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How Attractive is The Metal Container Industry

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How Attractive is the Metal
Container Industry?
IDIS 611
August 2008
Dr. Jennings
BUYERS
Buyers
Buyers are large firms
Beer
Anheuser-Busch
Miller
Beverages
Coke
PepsiCo
Food
Campbell
Kraft
General Foods
пѓ�Purchase large volumes
пѓ�Cans are a commodity
пѓ�Buyers know costs
пѓ�Backward integration
пѓ�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?
SUPPLIERS
Suppliers
пѓ�Suppliers are major aluminum & integrated steel firms
пѓ�71% of the market is aluminum
пѓ�Alcoa & Alcan are suppliers to 65% of the aluminum
can business
пѓ�Reynolds Aluminum, a supplier, is in the can business
пѓ�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?
SUBSTITUTES
Substitutes
Substitutes for metal cans are:
пѓ�Glass
пѓ�Plastic
пѓ�Paper
пѓ�Fiberfoil
Substitutes for Oil cans are:
пѓ�Metal Cans
пѓ�Fiberfoil
пѓ�Plastic
Substitutes exert strong competitive pressures on the
metal can industry and are a very competitive force.
THREAT OF NEW ENTRANTS
Threat of New Entrants
пѓ�Alcan entry?
�Entry isn’t too difficult
пѓ�Transportation costs limit efficient operations to 150-300
miles of a customer
пѓ�3 pieces lines are available for $200,000
�Minimum efficient scale plant with “one” 2 piece line is $12
million (market is $12 Billion).
пѓ�Biggest obstacle is competitor retaliation
пѓ�Reason for fewer new entrants is the low and deteriorating
margins of the industry
Entry barriers are moderate. However, the intense pricedriven 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.
RIVALRY
Rivalry
The nature of rivalry in the metal can industry is:
пѓ�Low cost
пѓ�Cyclical
пѓ�Commodity product
�Beer cans – 99% aluminum
�Soft drinks cans – 94% aluminum
�Can’t pass raw material or other cost increases to custom
This force-rivalry among existing firms-exerts strong
competitive pressures on the metal can industry and is
a very powerful competitive force.
The Bottom Line
Buyers have a great deal of leverage which
they exercise.
пЃ® 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.
пЃ® There are many substitutes which limit price
increases and reduce long-term demand.
пЃ®
The Bottom Line
пЃ®
пЃ®
пЃ®
Industry barriers are moderate, but intense pricedriven 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.
Daniel F. Jennings, Ph.D., P.E.
Texas A&M University
3367 TAMU
College Station, TX 77843-3367
Phone: (979) 845-4984
Fax: (979) 845-4980
djennings@tamu.edu
В© 2007 TAMU
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