Porters 5 Force Model
Applying Porter’s Five Forces Model: The Metal Container Industry
The metal container industry historically has been characterized by relatively low growth, intense competition, and unattractive levels of profitability. During the 1980s, this industry was negatively affected by such factors as further consolidation of soft drink bottlers and a strong trend toward substitution by many types of plastic packaging. The underlying reasons for the slow growth and low profitability of the metal container industry can be best understood if we apply Porter’s five forces model. Many of the factors that depress the level of profitability in the metal container industry have persisted without major changes since the mid-1960s. Therefore, we will first provide a brief historical overview of the metal container industry as of 1976, followed by an analysis of this industry using Porter’s five forces model.
The industry
With sales of $7.6 billion, metal containers made up almost a third of all packaging products used in the United States in 1976. Metal cans, made either from aluminum or tin-plated steel, represent the major segment within metal containers. Between 1967 and 1976 the number of metal cans shipped grew with GNP. The greatest gains were in the beverage segment (soft drink and beer cans), while shipments of motor oil, paint, and other general packaging cans actually declined.
Though there are about 100 firms in the metal container industry, it is dominated by four major manufacturers. Two giants, American Can and Continental Can, together make up 35 percent of all domestic production. National Can and Crown Cork and Seal are also major forces with market shares of 8.7 percent and 8.3 percent, respectively. Because of the large number of competitors, the can industry is very price competitive. Since variable costs, (material, 64 percent; labor, 15 percent; and freight, 8 percent) account for 87 percent of total cost, on average, there is very little operating
The metal container industry historically has been characterized by relatively low growth, intense competition, and unattractive levels of profitability. During the 1980s, this industry was negatively affected by such factors as further consolidation of soft drink bottlers and a strong trend toward substitution by many types of plastic packaging. The underlying reasons for the slow growth and low profitability of the metal container industry can be best understood if we apply Porter’s five forces model. Many of the factors that depress the level of profitability in the metal container industry have persisted without major changes since the mid-1960s. Therefore, we will first provide a brief historical overview of the metal container industry as of 1976, followed by an analysis of this industry using Porter’s five forces model.
The industry
With sales of $7.6 billion, metal containers made up almost a third of all packaging products used in the United States in 1976. Metal cans, made either from aluminum or tin-plated steel, represent the major segment within metal containers. Between 1967 and 1976 the number of metal cans shipped grew with GNP. The greatest gains were in the beverage segment (soft drink and beer cans), while shipments of motor oil, paint, and other general packaging cans actually declined.
Though there are about 100 firms in the metal container industry, it is dominated by four major manufacturers. Two giants, American Can and Continental Can, together make up 35 percent of all domestic production. National Can and Crown Cork and Seal are also major forces with market shares of 8.7 percent and 8.3 percent, respectively. Because of the large number of competitors, the can industry is very price competitive. Since variable costs, (material, 64 percent; labor, 15 percent; and freight, 8 percent) account for 87 percent of total cost, on average, there is very little operating