Perez Glassworks

As Allan Perez leafed through the latest edition of Packaging Now, the leading publication for

the packaging industry, he couldn't help thinking that his company would have to make some

significant changes if it wanted to survive. Perez Glassworks had grown since its formation in

1978 to become the largest supplier of glass bottles in the country. In recent years however,

customers had started shifting towards cheaper plastic, aluminium and Tetra Pak cartons. This

trend had accelerated after the global financial meltdown forced many companies to seek ways

to cut back on expenses. While the local packaging industry continued to show steady growth,

the market for glass bottles had shrunk and profits at the company had started to decline. Allan

was convinced that a change in the business model was required to turn things around but was

unsure about the specific strategy to adopt to ensure his company's future .

Company Background

Perez Glassworks was set up in 1978 to supply glass bottles to firms in the soft drink industry

who were faced with the exorbitant cost of importing bottles for their products. Through

prudent strategic management, Allan Perez had managed to transform the company into the

top supplier of glass bottles in the country with revenue of more than $28 million annually.

Although 97 percent of the company's revenue continued to be generated by the sale of glass

bottles, it had recently responded to the increased competition by offering labelling services to

clients who wanted to customize the appearance of their bottles.

The company operated out of a modern, state of the art facility located in the Omeara

Industrial Estate that was able to produce glass bottles in a wide variety of sizes and colours. In

order to ensure access to raw materials, the company operated a silica mining plant in Valencia

and established long term contracts with global manufacturers for other materials. The scale of

operations meant that customers could place orders on a just-in-time basis although longer

order times were needed during the Christmas season when demand for glass bottles peaked.

Perez Glassworks had a large number of loyal customers and had forged strong customer

relationships over the years by guaranteeing quality products and timely service.

Industry Trends

The local packaging industry continued to show steady growth, fueled by a robust economy,

increased urbanization and rising incomes from a growing middle class. The food and beverage

sector continued to be prosperous and expand despite the recent global economic crisis which

had setback the glass packaging industry. Glass bottles continued to be popular because the

chemical properties of glass meant that it did not react to the contents of the package.

Customers however, had become increasingly quality conscious and were placing greater

importance on the overall appearance of the packaging. Increases in the demand for imported

products, particularly processed foods, also meant that there was increased exposure and use

of alternative packaging materials.

Recent innovations in production had made glass packaging more cost effective for customers

although increases in the price of raw materials and operating expenses had eroded the profit

margins of the bottling company. Perez Glassworks had initially absorbed these increased costs

but the company had eventually been forced to raise the prices for its products. This made its

glass bottles less attractive than substitute packaging materials such as Tetra Pak cartons and

plastic (PET) bottles. The company also had to be cautious when raising prices in order to avoid

giving competitors an opportunity to undercut its prices and steal market share.

PET bottles had become increasingly popular as a substitute for glass bottles because of their

sturdiness, low cost and flexibility in design. They were a particularly popular packaging choice

in the soft drink, pharmaceutical and food sectors which required longer shelf life for products.

PET bottles were also favoured by retailers because they were easier to stack on shelves and

their transparency made the contents of the bottle more visible and therefore attractive to

consumers. It was expected that global sales of PET bottles would continue to show strong

growth and further displace glass bottles in the packaging sector.

Key Customer Segments

The major customers for the company's glass bottles were large business buyers in the liquor,

soft drink and pharmaceutical industries. These industries had all experienced vigorous growth

in recent years which drove the demand for packaging solutions. The growth of the middle class

with attendant higher incomes had led to an increase in the consumption of alcoholic

beverages but many consumers were now demanding foreign brands which came prepackaged

in their own containers. Beer on the other hand was dominated by a single local producer who

continued to use glass bottles although sales had also been negatively impacted by imports.

The majority of soft drinks were sold in plastic bottles as companies responded to the steady

increase in the price of glass bottles. Some companies also bottled their products in aluminium

cans which greatly reduced the probability of losses due to breakage during transportation and

storage. While glass bottles were still widely used in the pharmaceutical industry, many

companies had turned to plastic, aluminium and blister technology. This had the benefits of

reducing product weight and making it easier to store items on shelves. Consumers were

increasingly price sensitive and negotiated more aggressively over price with packaging

suppliers before placing orders. These shifts in the market posed major challenges for glass

bottle producers and threatened the future of the industry.

Allan was very aware of the challenges his company faced given its dependency on glass bottle

sales. While he kept encouraging his sales reps to be more aggressive in promoting the

company's products to existing customers, he questioned whether this strategy would be

successful. Perhaps, he thought, it was time to seriously consider the prospect of diversifying

the company's product portfolio as suggested by a colleague.

1. What broad strategic alternatives can Perez Glassworks consider in order to overcome its

challenges?