Threat
of New Entrants
· Initial investment required to be at least $20 million dollars, thus capital cost small relative to the size of the metal industry
· There was a low product design cost
· Efficient low cost plant was able to capture the industry
· More than 100 local firms entered the industry
· Limited prices and long term demand as new innovations (tetra packs, paper juice cartons) emerged.
· The threat of substitutes grew from 9% to nearly 15% in late 1980s.
· Reynolds did a forward integration
· Large breweries, soft drink giants, general food companies all buy in large volumes, setting the price and demanding quality and delivery.
· Minor switching cost involved, thus can be backward integrated into manufacturing their own cans.
· Cans are bought in large volumes –almost a commodity
· Buyers admonished poor quality by cutting order size
· Some buyers show credible threat of backwards integration into container making, knowledge diffusion (both technical and commercial)
· No brand identity
· Can equalled about 45% of cost of soda, all savings in can costs go straight to profit – Buyer industries tend to be competitive
· Limited players
· Market shares: American National 25%, Continental 18%, Reynolds 7%, Crown & Seal 7% and Ball Corp 4%
· This is basically a low‐growth, moderately capital intensive, somewhat cyclical, commodity product industry.
· Capital costs relative to variable costs mean you have to get high volume / market share which puts pressure on prices.
In conclusion:
This is not an attractive industry (as evidenced by the diversification of some of the major players).
Section A
Strategic Management
Class of 2013-15
· Initial investment required to be at least $20 million dollars, thus capital cost small relative to the size of the metal industry
· There was a low product design cost
· Efficient low cost plant was able to capture the industry
· More than 100 local firms entered the industry
Threat
of Substitutes
·
Many substitutes
available for the metal containers (especially glass, plastic, fibre foils)· Limited prices and long term demand as new innovations (tetra packs, paper juice cartons) emerged.
· The threat of substitutes grew from 9% to nearly 15% in late 1980s.
Bargaining
power of Suppliers
·
Majorly dominated by
three largest Aluminum Suppliers· Reynolds did a forward integration
· Large breweries, soft drink giants, general food companies all buy in large volumes, setting the price and demanding quality and delivery.
· Minor switching cost involved, thus can be backward integrated into manufacturing their own cans.
Bargaining
power of Buyers
·
Many of the buyers are large,
powerful companies – Coke, Pepsi etc.· Cans are bought in large volumes –almost a commodity
· Buyers admonished poor quality by cutting order size
· Some buyers show credible threat of backwards integration into container making, knowledge diffusion (both technical and commercial)
· No brand identity
· Can equalled about 45% of cost of soda, all savings in can costs go straight to profit – Buyer industries tend to be competitive
· Limited players
· Market shares: American National 25%, Continental 18%, Reynolds 7%, Crown & Seal 7% and Ball Corp 4%
· This is basically a low‐growth, moderately capital intensive, somewhat cyclical, commodity product industry.
· Capital costs relative to variable costs mean you have to get high volume / market share which puts pressure on prices.
In conclusion:
This is not an attractive industry (as evidenced by the diversification of some of the major players).
Contributed By:
Bitan BanerjeeSection A
Strategic Management
Class of 2013-15
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