{"id":3113,"date":"2015-12-08T15:59:03","date_gmt":"2015-12-08T20:59:03","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/ccl-industries-a-sticky-business-model\/"},"modified":"2015-12-08T15:59:03","modified_gmt":"2015-12-08T20:59:03","slug":"ccl-industries-a-sticky-business-model","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/ccl-industries-a-sticky-business-model\/","title":{"rendered":"CCL Industries: A \u2018sticky\u2019 business model"},"content":{"rendered":"

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OVERVIEW<\/strong><\/p>\n

CCL Industries, the largest label maker in the world, is a global specialty packaging company that generates ~$2.6 billion in sales with 113 manufacturing facilities. The company\u2019s core label divisions are: Healthcare, Home & Personal Care, and Food & Beverage.<\/p>\n

CCL is highly effective in driving alignment between its operating and business models. I chose it as an example of effectiveness because this alignment has created tremendous shareholder value in the last two years as evidenced by its stock price increasing by over 150%.<\/p>\n

BUSINESS MODEL<\/strong><\/p>\n

The Company primarily serves large, multi-national customers (e.g., Unilever, Johnson & Johnson) that have global operations. The company\u2019s business model is to produce high quality label products at competitive prices while providing best-in-class customer service. CCL is able to do this because of its scale, process\/equipment technology, the know-how of its people, manufacturing techniques and the colocation of its facilities.<\/p>\n

CCL benefits from scale in two main ways: i) it increases CCL\u2019s purchasing power, thereby reducing raw material costs and ii) enables the company to continually invest in leading edge equipment, processes and employee training in order to improve the quality of its products. A key prong of its strategy is to build scale through acquisition; CCL has been an active acquirer of companies (~15 in the last three years).<\/p>\n

CCL\u2019s customers demand a variety of high quality labels at competitive prices. In the healthcare industry in particular, defect free labels is critical due to the nature of the industry. In the Food & Beverage industry, customers look for quality labels as a way to differentiate themselves from their competitors; labels are used as a way to \u2018premiumize\u2019 their products. Faced with increased sales\/margin and growth pressures, customers have been forced to consolidate to save costs. As a result, these customers look to their suppliers not only for high quality product but also i) for supply chain efficiencies and cost savings and ii) for suppliers to be a \u2018one-stop-shop\u2019 source for all of their packaging needs. The company provides a variety of labels to satisfy customer needs including pressure sensitive labels (adhesive coating already applied) and shrink sleeves (labels manufactured as sleeves and then slid over top of a container). The company\u2019s competitive set is highly fragmented with the majority of its competitors only having $1 million in sales and limited capabilities. As such, CCL is one of the few companies able to provide one-stop-shop solution for its customers and is largely viewed as a strategic \u2018partner\u2019 in launching new products.<\/p>\n

Interestingly, CCL\u2019s revenue is primarily driven by new package designs not so much by the number of products sold. For example, Hershey\u2019s chocolate will have a new label design for its 2015 Christmas products, 2016 Valentines products and so on. In the competitive F&B end-market, manufacturers are increasing the frequency of design changes and focusing on quality in order to increase sales (all of which bodes well for CCL).<\/p>\n

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OPERATING MODEL<\/strong><\/p>\n

CCL aims to locate its facilities in close proximity to its customers\u2019 plants (co-location). This enables the company to serve its customers better in the following ways: i) reduce shipping costs, ii) enhance speed to market, iii) ensure local language requirements are met and iv) facilitate decentralized decision making in order to be more nimble in reacting to local market trends. CCL production facilities are generally focused on a specific end-market which enables the company to leverage common technology and adapt to design changes quickly. Co-location also entrenches CCL\u2019s position with its customers and makes it more difficult for them to switch to another competitor.<\/p>\n

Close proximity enables CCL to be further integrated with its customers\u2019 operations. This integration enables another essential part of CCL\u2019s operating model: pre-production design. CCL collaborates with its customers at the early design stages and iterates through multiple product versions. The company helps customers with prototypes and provides other resources in order to launch products effectively.<\/p>\n

Acquisitions not only build scale for CCL but also provide it with access to new geographies\/end markets\/equipment and afford the company the ability to cross-sell new products. Part of CCL\u2019s playbook is to consolidate the acquired company\u2019s manufacturing facilities into its existing network (or vice-versa), adopt any new technologies\/equipment employed by the acquiree and improve margins through operational efficiency. The equipment CCL purchases\/inherits is not unique; it is the company\u2019s manufacturing know-how, operating systems and trained employees that create meaningful barriers-to-entry for competitors and thus a sustainable competitive advantage.<\/p>\n

https:\/\/www.youtube.com\/watch?v=SUgMglXRvjs<\/a><\/p>\n

FEEDBACK LOOP<\/strong><\/p>\n

The company\u2019s business and operating models support each other and create a positive and sustainable feedback loop. Scale provides the ability to continually out innovate its peers (processes, human capital and technology) resulting in a high quality and low cost product, colocation has numerous customer service, quality and cost benefits and nimble and end market focused plants with pre-production capabilities enable the company to satisfy customer needs and react quickly to market changes.<\/p>\n

Sources<\/strong><\/p>\n