3Buyers Buyers are large firms Purchase large volumes BeerBeveragesFoodAnheuser-BuschCokeCampbellMillerPepsiCoKraftGeneral FoodsPurchase large volumesCans are a commodityBuyers know costsBackward integrationCans are 45% of the cost of soft drinksBuyers 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?
5Suppliers Suppliers are major aluminum & integrated steel firms 71% of the market is aluminumAlcoa & Alcan are suppliers to 65% of the aluminum can businessReynolds Aluminum, a supplier, is in the can businessIntegrated 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?
7Substitutes Substitutes for metal cans are: Glass Plastic Paper FiberfoilSubstitutes for Oil cans are:Metal CansFiberfoilPlasticSubstitutes exert strong competitive pressures on the metal can industry and are a very competitive force.
9Threat of New Entrants Alcan entry? Entry isn’t too difficult Transportation costs limit efficient operations to miles of a customer3 pieces lines are available for $200,000Minimum efficient scale plant with “one” 2 piece line is $12 million (market is $12 Billion).Biggest obstacle is competitor retaliationReason for fewer new entrants is the low and deteriorating margins of the industryEntry 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.
11Rivalry The nature of rivalry in the metal can industry is: Low cost CyclicalCommodity productBeer cans – 99% aluminumSoft drinks cans – 94% aluminumCan’t pass raw material or other cost increases to customersThis force-rivalry among existing firms-exerts strong competitive pressures on the metal can industry and is a very powerful competitive force.
12The Bottom LineBuyers 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.
13The Bottom LineIndustry 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.