Shave the Ice DairyPak Case Summary Earle Bensing, Vice President of the Dairy-Pak Division of Champion

International, faces a number of concerns that need to be resolved in order to ensure a successful future for the DairyPak division. Some problems the division is facing include a declining market share in the growing “branded juice” segment of the domestic paperboard carton market, a technologically outmoded manufacturing system in terms of the expanding markets, a very limited output capability that has not grown in 10 years, and a dramatically expanding international market which the corporation has seen as a burden with more problems than opportunities. Worldwide, paperboard is still the dominant form of milk and juice packaging today. In 1961, polyethylene coated paper cartons replaced paraffin coated paper cartons. In 1965, Shell Chemical and Hoover International (an oil company) changed the liquid packaging industry by introducing plastic resin pellets and “blow molding” machines to manufacture plastic jugs to replace plastic coated paper cartons. Dairy owners, however, believe that paper is the better product because studies have shown that it protects milk vitamins and flavor much better than translucent plastic. Champion International has four domestic competitors: International Paper, Potlatch, Westvaco, and Weyerhaeuser. Champion is ranked #2 behind International Paper in the industry. The other three companies face difficulties related to quality and inefficient scale. Dairies are the largest purchasers of paperboard cartons in the U.S. The second largest segment is the high quality, differentiated juice packager with companies such as Seagrams, CocaCola, and Proctor & Gamble. Chilled juice sales have increased more than 82% in the past five years and the segment is the fastest growing segment in liquid packaging today. The third segment includes “ovenable board” (frozen food dishes or microwave dishes) and Pure-Pak cartons used to hold non-liquid items such as nails and mothballs. This market has grown slowly. When plastic containers were intruding the paperboard carton industry in the 1960s, Champion played a “wait and see” role. The paper carton didn’t die, but Champion’s infrastructure became old and outdated. From 1980 to 1987, Champion’s domestic consumption of Pure-Pak cartons for dairy purposes dropped 26%, but the company still retained about the same share in the market segment. Between that same time period, the company’s domestic consumption of Pure-Pak cartons for non-dairy purposes rose 82%, but it lost almost half of its share in the market. Champion’s strategy has always been to be the low cost producer in the commodity dairy segment, to try to make advances in the differentiated juice segment, to cautiously upgrade its infrastructure but not to invest in latest printing and roll-wrapping equipment, and to view export and special end-use segments as secondary items. Earle Bensing is faced with two difficult questions: Where should the company compete? And how much should the company invest? He has to decide who will get the limited amount of board that the company produces each year. Should the dairies, big juice manufacturers, or the export market be the ones to receive the paper board? He also has to decide whether he wants to invest money to renovate the paperboard machine, purchase another extruder, purchase additional roll-wrapping equipment, or to add rotogravure printing. He is faced with dilemmas that will ultimately make or break his company.

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