?

 No focus on fundamental R & D  Stressed on continual improvement  Strong customer connect  Very low debt equity ratio  High ROE & low SGA expense  Capturing developing markets in the very initial stages  Entry in profitable Aluminum recycling industry.

Is there a pattern that would explain the companies under Connelly?

 He has maintained low SGA per sale & consistent ROE  Ensured low debt equity ratio and a very high current ratio  Low investments in R&D  Owner operating Company  Customer Focus  Quality Driven