Crown, Cork & Seal Company
Crown, Cork & Seal Company
9300 Ashton Road
Philadelphia, Pennsylvania 19136
Although it is the fourth largest canmaker in the United States, the Crown Cork & Seal Company of Philadephia commands only 4% of the can market in America. Continental Group and American Can are the largest companies in the industry, followed distantly by National Can. Campbell’s Soup and a number of other major can purchasers now manufacture their own containers and also take up a portion of the market. In fact, Campbell’s makes more cans privately than either National or Crown Cork do commercially.
However, the Crown Cork & Seal Company, as its name indicates, is much more than a small domestic can manufacturer. Nearly half of its sales come from closures and crowns (bottle-caps). It ranks first in this area, manufacturing tops and caps for everything from anti perspirant to ginger ale. Crown Cork also builds high-speed filling, handling and packaging machinery for cans and bottles. It sells or leases this equipment to private companies.
Crown Cork’s origins date back to 1927 when it was incorporated in New York City as a consolidation of New Process Cork Company Inc. and New York Improved Patents Corporation. The following year the company expanded its operation to include plants overseas. It formed the Crown Cork International Corporation as a holding company for subsidiaries engaged in bottle crown and other cork business outside the United States. This early entry into the foreign market gave Crown Cork an advantage over its competitors in the container and closure fields, an edge which it still holds today. In fact, Crown has more plants outside the United States than within it. There are 64 factories spread out over Africa, Europe, and Latin America as compared to just 26 in the U.S.
Oddly enough, Crown Cork did not even venture into the canmaking business until 1936 when it purchased the Acme Can Company and began building its first large can plant in Philadephia under the name of Crown Can. While the middle of the Depression would seem to be the worst possible time to enter a capital intensive industry, Crown’s can operation was successful right from the start. Processed canning was quickly taking the place of home canning as the preferred way to preserve and store perishable goods. For this reason the container industry, until very recently, has been immune to the economic cycles which plague most other types of businesses, industrial or otherwise.
Within the container business Crown Cork & Seal is somewhat of an enigma, because it has achieved financial results which seem to contradict industry logic. Profit margins in can manufacturing have been small and shrinking for decades, and canmakers like American and Continental have been relying on diversification and economies of scale to create profits. Crown Cork & Seal, on the other hand, has neither expanded into non-container fields nor sought to augment its own canmaking program by purchasing other small can operations. Yet it has managed to maintain an earnings growth rate of 20% a year. How does it do this?
The answer can be traced back to 1957. In that year an Irishman named John F. Connelly became its president. At that time Crown Cork was dangerously close to bankruptcy court, and lacked leadership. It suffered a first quarter loss of over $600,000 and Bankers Trust was calling in a $2.5 million loan, and an additional $4.5 million was due by the end of the year.
Connelly took dramatic measures. He halted can production altogether and filled the remaining orders with a large stockpile of unpurchased cans that had been allowed to accumulate. The customers did not object, and the money saved by selling old inventory instead of producing new cans brought Crown Cork close to solvency. In addition, unprofitable and unpromising product lines, such as ice-cube trays, were immediately discontinued.
Connelly also reduced overhead costs, particularly those incurred by redundant labor. In one 20 month span the payroll was cut by 25%, pink slips being issued to managers and unskilled workers alike. The moves were drastic but necessary. By the end of 1957 the company was making both cans and profits.
Once the initial bankruptcy crisis had passed, Connelly directed Crown Cork & Seal with renewed energy into two areas within which Crown had traditionally held a positioned advantage: aerosol cans and foreign container markets. In the years immediately preceding Connelly’s tenure the company, while not neglecting these markets, had not pursued them with the vigor they warranted.
Crown Cork & Seal had pioneered the aerosol can in 1946 and Connelly was shrewd enough to recognize its potential. Hair spray, bathroom cleaning supplies, insecticides, and many other household products would come to be staples for the American consumer and would be marketed in aerosol dispensers.
In 1963, for example, Crown installed two aerosol can product lines in its Toronto factory, thinking that it would take the market five years to absorb the output. Within a year, however, another plant was required to handle the orders. A decade later, the same situation was repeated in Mexico. Only in the late 1970’s and 1980’s, when the negative environmental impact of aerosol cans became widely known (it was discovered that aerosol containers expel fluorocarbons into the air which destroy the earth’s fragile ozone layer), did Crown to re-examine this sector of its business. The company was among the first to develop an aerosol can which did not propel fluorocarbons into the atmosphere.
Connelly invested considerable amounts of capital to reclaim Crown’s pre eminence overseas in closures and cans. Between 1955 and 1960 the company received what were called “pioneer rights” from many foreign governments wanting to build up the industrial sectors of their countries. These “rights” gave Crown first chance at any new can or closure business being introduced into these developing nations. This kind of leverage permitted the company to make large profits while using industrial equipment that was, by American standards, obsolete. Moreover, the pioneer rights allowed Crown to pay no taxes for up to 10 years.
Crown’s foreign operations are managed and staffed only by citizens and residents of the country concerned. That is to say, there are no Americans on Crown’s payroll outside the United States. Connelly sent the foreign plants outdated but still functioning equipment and let them begin. Crown profited from its disposal of antiquated machinery and created a far-ranging network of semi-autonomous subsidiaries in the process.
In the early 1960’s the can industry was losing more and more ground to the non-returnable bottle. It appeared that cans would never be able to capture the lion’s share of the beverage container market. For this reason American Can and Continental began experimenting with large scale diversification into non-container fields. Crown Cork, however, did not follow the example; in fact Connelly went against the prevailing wisdom and entrenched Crown Cork still further into the consumer product can business, spending $121 million on a capital improvement program initiated in 1962.
In 1963, just as the canmaking industry was experiencing its first recession in decades, the pull-tab pop-top was introduced. In the words of one canmaker at the time, the new and seemingly simple innovation made opening a can “as easy as pulling the ring off a grenade, and a lot safer.” The new pull-tab opener revolutionized the industry while helping to dramatically increase canned beverage consumption. At the same time, Americans began drinking more beer and soft drinks than ever before, and the can industry experienced a seven year period of unprecedented growth. Crown Cork, an early entrant in the pull-tab can market, performed even better than American Can and Continental and its year-to-year profits increased by double digit percentage points.
In the early 1970’s the beverage can market leveled out, with many of the major brewers and soft drink producers developing facilities to manufacture their own cans. A number of can companies, particularly American and Continental, did not adjust well to the diminishing growth in beverage can demand. They were overextended and operating at a greater capacity than necessary. Crown Cork, which did not rely as heavily on can customers like Schlitz or Pepsi, was not as severely affected when beverage companies began manufacturing their own cans. Furthermore, Crown’s foreign enterprises, which were accounting for close to 40% of total sales, were expanding rapidly. They more than compensated for any domesic decrease in revenues. Crown also became involved in the printing aspect of the industry by acquiring the R. Hoe & Company metal decorating firm in 1970. With this addition to its operation, Crown had the equipment necessary for imprinting color lithography upon its cans and bottle caps. By 1974 Crown had a consolidated net profit of over $39 million—double that of its 1967 results.
The first widespread production of two-piece aluminum cans began in the mid-1970’s. Aluminum was relatively expensive, but simpler to manufacture, lighter for the consumer, and since it was recyclable, it met with the approval of environmental groups.
Connelly, however, once again went against industry trends. Just as he had refused to participate in the diversification trend years before, he steered Crown Cork clear of the aluminum two-piece can. He decided instead to concentrate on the old-style three-piece steel can which had been the mainstay of the industry for years. Many industry analysts regarded this strategy as particularly risky since the Food and Drug Administration had indicated that it might outlaw the three-piece can. The lead used to solder the three seams of the can was considered a health hazard. To circumvent this problem Crown began welding rather than soldering its cans.
Connelly was against switching from steel to aluminum for two reasons. First, by relying on the steel can the company was relieved of the high research and development costs necessary for changing to aluminum can manufacturing. Secondly, Connelly realized that there were only a handful of corporations selling aluminum in bulk. This meant that the canmakers would be paying a premium price for their raw materials. Crown, by using steel, could play the various steel producers off one another and drive the price of its materials down. The strategy worked, and Crown’s company was making profits while his larger and supposedly more “progressive” competitors spent hundreds of millions of dollars on retooling for aluminum cans.
Connelly, it seems, has made very few mistakes. In all of his years as president, the company has never suffered a quarterly loss; it is virtually debt-free. And by judicious buying of Crown Cork shares, Connelly owns more than 14% of the company—an investment worth about $150 million.
Recently, a small New Jersey juke-box, vending machine, and steel cable firm called Triangle Industries has entered the container industry. Owners Norman Pelz and Peter May have already purchased National Can and a large canning division of American Can in leveraged buyouts. Some Wall Street analysts speculate that it may be looking to acquire Crown Cork & Seal as well. However, those close to Connelly say that he will never sell.
Crown Cork & Seal lists subsidiaries in the following countries
Argentina, Belgium, Brazil, Canada, Chile, East Africa, Ecuador, Ethiopia, France, Italy, Malaysia, Mexico, Morocco, The Netherlands, Nigeria, Peru, Portugal, Puerto Rico, Singapore, Switzerland, Thailand, Venezuela, West Germany, Zaire, and Zambia.
"Crown, Cork & Seal Company." International Directory of Company Histories. . Encyclopedia.com. (April 20, 2019). https://www.encyclopedia.com/books/politics-and-business-magazines/crown-cork-seal-company
"Crown, Cork & Seal Company." International Directory of Company Histories. . Retrieved April 20, 2019 from Encyclopedia.com: https://www.encyclopedia.com/books/politics-and-business-magazines/crown-cork-seal-company