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Crown Cork & Seal Case Study Solution
Case Prepared By:
- Arzoo Tayeb
- Maryam Shuja
- Samira Popal
- Shahnaz Ahmadi
Contents (Jump to)
Crown Cork & Seal started its business from manufacturing bottle caps which became popular day by day and soon it began selling the bottle caps around the United States. At a stage it was in the state of bankruptcy, when a competitor named Charles McManus purchased the company in 1927. Half of the market of US has become customer of corks produced by the company and helped it to build the largest plant of bottle caps in Philadelphia, although, the inefficiencies less capacity created huge losses for the company. In 1946, after McManus passed away, the company diversified its products with producing plastics and metal bird cages. Then John Connelly took charge of becoming the Chairman, at the time company was facing huge losses. Connelly introduced changes in the production pattern of company particularly the metal can and container industry which in return brought stability to the company.
This case describes the background of Crown Cork & Seal mainly considering the strategic issues that the new CEO William J. Avery should consider after exit of John F. Connelly ailing chairman of Crown Cork & Seal. It also analyzes the future competitiveness strategy of the industry in which Crown operates and competes while understanding the structural analysis of the industry. As mentioned it mostly describes the attractiveness of the metal container over many years and generally describes performance of John Connelly. Furthermore, the case comprises understanding of significant changes which are taking place in the industry and the response from the new CEO in handling the particular situation. Lastly, the case describes the current situation of the company and outlines what has happened with the company whether the project became a success or a failure.
Because of the changes in the metal can and container industry trends, the newly appointed CEO, Avery has been facing with two key strategic issues after the exit of John Connelly the ailing Chairman of Crown. Avery should have considered the need of the company whether to participate in the bid for Continental Can Canada which is one of the largest players of the industry or it shall enter the plastic container industry in which it forecasted a strong growth along with the growth in glass industry. Crown needed to make a quick decision as there has been a rapid change in the trends of the industry which allowed big players to change their current strategy and shift to a better alternative along with the passage of time. Entering the bid for Continental Can Canada would allow the company to attain a good presence outside the United States.
Metal, Plastic and glass industry is the appropriate industry to analyze for Crown. We should mainly focus on metal industry where Crown operates and competes, because it majorly expertizes in making cans and containers this industry shall remain on focusing. Metal Industry is the particular industry on which Crown established its core competency and developed profits in the long run. However, the two other industries mentioned above i.e. plastic and the glass industry shall also be considered and analyzed because these are the two other important industries for Crown as it wants to start operations in these field to sustain its market position and to maintain profits for the company.
The main four competitors in the industry in which Crown is operating and have competed well are American National Can, Continental Can, Reynolds Can and Ball Corporation. Among above mentioned competing firms in metal industry American National Can acquired the National can for $421 million. It has developed and sustained itself in the market through various acquisition and merger strategies. Also, American National Can is the wholly-owned subsidiary of Pechiney which is considered as the third largest producer of Aluminum in the world. Till 1970’s Continental Can was the market leader in the manufacturing of the metal can and container. It made efforts to become market leader and did not succeed because American National was the market leader at that time. The company became a good takeover target when it achieved good sales. However, it is still up for the bid for acquisition due to revenues in recent years.
Here we examine barriers of entry for Crown Cork & Seal. For metal, glass and plastic industry the barriers are high because huge investment is required to start the business. It is because in order to increase revenue, cover costs incurred and achieve economies of scale establishment of many plants is required. In general uncertainty in the market regarding the different alternative industry that restricts the ability of different companies to either diversify their business portfolio, or to enter in the particular industry as a new entrant is another barrier to entry. However, this industry has attractiveness because big customers such as Coca-Cola Company, Pepsi Cola, and Coca-Cola Enterprises, have contracted with their suppliers of bottles which makes the industry competitive and achieves high revenues. If any new entrant is able to have a long term contract and supplier for the big customers of the industry then the barrier erodes and entry becomes high. Once entered the companies need to maintain strong competitiveness, maintain quality standards, and prove their worth to the market to develop certain customers.
The threat of substitute is also very high for the metal can and containers. Plastic, glass, aluminum and steel industry are the substitutes for metal can and container. Aluminum cans has the highest market share.. Customers of aluminum can and container are soft drink producers that demand packaging of their product. At the beginning steel used to dominate the market until aluminum started operation as highest producer of the packages products with its advantage of low weight and higher quality.. Glass dominated the alcohol and beer market. The glass market is left with only customers in the alcohol, wine, and the beer market while the rest of the market has been dominated by other similar industries.
Plastic industry dominates the market from the period of 1981 to 1989 because of its cheap production, much lighter weight than aluminum, and its convenient handling. But due to many reasons in which one of the main reason includes carbonation and the infiltration of oxygen which allowed the industry to lower its sales. Although the particular industry is still in consideration for many companies as it promises strong future and revenues.
The bargaining power of the suppliers has remained moderate. The aluminum cans as the largest supplier to soft drink market rely on its suppliers of aluminum sheet. However, as there has been changes in the trends of the particular industry, many companies which were the suppliers to the aluminum can producers also started to compete against their customers. This competition caused increase in the number of participants which in turn increased the capacity of companies competing in the market although there has been an increased threat of a new entrant.
The bargaining power of the buyer in this is high due to many options available to the big players of the market. Companies have options whether they shall opt for the glass, steel, or aluminum packaging. Moreover, the increase in the buyer power causes the prices for the products to decline because the number of competitors increases. Furthermore, companies that have achieved success in this industry have provided their customers with low cost, higher production efficiencies, and to enhance their core competencies. These customers have also located themselves near their customer so as to reduce the transportation cost.
Before John Connelly has become as the President of Crown Cork and Seals in the year 1955, the company was about to declare bankruptcy. He was appointed by the management of the as the President as he was amongst the outside Directors of the company. Under management of John Connelly, the company reached great heights of success because of the strategies and tactics applied by Connelly. He focused on applying the basics to reduce production cost and also to generate higher revenues to become competitive in the market. Along with the cost and revenue factor, the company aimed to respond the changing trends of the industry and anticipated correctly for the future trends and made changes in its business concept to remain competitive
After appointing Connelly, Connelly took strategic decisions to protect the company and in securing its future. Connelly had to lay off 1647 workers, limiting their staff, and facility to reduce cost and to focus more on achieving revenues. 24% reduction in payroll reduced the cost of the organization and helped in developing a platform towards success. The concept of accountability was introduced for plant managers, this strategy allowed managers to make efforts in attaining profitability for the company. Achieving good numbers of sales would result in informal rewards to motivate employees in achieving more targets. The third strategy applied by Connelly was focused on addressing the debt concerns. Connelly paid off the banks’ debt through liquidation and reduction in the inventory strategies. By applying these strategies, the company achieved an increase in sales from $115 million to $176 million from the year 1956 to 1961.
Connelly adopted well in the shift of the industry trends as Connelly diverted its focus from the packaging of motor oil cans due to the saturation of the market and their shift towards the fiber-foil cans which were much lighter and cost effective. Despite the fact that the company was losing sales opportunities, Connelly diverted its attention towards other opportunities. Connelly spent less in the Research and Development department because Connelly considered that Crown was never a new product developer and its core competencies lie in other areas. However, the company was efficient in providing the similar products in a different package which attracted their customers by far than their competitors. Therefore, Connelly saved costs which were to be incurred in the R&D, and invested in developing the efficiency and improving the quality of its operational department.
Moreover, the performance of the company had sky-rocketed in the era of Connelly and the company was able to collect many successes in his tenure. While considering the stocks for Crown for the year 1981, the company was trading its stocks at a higher price of $12 which significantly increased till the end of the tenure of Connelly to $46.72 in 1988. However, while considering the entire tenure of Connelly from 1957 to the year 1989, if an individual had invested $100 in the stocks for the company in the year 1957 then the particular individual would have $30,000 at the end of the year 1989. This huge difference could summarize the performance of Connelly for Crown. However, the Return of Equity for the year 1956 was at 0.55% due to the increase in debt ratio, as it had been plummeted to 15.57% at the end of the year 1979 which resulted in the drastic change over the years. These changes reflected the financial situation of the company in the tenure of Connelly, as one of the individual at the company illustrated that Crown was in its coffin and buried when Connelly was made the president, since the company had managed to come out of the coffin and sprint.
The keys to the success of John Connelly includes the changing of the vision as he focused more towards the concept of cist efficiency, improving quality of the operational department, improving the quality of customer service, and accepting the changing trends of the industry and coping well with the changes. These changes brought about a complete turnaround for the company.
The major shift in the industry trends include the in-house manufacturing, emergence of plastic for packaging material, competitiveness of glass in the beer market, emergence of soft drink as the largest customer for packaging industries, and diversification of major player in the industry. The industry faced an increased trend of customers making 25% of the total cans. These customers are the manufacturers of food and brewers and the trend has been shifting towards reducing the cost of production. An increase in the market growth for the plastic industry from the year 1980 to 1989 and increase in the plastic bottle sales has allowed companies to shift their focus from other industries to plastic industry. However, the plastic contains the disadvantage of carbonation and the infiltration of oxygen.
The other major trend is the competitiveness of glass market in the beer, alcohol, and the wine market. The long history of companies to present its consumers with the glass products has inspired their customers. It constitutes about 14% of the total soft drink sales in the industry. The soft drink market has increased from $15.9 billion market in the year 1980 to $49.2 billion market till the end of 1989. This shift has largely benefitted the aluminum market because of the highest market share occupied by the aluminum market players. Furthermore, diversification has been taking place in the industry due to low revenues involved. Many companies have shifted to insurance industry from the developers of metal can and containers.
It is finally time for Crown to make changes in its strategies to remain competitive in the market and to respond to the major changes which have been occurring in the industry. Due to the different low cost and high quality alternatives, the company is recommended to shift its focus from the aluminum industry to the plastic industry. This particular alternative is to be adopted over another alternative of purchasing Continental Can because the particular aluminum industry is in the verge of saturation and no further growth is possible for the company. It is also noted that there are not many competitors involved in the plastic packaging industry due to its recent adaptations by many manufacturing companies. However, the company has to address the growing concerns for carbonation and infiltration of oxygen. These changes would result in securing a good position for the company in the market. Moreover, the company would earn other benefits of decreased shipping cost because of the advantage of having lighter weight than Aluminum. Furthermore, decrease in cost would enlighten up the company’s revenues.
In 1990, Crown purchased Continental Can and expanded its operations in different parts of North America. The company also purchased CONSTAR which is the market leader in PET plastic container for making packages for food and beverages. Therefore, it could be learnt that the company applied both the alternatives to focus on both the industry (Crown Holdings Inc., 2013).
Avery has two options to strengthen its aluminum market; to either shift its production from the metal can and container market to plastic or to purchase its competitor Continental Cans. As a conclusion to this case and analysis of the situations it is recommended that the company shall shift its operations from aluminum to plastic manufacturing for packaged products. Market growth of plastic Industry is attractive for many companies. However the company decided to purchase Continental Cans to spread its operations in North America and to become market leader of Aluminum. It also purchased CONSTAR, the market leader in manufacturing PET plastic for food products. Therefore, Crown Cork & Seal first managed a strong hold in the aluminum market then it diversified its focus to plastic market which has resulted in an increase in its revenues.
Crown Holdings Inc. (2013). Annual Report 2013. New York: Crown Holdings Inc.
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