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Chapter 8

Innovation leads the way

Rupert distinguishes innovative ideas and innovative products as two of the main reasons for the Rembrandt Group’s success. His innovative thinking was not just limited to the business sphere.

At the Tweede Ekonomiese Volkskongres (Second National Economic Congress) in Bloemfontein in 1950 he advocated partnership as a business philosophy, a partnership that had to be extended to the black population as well. This was an almost revolutionary notion given the spirit of the times, yet he saw it as the only way of turning the benefits of private enterprise into a blessing for all.

Rupert delivered his speech entitled ‘The Afrikaner in Industry’ two years after the National Party had assumed power. While the political kingdom was now under Afrikaner control, the economic terrain still had to be conquered. The aim of the congress was to take stock of economic progress in the previous decade and draw inspiration from it for the future. In the decade since the First National Economic Congress (according to a 1949 FAK survey) Afrikaners’ contribution in respect of turnover in the private sector had almost doubled, but cross-sectorally it still amounted to a mere eleven percent.

Rupert had just turned 34 and was addressing an audience of mostly older and more experienced men. He reminded his listeners that Afrikaners’ contribution to industry was still barely six percent – it was too soon to start removing the scaffolding from this small national edifice and start building bridges to others. With regard to those who dominated the economy, he said: ‘We are always ready to work with you, but not to work for you in perpetuity.’ And he quoted Kestell’s words from long ago: ‘We ask no favours. A nation must save itself!’

He provided an overview of South Africa’s industrial development in the preceding 25 years, comparing it to an industrial revolution. In this period South African industrial production had rocketed by 700% − faster even than that of Russia and America. This was partly thanks to legislation introduced by Hertzog’s NP government after 1924 that led to the establishment of institutions like the iron and steel corporation Iscor, as well as the role played by entrepreneurs such as Hendrik van der Bijl, Hendrik van Eck and Frikkie Meyer in building up the country’s biggest basic industries. Yet Afrikaners still controlled less than one

percent of the £1 000 million’s worth of mining and industrial shares on the stock exchange.

Recalling Ds Kestell’s words to students (‘I don’t dwell on the past or the present but look to the future’), Rupert expressed his own future-oriented thinking with a plea for the upliftment of black people. He based his argument on economic realities. Partly through Afrikaner endeavour, South Africa had been transformed into an industrial country that provided urban employment for thousands of Afrikaners. It was doing the same for hundreds of thousands of black workers. More than 30 000 Africans − both local and from beyond the national borders − were pouring into the major cities annually, leading to a preponderance of blacks in urban demographics. He advocated the ‘civilising mission’ as a solution to these developments that had brought about ‘one of our most vital questions’.

His proposed solution amounted to white mastership in white areas and white trusteeship in black territories, with the proviso that it should be mastership that is earned and based on achievement. He was farsighted enough to envision a day when mining would no longer be able to sustain the economy – South Africa’s industries had to developed further to ensure financial strength in the future. The steel and petrol industries had to be developed to make South Africa self-sufficient in the event of international crises. Blacks must know that South African courts would protect their basic human rights. This would make them sceptical of the professed freedom propagated by foreign powers.

He put two specific proposals to his audience. The first was that Afrikaner industrialists should provide a starting capital of £5 000 to launch a non-profit company (he suggested the name ‘Bantu Development Corporation’) with a view to establishing ‘modest local industries in black territories as proof of our bona fides and sincere intentions’. The second proposal was for the establishment of a corporation for European immigration to help meet the need for skilled labour. But he emphasised that the two initiatives should go hand in hand – ‘the one must supplement the other’.1

Rupert was given a standing ovation by the congress audience, which included his father John Rupert and his former headmaster Dr G von W Eybers. In retrospect his plea for the development of blacks could be regarded as paternalistically couched in the terminology that was current at the time, nonetheless it already expressed the idea of partnership he would proclaim with such conviction in the years ahead. At the congress, his notion of the desirability of economic rapprochement to other population groups was endorsed by both Dr Nic Diederichs and Prof.Wicus du Plessis, who declared that ‘we need to start building bridges to the other population groups to strengthen our influence on and our service to the country’s economy as a whole’.2

Rupert’s speech was in many important respects a prelude to the debate about the development of black homelands and the role of urban blacks that would rage in Afrikaner circles in later years. For a long time, however, nothing came of his proposals. As Rupert himself commented laconically, ‘There was applause but no action.’

Rupert’s innovative thinking on socioeconomic questions was matched by his pursuit of innovation with regard to products. From the outset, the Rembrandt Group concentrated on producing both new and better products in the tobacco industry through research and hard work. Quite early on he introduced the new Golden Throat filter and the All Seal packet, a paper packet lined with aluminium – this innovation came about because Rembrandt had no machines to make cardboard packages. Then, in 1952, fully a year ahead of any other tobacco company in the world, came his biggest innovation yet, which was to change smoking fashions around the globe.

He was never happy about ordinary filter-tipped cigarettes, sensing that smokers subconsciously felt they were being short-changed, since the filter replaced some of the tobacco. So he came up with a brand-new idea: a king-size filter-tipped cigarette. He summoned his chief technician and gave him an ultimatum: within 30 days − not 90! − he had to modify the machines to produce the new format. This was another typical quality of the entrepreneurial Rupert: he demanded much of his employees because of his belief that speed, timing and quality were crucial competitive advantages. With this sense of urgency, he would often remind his associates: ‘We are cats on a hot tin roof.’

The chief technician did not hesitate to do what had been asked by ‘Mr AE’ (as he was called by older employees, to distinguish him from his brothers Mr JP – Jan – and Mr JA – Koos). It was with reason that some of the employees also whispered that ‘AE’ stood for ‘All and Everything’. By the end of 1951 the modified machines were in operation. In 1952, a whole year before their counterparts in the USA and elsewhere, they had succeeded in putting 85mm cigarettes on the market. And not just one brand: alongside Rembrandt van Rijn Filter de Luxe there was a Rothmans King Size Filter as the company’s own internal competition, a typical procedure of Rupert’s to awaken creative ingenuity and motivate people. ‘Because’, he observed, ‘you don’t run the race on your own.’

Other cigarette manufacturers were sceptical about the new, unproved product. Even Sydney Rothman, his technical advisor, refused to market Rothmans King Size or Rothmans King Size Filter (which Rembrandt manufactured under licence in South Africa) in Britain. Not until the eventual takeover of Rothmans of Pall Mall did this Rothmans ‘baby’, as Rupert called the new cigarette, hit the London market.

Another sceptic was the biggest cigarette manufacturer in Europe, the German Philipp Reemtsma, who had met Jan Rupert in Hamburg in 1950 and was impressed with everything he saw and heard about Rembrandt. When he eventually met Rupert, the two men became firm friends despite initial language difficulties. A World War I pilot himself, Reemtsma had lost three of his sons during World War II. While he suspected that the enterprising young South African would become his main competitor, he asked himself: ‘What would you do for your own son?’ He decided to take Rupert under his wing and helped him in crucial ways.

In later years the roles changed, with Reemtsma asking advice from Rupert at least once a month. And he insisted on paying Rupert. The depth of their friendship was such that Reemtsma wanted to appoint Rupert as trustee for the interests of his surviving son, Jan Philipp, a child of his second marriage, but Rupert did not see his way open to take on this responsibility as it would have meant moving to Europe.

Reemtsma had grave doubts about the concept of king-size filter-tipped cigarettes. By 1954 this innovation had swept the American market, but America was not Europe. At Reemtsma’s home at Bad Gastein in Austria he and Rupert argued throughout one whole night. Round four in the morning they reached a compromise: if filter cigarettes could seize six percent of the market, Reemtsma would concede the point. Never pusillanimous, Rupert predicted it would be 80%.

He was right. By 2000, according to Filtrona International, 93% of all the 5,7 trillion cigarettes smoked in the world were filter tipped. The most widely used filters (69%) were made of cellulose acetate, with Estron as the leading manufacturer. Second came polypropylene filters with 21%, mainly in China.

The episode with Reemtsma reveals much about Rupert’s nature. He is a refined and cultivated person, invariably courteous. But he is also someone with firm convictions, who could persevere when others threw in the towel. If he wanted something done, it had to be done. If he was convinced that an innovation was the right thing at the right time, nothing could stand in his way. For this reason some of his close friends have described him as a man of steel.

Rembrandt led the field with other innovations as well. It produced the first mentholated filter-tipped cigarettes in the world; the first ‘Multifilter’ king-size cigarettes; the first cigarettes with ‘Multivent’ super-porous paper; the first ultramodern, gold-banded filter; and the world’s first luxury-length cigarette.

Five years after its humble start in the old mill in Paarl Rembrandt controlled a substantial part of the South African cigarette market. But this did not satisfy Rupert. He did not underestimate his competitors; he could see the risks of a price war. Besides, he was still fired by the ideal of proving Afrikaner mettle among the top performers in the world. He started looking further afield.

In November 1953 a friend in London informed him that Rothmans, founded in 1890, was selling out to Carreras, an even older British tobacco merchant. This boded ill for Rembrandt, since the licence for manufacturing Rothmans and Consulate in South Africa − two lucrative and carefully nurtured brands − expired at the end of ten years and would have to be renewed. At the last minute the Rothmans-Carreras deal struck a hitch: because of some wartime taxes that did not satisfy the authorities Carreras could face a huge tax bill if it went through. Negotiations were suspended for the time being.

Rupert − already making use of what has since become known as a ‘corporate intelligence service’ − was kept in the picture. He struck at once. His partner Dirk Hertzog was dispatched to London to make Sydney Rothman a take-it-or-leave-it offer: according to Rupert’s calculation Rothmans’ break-up value was £750 000, without goodwill. That was what he was willing to pay, not a penny more. Rupert knew Rothman well. He was not a man for snap decisions. If he tried to prevaricate, he told Hertzog, go to the Continent for a while and give Rothman time to think it over.

It turned out exactly like that. On Hertzog’s return to London Sydney Rothman accepted the proffered £750 000 (R1,5 million). In one fell swoop Rembrandt acquired a concern that had been in business in England since the previous century, when Louis Rothman had opened his kiosk in Fleet Street. There was just one snag: they were short of some £700 000.

On the evening of Wednesday 18 November 1953 Rupert met AD (Lens) Wassenaar, general manager of the insurance company Sanlam, in the old Carlton Hotel in Johannesburg. He asked Wassenaar if Sanlam could help with a loan: he needed £750 000 to close the transaction, and at once. It had been the managing director of the Sanlam Group, Dr Louw, who had taken receipt of Rembrandt’s first cigarette at the Paarl factory five years previously.

Monday 25 November 1953 was the day on which Rembrandt had to pay for the takeover, which left only four days to find the money. Back in Cape Town on the day following his meeting with Rupert, Wassenaar convened a special meeting of Sanlam’s board for the Friday. The matter was so urgent that a car was sent to Riebeek West on Friday morning to collect FS Malan, one of Sanlam’s directors.3

In Cape Town that Friday Rupert put his case, the first time in Sanlam’s history that an outsider was permitted to address a board meeting. Using all his powers of persuasion, he managed to secure convertible debentures to the amount of £500 000. Sanlam advanced half of the amount, with its subsidiary African Homes Trust (later Homes Trust, eventually Metlife) and Bonuskor and FVB, both of which were founded by Sanlam, lending the other half. Volkskas bank would provide the remaining quarter of a million.

Monday noon was when the money was due in London. Rupert spent the morning with Jan Hurter, general manager (later managing director) of Volkskas, in the latter’s office in Pretoria as they waited for final confirmation that the money had been transferred. Their acquaintance dated back to the days when TIB rented offices in the Volkskas building in Johannesburg. Both were tense, as they knew what was at stake. At quarter past eleven there was still no telex or telegram from Sanlam. At half past eleven Hurter picked up the phone. ‘Anton, I’m going to telex London to tell them the money is there,’ he said. Rupert would not allow him to do this. He knew that Volkskas, not a big bank at that stage, could be ruined if the transaction should go awry. He reminded Hurter that they had come a long way together, knowing each other since 1941: ‘I’m not going to allow you to risk your whole future to help me and to help Rembrandt today.’ The minutes ticked by. At ten minutes to twelve the message of confirmation came through at last. At noon the money was in London.

Sanlam could congratulate itself: ‘In this way Sanlam helped a South African company take its first step towards becoming a global company.’

Commenting on this closest of close shaves, Rupert observed philosophically, ‘If you knew beforehand what’s in store for you, you’d never start anything.’ When he was asked years later if he ever takes part in Lotto, the officially sanctioned game of chance played by millions of hopeful South Africans every week, he answered with a smile: ‘No, I’ve taken enough big risks in my life!’

In effecting loans with which he financed his expanding business empire, he started following a practice that would yield great dividends in the long run. When money was needed for expansion or whatever, he usually borrowed more than he needed – and then made sure that the debt was redeemed before the due date. That was how Rembrandt established an enviable reputation for creditworthiness over the years.

The Rothmans deal entailed a whirl of overseas activity, including the sale of its 29 tobacco shops. At this point Rupert’s youngest brother Koos, a law lecturer at the University of the Orange Free State, joined the group. His first task was to see to the finalisation of contracts. Stationed first in London and later in New York, he became Rembrandt’s first overseas representative. Under his guidance 27 of Rothmans’ tobacconists were sold – only the shops in Pall Mall and the Burlington Arcade were retained.

Rupert is adamant that his two brothers have been among his most loyal and hardworking supporters. He counts among their virtues that ‘they were not ashamed to put a carton of cigarettes on their shoulders to go and sell it’. They also read through all the contracts and financial statements with him before they were printed.

Commitment and loyalty were indeed the kind of distinguishing characteristics that had laid the foundation for the trek abroad, which heralded a new phase for Rembrandt and Rupert. Soon he would spend one day out of every five on aeroplanes, as his son Johann would also do later.