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

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Presentation on theme: "How Attractive is the Metal Container Industry? IDIS 611 August 2008 Dr. Jennings."— Presentation transcript:

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

2 BUYERS

3 Buyers BeerBeveragesFood Anheuser-BuschCokeCampbell MillerPepsiCoKraft General Foods  Purchase large volumes  Cans are a commodity  Buyers know costs  Backward integration  Cans are 45% of the cost of soft drinks Buyers are large firms 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  Glass  Plastic  Paper  Fiberfoil Substitutes for metal cans are: Substitutes exert strong competitive pressures on the metal can industry and are a very competitive force.  Metal Cans  Fiberfoil  Plastic Substitutes for Oil cans are:

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  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 The nature of rivalry in the metal can industry is: 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. 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. 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. 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. 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. 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. 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) © 2007 TAMU


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