1. How Attractive is the Metal Container Industry?
IDIS 611
August 2008
Dr. Jennings

2. BUYERS

3. Buyers Buyers are large firms Purchase large volumes
Beer
Beverages
Food
Anheuser-Busch
Coke
Campbell
Miller
PepsiCo
Kraft
General Foods
Purchase large volumes
Cans are a commodity
Buyers know costs
Backward integration
Cans are 45% of the cost of soft drinks
Buyers exert strong competitive pressures on the metal can industry and are a very powerful competitive force.
Are these the types of buyers that you would want to sell to?

4. SUPPLIERS

5. Suppliers Suppliers are major aluminum & integrated steel firms
71% of the market is aluminum
Alcoa & Alcan are suppliers to 65% of the aluminum can business
Reynolds Aluminum, a supplier, is in the can business
Integrated steel firms may be our best friend (why?)
Suppliers exert strong competitive pressures on the metal can industry and are a very powerful competitive force.
Who has leverage? Is it the “can” manufacturers or the suppliers?

6. SUBSTITUTES

7. Substitutes Substitutes for metal cans are: Glass Plastic Paper
Fiberfoil
Substitutes for Oil cans are:
Metal Cans
Fiberfoil
Plastic
Substitutes exert strong competitive pressures on the metal can industry and are a very competitive force.

8. THREAT OF NEW ENTRANTS

9. Threat of New Entrants Alcan entry? Entry isn’t too difficult
Transportation costs limit efficient operations to miles of a customer
3 pieces lines are available for $200,000
Minimum efficient scale plant with “one” 2 piece line is $12 million (market is $12 Billion).
Biggest obstacle is competitor retaliation
Reason for fewer new entrants is the low and deteriorating margins of the industry
Entry barriers are moderate. However, the intense price-driven rivalry in the industry has driven margins down making it unattractive for new entrants. Thus, the threat of new entrants exerts a weak competitive pressure on the metal industry and is not a very powerful competitive force.

10. RIVALRY

11. Rivalry The nature of rivalry in the metal can industry is: Low cost
Cyclical
Commodity product
Beer cans – 99% aluminum
Soft drinks cans – 94% aluminum
Can’t pass raw material or other cost increases to customers
This force-rivalry among existing firms-exerts strong competitive pressures on the metal can industry and is a very powerful competitive force.

12. The Bottom Line
Buyers have a great deal of leverage which they exercise.
Suppliers are few, relatively large, and members of oligopolies. There is a threat of forward integration by suppliers into metal cans. Also, Reynolds is both a supplier and a competitor and may have a competitive advantage.
There are many substitutes which limit price increases and reduce long-term demand.

13. The Bottom Line
Industry barriers are moderate, but intense price-driven rivalry in the industry makes it unattractive to potential new entrants.
The intense price-driven rivalry among existing firms in the industry drives margins down and reduces industry profitability.
In sum, the metal can industry is most unattractive from the standpoint of profitability.

14. Daniel F. Jennings, Ph.D., P.E.
Texas A&M University
3367 TAMU
College Station, TX
Phone: (979)
Fax: (979)
Thank you!
© 2007 TAMU