Crown Cork & Seal

Crown Cork & Seal

1. In 1989, the metal container industry was thriving. 61% of cans, crowns and closures we made from metal. Glass and plastic were in a distant second place. Metal cans were used for beverages, food and general packaging industries. There were two main types of cans, three-piece and two-piece. Steel was primarily used in three-piece, but for the two-piece can both aluminum and a thin-walled steel were the primary materials. The industry soon realized that steel was much more expensive to ship and therefore their profits started to decline. Conversely, aluminum prospered.

Five firms dominated the metal can industry in 1989, with Crown Cork & Seal being one of the leaders. Pricing was competitive, there was an over capacity and a shrinking customer base, which as a result led many companies to offer volume discounts. Manufacturers started selling at lower prices to keep their market share, resulting in waning profits. A few large companies were the leading users of metal cans, and during the 1980’s many of them consolidated. Most manufacturers wanted to decrease the cost of transporting their product, therefore they located their production plant near their customer. Costs mainly came from materials, labor and transportation. Steel cans were not much of a threat to the metal can industry for the sheer fact that their transportation costs were too high. Their only advantage over aluminum was price, but this did not prove substantial.

The first major trend of the industry was the threat of in-house manufacturing. Companies like Coors took advantage of producing their own cans to lower costs, but the soft drink industry did not tend to manufacture in-house. By producing in-house, the metal container industry lost a great deal of business. Another rising trend of the time was plastic because of its light weight and convenience. However, plastic cans did not hold in carbonation as well as aluminum cans, and therefore the metal container industry continued to dominate. If the plastic container industry would have spent money to research and develop, they might have been able to find a way to insulate the carbonation of soft drinks in their containers. This could have propelled the plastic industry into first place with regard to containers. Glass bottles also appeared to be a top competitor with the metal industry for a while with their “long neck” bottles, which are still popular today within the beer industry. However, glass bottles lost the battle against aluminum in all other beverage container categories. Another trend that embraced aluminum cans was the soft drink industry. The reasons soft drinks chose to use metal was its weight advantage, ease of handling, consumer preference and a wider variety of options for graphics. The last trend that emerged during this time was diversification and consolidation. Low profit margins, excess capacity and material/labor costs led many companies to consolidate. Other metal producers branched out of making cans and diversified their products. Due to this diversification, the companies that chose not to change their strategy held strong by creating the same product they had always created and gained market share. Crown Cork & Seal was one of the companies that did not consolidate nor diversify. Consolidating companies left the industry with a fewer number of customers, and the metal can industry had to battle for their business, which most likely led to bargaining in order to attract business. Bargaining leads to offering lower prices that leads to lower profits, which is unfortunate but inevitable for the metal container industry at that time.

2. The strategy of Crown Cork & Seal was a strategy created by Mr. Connelly that projected nearly three decades into the future. The key aspects of this strategy were cost efficiency, quality and customer service. Connelly also chose to focus on their niche, which were tin-plated cans and crowns. By doing this, he was able to focus more on the customers, quality and efficiency. When a company spread itself too thin with too many products, quality tends to be overlooked. Connelly knew that by sticking to their core product, he would be successful. He also exited the oil can market because he saw a future in only two other things: beverage cans and aerosol cans. Part of his strategy was to differentiate from his competitors by providing products for many customers near their plants, and not for just a single customer. By doing so, he essentially killed two birds with one stone. Connelly continued his strategy by shutting down unproductive plants, halting research and development, and investing in a recycling plant. He also increased marketing by emphasizing quality and got out of debt by selling inventory.

To create a competitive advantage, Connelly stayed focused on his niche market. Continental Can, on the other