American Tobacco (US)

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James Duke's American Tobacco was originally the world's biggest tobacco manufacturer, and later the owner of Lucky Strike cigarettes and British company Gallaher. However it suffered a series of reverse in the 1950s, overtaken by faster and more aggressive rivals, prompting a move into other industries. In 1997, it sold its remaining tobacco operations to what is now British American Tobacco, and became Fortune Brands, the owner of Jim Beam bourbon and Moen faucets, among other products.

The roots of American Tobacco were laid down in the 1880s. Cigarettes were a comparatively recent invention at the time, a sideline in an industry dominated by pipe and chewing tobacco ("chaw"). However they had become increasingly popular in America's fast-growing cities because of their convenience, comparative cleanliness (especially compared to chewing tobacco) and the powerful stimulation delivered by inhalation of nicotine into the user's lungs. Between 1875 and 1880 alone, consumption in America soared from around 42m to 500m cigarettes a year. Unlike pipes and chaw, cigarettes also provided excellent potential for self-promotion because of packaging devised in the 1870s by regional producer Allen & Ginter, and widely adopted by other manufacturers. This delivered the cigarettes within a printed paper wrapper stiffened with a cardboard insert.

The boom in demand had already led to the emergence of the first national cigarette brand, WT Blackwell's Bull Durham, which achieved prominence as a result of the country's first nationwide advertising campaign. The problem was production - cigarettes had to be produced by hand and even the most experienced roller was limited to around two or three cigarettes a minute. As a result, Allen & Ginter launched a national competition offering $75,000 to anyone who could devise a machine capable of speeding up the process. The winner was James Bonsack, whose invention could deliver as many as 212 sticks a minute.

Allen & Ginter installed the machine in their factory on a trial basis, but for reasons that are not entirely clear, were not convinced of its effectiveness, and declined their option to acquire Bonsack's patent. It was at this point that James 'Buck' Duke, the wealthy son of a Virginia tobacco planter, entered the story. Certain that he could make Bonsack's process work, he acquired several machines, with an option to buy more at exceptionally favourable rates, and set out to take control of the cigarette industry by mounting a truly massive advertising campaign. By the end of the 1880s he was spending almost $1m a year on advertising, a vast sum of money for the time. Duke also invented pictorial cigarette cards, tempting America's growing audience of male smokers with lurid pictures of thinly dressed beauties printed on the stiffeners used inside his packaging. Within five years, Duke was selling more than 5m cigarettes a day, and increased production further by acquiring a stream of his smaller competitors. Eventually, in 1889, Duke's more established competitors, led by Allen & Ginter and RJ Reynolds, admitted defeat and joined forces with him to create The American Tobacco Company. Still only 33 years old, Buck Duke was named as its first president.

Despite American Tobacco's triumph, growth had already peaked in the US market, and in 1901, Duke turned his attention to Britain, establishing a manufacturing base in Liverpool with the acquisition of Ogdens, maker of the Tabs cigarette brand. To protect their market from Duke's attack, 13 of the leading British companies joined forces to create a rival giant, Imperial Tobacco. Aware that he could not compete easily with this new UK conglomerate, Duke instead proposed a friendly alliance. In 1902, American Tobacco and Imperial Tobacco agreed to pool their respective international activities in a new joint venture, under the name British-American Tobacco.

Back home, Duke's dominance of the industry was beginning to trouble American anti-monopoly regulators. A campaign to break up the business commenced in 1907 and was finally forced through four years later. American Tobacco's US operations were divided up and three new businesses - RJ Reynolds, Ligget & Meyers and Lorillard - were split out as independent companies. At the same time, Duke was forced to sell his shareholding in British-American, which was floated as another separate entity in London. Already immensely wealthy, Duke retired from the tobacco business, and devoted himself to more charitable activities, including the refinancing of North Carolina's Little Trinity College, which adopted the new name of Duke University in his honour.

Even in reduced form, American Tobacco remained a major force in the market. Its lead brand was Lucky Strike, initially a chewing tobacco, first introduced in 1871 and later relaunched as one of America's first pre-rolled cigarettes. However, Lucky Strike was completely overshadowed in the first few years of the 20th century by the huge success of Reynolds' new cigarette brand Camel. Duke's long-serving assistant Percival Hill took over management of the company in 1912. A gentle, mild-mannered man, he was not able to prevent a further steady decline in the company's fortunes. After his death in 1925, however, he was succeeded by his son, George Washington Hill, quite the opposite in both temperament and management style. Famously brash, rude and tyrannical, he ran the company as his personal fiefdom for the next 20 years, and oversaw a spectacular alteration in its fortunes, not least as a result of a huge investment in marketing, coordinated by advertising agency Lord & Thomas. Lucky Strike quickly gained ground during the 1920s, with an aggressive marketing campaign which highlighted tobacco's appetite-suppressing qualities, advising customers to "Reach for a Lucky, instead of a sweet". (The ads were eventually withdrawn after protests from confectionery manufacturers). The onset of the Great Depression and then World War II made the concept of luck increasingly important to American consumers, and Lucky Strike overtook Camel as the best-selling brand in the early 1930s, retaining that position for most of the next two decades.

After World War II, American Tobacco began dabbling in the international market once again, acquiring a number of smaller British brands, including Kensitas. In 1962, it traded up, swapping Kensitas for a 13% shareholding in Gallaher, one of the two major manufacturers in the UK. When Gallaher became the target of a hostile bid from fast-expanding Philip Morris in 1968, the British company sought protection from American, which increased its stake to 50%, before taking full control in 1975. By this time the former American Tobacco had become a very different business. Its tobacco business had steadily declined since the 1950s, overtaken in the domestic market by the rapid growth of first Reynolds and then Philip Morris.

Meanwhile, the group had begun to diversify in the mid-1960s, acquiring a wide range of other companies including Andrew Jergens Cosmetics (later sold to Kao Corporation), Jim Beam whiskey, Swingline staplers and Master Lock padlocks. In 1970, to reflect its broader portfolio, the conglomerate changed its name from American Tobacco to American Brands. As health concerns over tobacco began to intensify, it took the decision to accelerate a move away from smoking products towards the end of the 1980s. In 1994, American Brands sold its US tobacco business to BAT's Brown & Williamson subsidiary, then finished the process by floating off Gallaher in 1997. (The group also sold off its insurance division, Franklin). A change of name to Fortune Brands completed the transformation of the old American Tobacco company.

Last full revision 29th March 2016


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