Aluminum was lighter. It had higher and more consistent quality. It was economic to recycle, it was taste-friendly and it had qualities conducive to lithography. Let's briefly look at the 3 major suppliers of aluminum and their financials:.
Company Rank and Sales Net Profit Margin EPS Debt to Income.
Alcan World's largest producer with 9.8B in sales 10.9% $3.85 $1.28.
Alcoa World's largest maker of primary aluminum with sales of 8.5B 8.8% $9.74 $1.77.
Reynolds Metals Second largest U.S. aluminum producer with sales of 5.6B. Only aluminum company in the U.S. that produced cans 8.7% $9.01 $2.67.
Aluminum suppliers could set the price of aluminum because there aren't that many competitors, the demand is great, and it does not seem like there are too many threats of substitutes yet. Nonetheless, aluminum prices increased by about 15% in 1988. Prices were limited; however, due to the threat of possible substitutes of steel.
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In analyzing the industry trends, the case listed five trends that were occurring in the metal container industry during the 1980's, which in turn would help determines what decision needs to be made by Avery. The trends are (1) the continual threat of backward integration, (2) the threat of plastic as a substitute, (3) the threat of glass as a substitute, (4) the rise of the soft drink industry becoming the largest end-user of packaging, resulting in aluminum benefiting the most, and (5) diversification and consolidation among packaging producers.
Threat of backward integration: This threat was more prevalent in the beer market because it was advantageous to hold costs down: high-volume, single- label production was less costly. It was not as prevalent in the soft drink market because operations were more dispersed and they were geared more towards low-volume, multi-label output.
Threat of plastics: Plastics had been growing significantly in the container industry. It was being accepted due to its unbreakability and lightweight.
This process includes adding yeast and sugar or extra juice and then sealed with a crown cap, placed horizontally in a dark, cool cellar. ... It is then removed and additional juice or sugar is added before the final corking to adjust the sweetness ("Champagne Region"). ...
