an annual basis, corresponding to the ninth straight yearly contraction and to more than double the 1.2% decline in 2012. 4 In contrast with earlier years, 2013 also marked a sharp drop in low- calorie carbonated drinks. Beer consumption, on the other hand, was largely stable. Alcohol use varied significantly by race, gender, and age (Exhibit 5). In a Gallup survey, 55% of male drinkers said that they most often drank beer, followed by liquor (21%) and wine (20%)." The majority of female drinkers instead favoured wine (52%), with just over 20% most often choosing liquor or beer, respectively. According to the same survey, alcohol consumption was highest in the 35-54 age group, followed by the 18-34 group. Despite stable overall demand for beer, some recent trends in beer consumption were noteworthy. Micro-brewing had become an important new segment, composed of over 1,000 microbreweries. Differences in the manufacturing and distribution processes of these microbreweries compared to the major brewers made them less likely to use cans. For instance, many sold to customers who showed up at the brewery to buy beer in glass jugs (known as "growlers") and to nearby taverns that bought kegs. Those that shipped their beer used bottles that were simple to seal and did not require costly specialized canning equipment. However, cans allowed brewers to save money on shipping: a case of cans weighed about a third less than a case of bottles, and about 2,000 cases of cans fit into a shipping container compared with 1,350 cases of bottles. According to Anchor, a San Francisco Brewery, it cost roughly $2 a case to ship cans of beer by truck to the East Coast, compared with about $3 for bottles. A very recent development serving low-volume brewers was the emergence of mobile beer-canning companies, which installed a canning system in a trailer and drove to breweries that demanded their service 16. The market price of the industry's primary raw material, aluminium, was historically quite volatile (Exhibit 6). Industry analysts expected the price of aluminium to increase moderately in 2014.'7 A standard industry practice was to include a levy clause that linked can prices to the spot market price of aluminium, thus enabling operators to pass some of the risk of changing input unstream. Some analysts speculated that the strong recovery of the U.S. dollar after theprocesses. Recent industry innovations included value-added shaped cans (e.g., Heineken's keg can), improved beverage cans that required less metal in production (e.g., Ball's spin-flow necking process), improved tamper resistance, end designs that allow improved pourability, drinkability and ease-of-opening (e.g., graphics. 12 13 flexible lids), and the development of techniques for embossing and printing high-definition Current Industry Trends Total industry demand had remained fairly constant, but can-making firms paid close attention to consumer trends further down the value chain. In 2013, soft drink consumption contracted 3% on SIC 3411 Metal Cans, Encyclopedia of American Industries (4th ed.), Vol. 1: Manufacturing Industries, 776- 779: Detroit, Gale. 201 1. Can Manufacturers Institute annual reports, various years. 9 June 2014 IBIS World Industry Report 33243 10 Ibid. 11 2013 Annual Report, Crown Holdings Inc. 12 June 2014 IBISWorld Industry Report 33243 13 SIC 3411 Metal Cans, Encyclopedia of American Industries (4th ed.), Vol. 1: Manufacturing Industries, 776- 779: Detroit: Gale: 2011. 2 Copyright @ INSEAD This document is authorized for educator review use only by Anh Pham, Other (University not listed) until May 2023. Copying or posting is an infringement at copying Permissions@hosp.harvard.edu or 617.783.7860containers. The food segment accounted for 23%, with vegetable and vegetable juices, pet food and soup as the leading categories. The general packaging line segment, supplying aerosols and other non-foods, was a distant third at 3%. Cans and Containers The 12oz. beverage can was the industry's single most important product." By the turn of the century, aluminium had completely replaced steel in beverage cans. Technological advancements allowed for the use of lighter aluminium in manufacturing, which was hair-thin in the middle of the can but still structurally stable. 12oz. cans were the standard, accounting for over 95% of all beverage cans. In contrast to the beverage segment, the food segment still relied mainly (about 75-80%) on steel. The general line segment also used almost exclusively steel." The purchase of raw materials, along with the purchase of organic coatings, lining compounds and inks accounted for 62.9% of industry revenues. " Wages were the second largest cost component at 9.2%. Marketing expenses were noticeably low at 0.1%. Rent and utilities were 2.4%, depreciation 1.7%, and all other cost items, including logistics, communications, legal and accounting expenses, accounted for the remaining 17.7%. Overall industry profitability, measured as EBIT, was 6.0% as of 2013. Can-making firms continued to invest in targeted opportunities to improve both value to consumers and costs. Crown Holdings, one of the most innovative firms in the industry, for example, operated two research facilities, one in Illinois and another in England, and spent $30- 40 million (about 0.4-0.5% of sales revenues) on developing new products or designing significant improvements to existing products or processes. Recent industry innovations included value-added shaped cans (e.g., Heineken's keg can), improved beverage cans that required less metal in production (e.g., Ball's spin-flow necking process), improved tamper end designs that allow improved pourability, drinkability and ease-of-opening (e.g..milanfied scattered throughout the country, with ten states accounting for 55% of the establishments (Exhibit 2). Imports and exports continued to constitute a small fraction of industry revenues and were concentrated in a few countries (Exhibit 3). Despite the changes on the supply side, demand in the three segments of the industry remained largely stable in the same period (Exhibit 4)." The beverage segment, which was two-thirds soft drinks and one-third beer, accounted for 74% of industry shipments. According to an independent study by Silgan Containers, 81% of consumers still preferred metal cans to plastic and glass 2013-14 Annual Report, Can Manufacturers Institute. June 2014 IBISWorld Industry Report 33243 I W N SIC 3411 Metal Cans, Encyclopedia of American Industries (4th ed.), Vol. 1: Manufacturing Industries, 776- 779: Detroit: Gale: 2011. 4 June 2014 IBISWorld Industry Report 33243 Rexam Annual Report 2013 6 Can Manufacturers Institute annual reports, various years. Copyright @ INSEAD This document is authorized for educator review use only by Anh Pham, Other (University not listed) until May 2023. Copying or posting is an infringement of copyright. Permissions@hosp.harvard.edu or 617.783.7860 INSEAD The Business School for the WorldMetal Can and Container Industry in 2014 In the quarter century following the rise of William J. Avery to the top of Crown Cork & Seal in May 1989, the U.S. metal can and container industry was shaped and reshaped by changing demand conditions, regulations, entry and exits, mergers and acquisitions, technological shifts, and fluctuating input prices. In 2014, it was still a relatively sizable industry. In 2013, over 123 billion metal cans and containers were shipped. ' The same year, industry revenues topped $20 billion, with 370 firms operating 541 establishments throughout the U.S. and employing over 31,000 people. Analysts predicted that industry revenues would grow at an annualized rate of 1.1% in the next five years, to $21.5 billion in 2019.2 I The Evolution of Industry Concentration and Demand The industry had witnessed substantial merger and acquisition activity over the years (Exhibit 1). The most significant acquisitions were Crown Cork & Seal's acquisition of Continental Can in 1990, and Ball Corporation's acquisition of the can-making division of Reynolds Metal, the fourth largest player in the industry, in 1998.' Entry into the U.S. can-making market, both by new firms and the expansion of non-U.S. manufacturers, also re-shaped the industry structure. For example, the British company Rexam, the largest manufacturer of beverage cans in the world, acquired American National Can from the French conglomerate Pechiney in 2000. By 2013 the share of the top four firms in terms of revenue was 43.4%, comprising Ball Corporation with 22.4%, followed by Crown (7.3%), Silgan (7.1%), and Rexam (6.6%)." However, the discrepancy across segments in terms of revenue per unit masked the concentration in the beverage segment, which accounted for approximately three-quarters of units shipped but half of industry revenues. North America accounting for 35% of the global beverage can market, three companies -Ball, Crown, and Rexam- supplied over 60% of about 300 billion cans-What are the macro trends in the US metal can and container industry? -What do these trends mean for market size and growth? - How do these trends affect specific aspects of the industry structure? (use Five Forces framework) hofore 12 midnight, the day