Market Share and Competitor Analysis of Sonoco
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Sonoco's positioning in the packaging market based on the recent annual reports of the company.
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Market Share and Competitor Analysis of Sonoco
- 1. Market Share and Competitor Analysis SABIHA AFRIN
- 2. Company Background • Founded in Hartsville, South Carolina, on May 10, 1899 • Diversified provider of consumer packaging, industrial products, protective solutions, display and other packaging services • Products sold in 85 countries • Aims to be the global leader in providing Innovative Packaging Solutions (IPS) • Promises to bring more to packaging than just the package
- 3. Market Definition Paper : Most-used material in packaging Plastic: A much newer packaging material than paper, metal, or glass Metal: Lost some share of packaging to plastics Glass: This also lost some share of packaging to plastics Flexible: An innovative packaging solution Potential Substitute Packaging Value Added Packaging: Innovating packaging solutions (IPS) True Blue(TM) line of sustainable packaging solutions Sonoco Recycling SONOCO
- 4. Packaging Market Definition 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 0 1 2 3 4 5 6 Unsustainable Sustainable Paper Plastic Metal Glass Flexible
- 5. Growth Potential and Sonoco Packaging is a Mature Market (Hopkins, 2009) Specific trends and drivers for the growth of this market includes world economy, technology, government regulation, consumer behavior, etc. (Hopkins,2009) Global packaging market to reach $975 billion by 2018 (Smitters Pira) Global packaging sales are projected to rise by 3% in real terms to $797 billion in 2013 Sonoco streamlined the organization to focus on global growth. Introduced Innovative Packaging Solutions (IPS) and Sonoco Recycling to embrace sustainability in business and environment.
- 6. Sonoco Crown Industry Ratio Performance Gap with Competitor Performance Gap with the Industry Comments Key figure Annual Sales (in millions) 2.9 8.6 -7.69 -5.7 10.59 Better than the industry. Worse than competitor. Profit Margins Gross Profit Margin 18.18 15.14 24.52 3.04 -6.34 Worse off than the industry. Better off than competitor. Pre-tax Profit Margin 6.81 6.19 3.85 0.62 2.96 Better off than both the industry and the competitor. Net Profit Margin 4.88 4.68 4.26 0.2 0.62 Better off than both the industry and the competitor. Investment Returns Return on Equity 14.51 515.85 15.99 -501.34 -1.48 Investment is not paying off as well as the industry or the competitor. Return on Assets 5.91 4.74 3.91 1.17 2 Assets are being used more effectively than the industry and the competitor. Management Efficiency Receivables Turnover 0.005 0.007 -0.002 Not collecting receivables as well as the competitor. Inventory Turnover 9.67 6.03 3.64 Moving industry more frequently than the competitor. Effective Tax Rate 0.44 0.46 -0.02 Better tax management practices than the competitor. Revenue per Employee 12.03 19.86 16.26 -7.83 -4.23 Not staffed properly or as efficient as the industry and the competitor. Financial Condition Current Ratio 1.58 1.3 1.57 0.28 0.01 Better than the industry and the competitor. Debt-to-Equity 0.55 19.26 1.42 -18.71 -0.87 Worse off than the industry and the competitor. Interest Coverage 7.07 3.29 4.02 3.78 3.05 Possibly has more debt than the industry and the competitor, however, has the ability to pay obligations. Growth Rates 5-year Revenue growth 3.3 0.83 15.93 2.47 -12.63 Growth is not as good compared to the industry, but better than the competitor.
- 7. Competitor Ratio Analysis Annual Sales: Depending on the size, Sonoco's sales revenue is better than the industry, however not as good as the competitor. Gross Profit Margin: Sonoco is spending less to produce goods than its competitor, however it is still not up to the mark with the industry. Net Profit Margin: Sonoco's Net Profit Margin is comparable to the industry as well as its competitor. However, Sonoco has a better grasp over its expenses and has a more effective tax strategies than the industry and its competitor. Return on Equity: Sonoco's investment is not paying off as well as the industry or the competitor.
- 8. Ratio Analysis Return on Assets: Sonoco's assets are being used more effectively than the industry and the competitor. Effective Tax Rate: Sonoco has a better tax management practices than the competitor. Current Ratio: Sonoco has more short-term cash than short-term debt. It is not where is should be, but it is still better than the industry and the competitor. 5-year Revenue growth: Sonoco's growth is not as good compared to the industry, but it is better than the competitor.
- 9. Ratio Analysis and Recommendations Investment returns: Sonoco is able to utilize its assets effectively, however it is not meeting the investment returns that it should. Financial: As seen in the analysis, Sonoco has a higher current ratio and a lower debt-to-equity ratio than its competitor. Depending on various factors, it can be indicative that Sonoco’s competitor is funding more projects to expand its business. Management Efficiency: Sonoco’s management is more efficient than the industry and the competitor in most aspects. However, Sonoco should look into better staffs to increase efficiency up to the industry standards to remain competitive.
- 10. Sonoco: Competitive Advantage Differentiation Advantage: Valuable customer relationship Latest barrier technology (IPS) Consumer-friendly opening system Highly Profitable loyal customer base 360-degree Customized Solutions Multiple packaging solutions Premium quality packaging Sustainable Advantage: Long-term profitability and viability Building positive brand images Active Member of Sustainable Packaging Coalition Rainforest Alliance’s Smart Wood Chain-of-Custody certification Harvested wood products from well-managed forests In-house Sustainability Council Implementing Sonoco Recycling
- 11. Key Aspects Sustainability: Cost and Profitability Maximizing efficiencies in production Conserving recourses and reducing sources High-cost to maintain Controlling costs by reusing and renewing raw materials Long-term profitability Cost saving scope for the investors Sonoco: Promoting Sustainability Sustainable advantage: Competitive distinction in the marketplace Ensuring positive economic growth and profitability Re-envisioning Sonoco: 45.2% total return in 2013 Educating and persuading customers about sustainability
- 12. Key Aspects Sonoco: Innovation, and Globalization Introduced IPS (Innovative packaging solutions) to adopt latest technology Operates in 85 countries 41 industrial manufacturing facilities and 6 paper mills in Europe International sales and income growth in 2013 Innovation, and Globalization: Changing supply chains Customers shifting their manufacturing facilities Overseas Competition High-cost to invest in latest technology High-cost of operation and management
- 13. Conclusion Overall, Sonoco is doing better than the industry, but not as good as the competitors. The management should take necessary steps in order to hold the market share. Promoting sustainable advantages can be profitable for the company. Creating performance targets and management incentives can be he helpful for the company. To remain competitive, it is essential for Sonoco to focus on maximizing productivity of its business.
Notas do Editor
- It is important to know the substitute potential products when defining a particular market. For the packaging market the substitute products would be the raw materials, which are used to produce different packaging solutions. Paper: This packaging includes non-corrugated paperboard packaging and solid bleached sulfate (SBS) paperboard. The materials of paper packaging includes coated and laminated packaging paper, plastics film manufacturing, and surface-coated paperboard manufacturing. Plastic: Plastic packaging can be three types. Plastic bottles, Plastics bags, and Plastics packaging film and sheet, including laminated Metal: Metals (steel and aluminum) are used for cans; aluminum is also used for metal closures and foil. Although, metals lost some share of containers to plastics, innovations in technology and design for this packaging have contributed to growth. Glass: This packaging has lost share to plastic bottles and cans, which are lighter weight and have less breakage Flexible: This packaging is designed to be space-saving, lightweight, tamper-evident, convenient and disposable. Flexible packaging may have a primary component of paper, metal, or plastic materials. Flexible packaging has become a very popular and innovative approach in packaging industry. It is also known as “value added packaging.” Value added packages are more highly converted manufactured products. Therefore, packaging companies are trying to adopt this approach by using latest technologies. Sonoco’s Approach: Packaging designers and engineers and material scientists at Sonoco are using the Company's cutting-edge proprietary sustainable packaging design software to maximize the clients’ satisfaction by providing innovating packaging solutions. Also the packaging industry is shifting towards sustainability. In the next slide, I will be talking about the ratio of sustainability and unsustainability of the raw materials used in packaging. As mentioned earlier, Sonoco is implementing sustainable packaging approach. Sonoco's True Blue(TM) line of sustainable packaging solutions and recycling services provides customers with packages that offer a clear environmental advantage over the package they were designed to replace through the use of more sustainable materials or source reduction or because they require less energy, water and/or raw materials to produce or result in fewer carbon emissions. Nevertheless, Sonoco Recycling collects nearly 3 million tons of paper, plastic, metal and other materials annually.
- The Diagram shows the ratios of sustainability and unsustainability of the raw materials used in packaging. I wanted to see that in this era, where sustainability became the first and foremost concern of packaging industry, how sustainable are the existing and potential packaging solutions. 1. Paper: Paper is the most renewable and recyclable packaging. The production of paper is also the most energy-intensive of all manufacturing industries in the U.S. and the production of paper results in significant greenhouse gas emissions. Materials for paperboard packaging can be made from virgin fiber, recycled fiber, sustainably forested fiber or a combination. However Homes indicated in his journal that considering the weight, paper packaging can be unsustainable at times. 2. Plastic: Although plastic is light weight and reusable, the petroleum component can be harmful for the environment. However, it has the ability to be recycled, and incinerated, which is valuable from a waste-to-energy perspective. 3. Metal: Both steel and aluminum cans are easily recyclable and recycled products. However, the downside of this packaging is the heavy weight. Also, the raw materials of metals are not renewable. 4. Glass: In can be recycled repeatedly; glass packaging can use up to 90% recycled material with no loss of quality or purity. Raw materials used to manufacture glass are also all natural and sustainable. However, the downside for glass is its weight and breakability, which result in higher transportation costs and need for specialized secondary packaging to protect products during shipment. 5. Flexible: Products packaged in flexible packages, such as bags, pouches, wraps, and foils, are considered better environmental choices over rigid packaging forms. However, flexible packaging is still not considered as a sustainable packaging solutions, as it is not easily recycled, meaning most flexible packaging winds up as municipal solid waste. Although, flexible packaging is profitable for the company, it has the downside of being unsustainable from time to time.
- Hopkins (2009) revealed that the U.S. market for packaging materials is about $130 billion. Market growth in the packaging sector from 2004-2008 was 5% CAGR, led by plastics and flexible packaging materials and containers. The report also indicated some specific trends and driver, which will affect the growth of this market. • The economy – energy and raw material prices are key factors • Technology/Innovation • Government Policy/Regulation/Legislation • Consumer attitudes and behaviors – toward products, processes, and companies According to a recent research of Smithers Pira group, a worldwide authority on packaging, paper and print industry supply chains, “Global packaging sales are projected to rise by 3% in real terms to $797 billion in 2013 and grow at an annual rate of 4% to 2018.” The report explores the numerous reasons for this expected growth in the world packaging market, including technical developments, cost per package, sustainability initiatives and, perhaps most importantly, the growth of the consumer class in the South and Central America. The management of Sonoco stated that they are taking necessary actions to simplify the Company’s business structure and provide the necessary scale in its Consumer and Industrial packaging and service businesses to drive profitable growth and obtain sustainable operating efficiencies. To focus on the global growth Sonoco even changed its mission to “re-envisioning” in 2013. In the same year the company introduced it’s new CEO, who announced the IPS (Innovative Packaging Solution) project. IPS is designed to meet their longer term growth and shareholder return goals. Sonoco is determined to use latest technology to maximize the satisfaction of its clients. As mentioned earlier, the company initiated numerous number of sustainability projects, which helped them to resolve the environmental issues.
- The table represents competitor ratio analysis of Sonoco. I have depicted the performance gap of Sonoco with its competitor Crown and the packaging industry.
- Differentiation Advantage: Sonoco significantly benefits from having very valuable customer relationships with some of the largest consumer packaged goods companies in the world. The company is developing packaging solutions that incorporate attributes ranging from the latest barrier technology and consumer-friendly opening systems, unique sizes and shapes, to fill line efficiency and environmental features. Moreover, many of these customers have entered into long-term contracts that include price escalators/de-escalators, which allow Sonoco to pass on higher input costs to those customers. Approximately 80% of its consumer packaging revenue is contract-based. These multiyear contracts are necessary to recoup fixed costs from large capital investments needed to produce a specialty packaging product. Sonoco also differentiates itself in the packaging industry by manufacturing a number of packaging types, which helps it attract and retain customers looking for multiple packaging options for their products Before 2013 the company’s mission was to be a low-cost global leader. However, the annual report of 2013 revealed that the new management is now more focused on providing premium quality products. Thus unlike some of its competitors, the company doesn’t brand itself as inexpensive or low-cost packaging solution provider anymore. The present differentiation strategy of this company is to provide premium quality packaging solutions by focusing on the cost value of the product. However, to maintain future profitability Sonoco has differentiated itself from its competitors by focusing on sustainability. In today’s competitive global marketplace, the issues relevant to supporting sustainability are directly linked to Sonoco’s long-term profitability and viability. The company believes that sustainability and business success are not only compatible but are inextricably linked and that by embracing both, it will benefit the shareholders and customers for the long term. Sonoco is a member of the Sustainable Packaging Coalition. Sonoco has the Rainforest Alliance’s Smart Wood Chain-of-Custody certification at 14 Sonoco paper mills, indicating that the mills are using only responsibly harvested wood products from well-managed forests. Sonoco created an in-house Sustainability Council in 2005 to develop company-wide metrics and to monitor progress on its economic, social, and environmental goals (Hopkins, 2009). Sonoco Recycling is uniquely qualified to find alternative recycling solutions for waste that was previously thought to be unrecyclable. The Company works internally to implement and encourage recycling programs through its Sonoco Sustainability Star Awards program, created in 2011 to recognize customer and Sonoco-owned facilities for achieving significant milestones in landfill diversion and waste stream reduction.
- Sustainability: Impacts to Cost and Profitability The packaging industry is long-established, but the sustainability movement is relatively new. According to Hopkins (2009), “Environmental concerns can lead to efficiencies in production and materials use as well as reduction in waste.” Therefore, it results in long-term profitability. Maximizing efficiencies, conserving resources, source reduction, and controlling costs can inadvertently lead to environmental advantages as well as company’s overall profitability. Investors are interested in sustainable business practices that promote and result in cost savings and profitability, in addition to the environmental effects. As mentioned earlier, Sonoco has been promoting sustainability significantly. To ensure positive economic growth and profitability Sonoco implemented sustainable business strategy efficiently. The company knows that a big concern of packaging industry is environmental pollution. To stay ahead, Sonoco focused on preserving natural resources. However, sustainable strategies often need high-cost to implement maintain. Sonoco continued to achieve its goals, while launching an effort to Re-envision Sonoco to achieve future accelerated growth. The company delivered on its commitment to enhance shareholder value by providing a 45.2% total return in 2013. This was the best shareholder return performance in a quarter of a century of Sonoco. Thus, the “re-envisioning Sonoco” strategy has been successful regardless of the high-cost to maintain sustainability Although, sustainability is not a primary consideration, environmental impacts of their purchase decisions are important to many consumers. Sonoco understands that customers respond particularly well to efforts by brands that address environmental concerns when they already have confidence in the quality and image of the product. Sonoco’s social responsibility report signifies how the company is trying to address environmental issues in their projects.
- Globalization: Globalization in the packaging industry takes the form of changing supply chains, customers shifting their manufacturing facilities to other countries, and overseas competition from other package printers and converters. However, globalization can have high cost effect on companies, due to government regulations and taxations, operations and management of multiple locations, and utilization of complex technology. It can also encompass printing packaging materials domestically for overseas customers. For example, Sonoco has a strong foothold in Asia. The company exports different packaging solutions to Europe as well. In Europe alone it has 41 industrial product manufacturing facilities and 6 paper mills. These global operations resulted in international sales and income growth in 2013 significantly.