Crown Cork and Seal Company: Summary of Case and Key Questions

Company Background Information and Historical Context By 1977 The Crown Cork and
Seal Company was the fourth largest producer of metal cans and crowns. Under
the leadership of John Connelly, the company had transformedf r o m n e a r -
bankruptcy in 1957 to becoming a formidable force in the domestic and
international metal container market. By 1976 Crown had revenues of $910 million,
$343million of which came from international markets – making them the largest
international producer. They derived 65% of total sales from tin-plated cans and 29% from
crowns; the r e m a i n d e r o f t h e i r b u s i n e s s c a m e f r o m b o t t l i n g a n d c a n n i n g
m a c h i n e r y. I n t e r m s o f product categories, cans were categorized as follows: Food cans,
beverage cans, pet foods
and general packaged cans. The biggest growth category was beverage
c a n s w h i c h comprised of soft drinks and beer. At the time of the case, Crown
was considered to be
extremely successful – their return on sales was twice that of th
e i r t h r e e l a r g e s t competitors, and they enjoyed the highest profit growth over the last 10
years. Industry Characteristics and Value Chain Customers: 80% output came from food
and beverage companies who maintained at least two suppliers and had significant power
of them. C o m p e t i t i o n : C r o w n ’ s c u r r e n t m a r k e t s h a r e w a s 8 . 3 % . T h e i r t h r e e
biggest competitors were American Can (16.6%), Continental Can (18.4%) and
National Can:(8.7%). There also faced significant threats from customer’s backward-
integrating into t h e s u p p l y c h a i n ( e . g . C a m p b e l l s o u p s t a r t e d m a k i n g
their own cans) and
f r o m aluminum producers like Alcoa grabbing market share.Suppliers: Big U.S
steel companies and new entrants who supplied aluminium, fibre-foil and plastics. Crown’s
Strategy Philosophy: Relentless focus on core strengths: product lines were based
on metal f o r m i n g a n d f a b r i c a t i o n c o m p e t e n c i e s w i t h a s i n g l e - m i n d e d
f o c u s o n t i n c a n s a n d crowns. Since R&D was not their strength, they decided
to be the “second” player, learning from other firm’s mistakes and successes.

Culture: Customer-centric culture. Plants were spread out to be close to customers – this
reduced transportation costs and allowed the company to react to customer needs
quickly. Furthermore, each plant served multiple customers. Scope: Lots of emphasis was
placed on international expansion, to tap into markets where packaged
foods were being rapidly adopted. Operations: Plant sizes were small allowing them to
be nimble and flexible. Key Industry Trends The threat of self-manufacturing from customers.
Threat of new packaging materials – in particular aluminium started to become
competitive alternative to steel cans for a variety of reasons (reduced
transportationcosts due to lighter weight, safety, environmental impact, etc.). Als
o, competition began emerging from fibre foil and plastics. Packaging Revolution --
With companies differentiating on packing, two problems emerged: 1 aluminium
and plastics became better contenders for variability in packaging design Customers started
investing large amounts of R&D dollars in packaging making it harder
for the smaller suppliers to compete. Future Issues Ozone scare that aerosols cause
permanent damage to the ozone layer. Regulation around non-returnable cans –
resulting in increased popularity of aluminium (aluminium had a larger network +
higher recycle value).Strategic Questions: How would you characterize this industry?
How attractive or unattractive is this industry? What do you think are the active
ingredients that contributed to Crown’s success? What do you think are the biggest
threats to Crown going forward? Do you think Crown should invest in aluminium ? Do
you think Crown can continue to grow by pursuing the same strategy? If you don’t think so,
what should Crown do to win in this industry?

Report 2
The changes taking place in the metal container industry at the time of the Crown,
Cork and Seal case using Porter's 5 forces can be described as follows: Current Players There
was a high concentration of market share held by five companies in the metal can
industry. Collectively, the five companies held 61% of the market, with the
remaining39% shared by approximately 100 firms. With the five firms holding a
large market share, the competitive environment becomes more like a monopoly
and therefore less c o m p e t i t i v e . T h e r i v a l r y a m o n g t h e f i v e f i r m s s e e m s
t o h a v e i n t e n s i f i e d d u e t o t h e following observed industry characteristics:
1.The little growth potential for metal
c a n s i n t h e 1 9 9 0 s a n d t h e a n a l y s t s ‘expectations of plastics as
the "growth segment for containers."2 . S i n c e t h e y a l l p r o d u c e d m o s t l y t w o -
p i e c e c a n s a n d c a t e r e d t o t h e m e t a l b e v e r a g e containers market, there
appears to be a low product differentiation among the five
firms.3 . T h e a s s e t s p e c i f i c i t y o f t h e i n d u s t r y c r e a t e
s a h i g h e x i t b a r r i e r w h e r e t h e equipment is highly specialized
that the firms may have a difficult time selling to buyers from other industries.4 . M a j o r
customers producing their cans in-house that accounted for
a p p r o x i m a t e l y 25% of the total can output in 1989.Barriers to entry One of the barriers to
entry in the metal can industry at this time is the monopoly held by the top five firms. It would
difficult for a small start-up firm to have any real significant impact on obtaining market
share unless they come in on a large scale or if they have p r o p r i e t a r y k n o w -
h o w . A n o t h e r b a r r i e r w o u l d b e a s s e t s p e c i f i c i t y a s m e n t i o n e d i n number 3
above. Suppliers

The suppliers in the metal can industry are considered powerful since it is dominated
by b a s i c a l l y 3 a l u m i n u m c o m p a n i e s a n d a r e a h i g h l y c o n c e n t r a t e d i n d u s t
r y i n i t s e l f . Although steel is another raw material used, its usage had declined
over the years as aluminium was lighter, were of better quality, less effect on
product taste, has "superior l i t h o g r a p h y q u a l i t i e s " and less costly
t o r e c yc l e . A l s o , t h e s u p p l i e r s d o n o t h a v e t o compete with other products
for sale to the metal can industry. The aluminium and steel companies serve as a check and
balance for each other. The suppliers also pose a threat of entering into metal can
manufacturing, such as Reynolds Metals, which make them a powerful supplier. Buyers t h e
b u ye r s i n t h e m e t a l c a n i n d u s t r y c o u l d b e c o n s i d e r e d t o b e p o w e r f u l a s
t h e y a r e concentrated on the beverage and food/general packaging industries and
the metal cans purchased are basically a standard or undifferentiated product. Because 45%
of the
totalc o s t o f a p a c k a g e d b e v e r a g e i s t h e c a n i t s e l f , t h e b e v e r a g e c
o m p a n i e s ’ m a i n t a i n relationships with more than one supplier in the metal can
industry. Substitutes The possible substitutes for the aluminium beverage cans are plastic
packaging containers, glass bottles and steel cans. The prices of the aluminium
beverage can be controlled by the prices of the possible substitutes.

the 1980s served to shift, as well as consolidate power, at the top of the county's leading
manufacturers. Some of these acquisitions
a n d m e r g e r s i n c l u d e s u c h c o m p a n y’ s a s A m e r i c a n N a t i o n a l C a n a n d C o n
t i n e n t a l C a n , w h i c h a r e t w o m a j o r c o m p e t i t o r s f o r Crown Cork and Seal. Peter
Kiewit Sons Inc. purchased Continental Group in 1984, and turned sales of 3.3 million in
1988.Another problem serving Crown Cork and Seal is that the industry has become
less dependent on can sales alone. They have diversified across the spectrum of
rigid containers to supply all major end-use markets (food, beverages, and general packaging),
others diversified into non-
p a c k a g i n g b u s i n e s s e s s u c h a s e n e r g y ( o i l a n d g a s ) , a n d financial
services. The product line of the world’s largest can maker, American National Can, is steel
cans, glass containers, and caps and closures served the major beverage, food,
pharmaceuticals, and cosmetics market. This goes to show that even the world’s
largest can maker doesn't solely rely on the sales of its cans. A n o t h e r r e a s o n w h y C r o w n
C o r k a n d S e a l s h o u l d n o t t o d e p e n d o n c a n s a l e s alone is the rise of in-house
manufacturing and plastics. Production of cans at "captive" plants-those producing cans
for their own company use-accounted for approximately25% of the total can output
in 1989. Many brewers found it advantageous to invest in captive manufacturer
because high-volume, single-label production runs made them more profitable. This trend is
taking away a lot of business from the can manufacturer industry, weakening future growth
potential. Plastics were also the growth leader in the 1980s.They went from 9%
market share of the container market in 1980 to 18% in
1989.RecommendationsC r o w n C o r k & S e a l , u n d e r t h e
s u p e r v i s i o n o f B i l l A v e r y, s h o u l d s t e p o u t s i d e t h e traditional strategic
boundaries and draft a new blue print for the future. Over the last few years, many
of the companies in competition with Crown have either merged with another
company or began pursuing other ventures outside the can industry. All are still holding
strong as reputable companies. If Crown continues to just stay put where they are
and continue making what they are producing now, the growth of the company will
continue to diminish.

We recommend that Crown merge with Continental Can to build a company with unlimited
possibilities. With the work ethic already instilled in the employees of Crown and with the
direction that Bill Avery has receive from innovator John Connelly, success f r o m t h e
m e r g e r c o u l d b e v e r y l i k e l y. B y m e r g i n g w i t h C o n t i n e n t a l , C r o w n w o u l d
expand their market share in numerous other countries. Although it may take a lot
of time and energy, we believe that a merger would prove profitable in the end. Options Since
the business of cork sealing and aluminium production is so diverse and expansive, there are
several options of ways to take control of the market. The first option would be t o m e r g e .
Merging with a major distributor and making the Crown Cork and Seal
Company a subdivision of say a company like Coca Cola, would have a great impact on the
sales and conditions of selling products to consumers. Combining two great assets to the
consumer market would make distribution easier; make flow of products in and out
of f a c t o r i e s f l o w f a s t e r a n d s m o o t h e r t h a n b e i n g s h i p p e d
between check points of the production process. Another option would
b e t o s w i t c h t o p l a s t i c s . T h i s i s a m u c h diversified market as well. Plastics
account for around one half of the distribution for almost all of the major
distributors listed in our text. Switching to plastics might be an alternative solution
at the moment, but plastics may not always be as lucrative market as everyone believes it is.
Another option is to simply just stay put. Don't diversify into another type of business, or merge
with another company and continue day to day sales and s e r v i c e s a s n o r m a l . T h e l a s t
o p t i o n t h a t w e c a m e u p w i t h i s t o c o m b i n e m e r g i n g a n d switch to plastics.
This would work on both ends of the spectrum of alternatives. At one p o i n t w e a r e g o i n g
t o m e r g e w i t h o t h e r c o m p a n i e s a n d c o n t i n u e t o m a k e t h e s a m e products, but
at the same time we are going to switch to plastics so that we can diversify into the market
more. If predictions end up being right, that corks for wine and other bottles will
soon not exist and everything will be going to twist offs or pressure sealed, then it
might be a wise decision to switch to plastics and merge with a large corporation.

Implementation and Control In order to create a strategic plan of implementing our

plan to merge, Crown Cork and Seal should swap and interlace managers from both
companies in order to create balance between manager levels at each company. The
Board of Directors will be consolidated with cross-over training and
implementation. Training sessions will be held for all of the employees. A SWOT analysis will
be conducted for each location, resulting in the shutdown of unprofitable plants and the
consolidation of more human and financial capital. This process will be done by
selling off the equipment and machinery of the weaker plants. However the original
strategy of Crown Cork and Seal will remain in action. The expected results
of implementing this merge will have short-term and long-t e r m e f f e c t s
on Crown. The short-term effects will be the loss of money from the
acquisition of Continental Can Company. The long-term effects beyond a five
year scope, the company will aim to become the leader of the metal can industry.