Читать книгу Dirty Tobacco - Telita Snyckers - Страница 8

If you’ve ever been to Geneva or Lausanne, you’ll know what it smells like. It smells like money. Not nouveau riche, flashy mobster money – old money.

In the quaint university town of Lausanne, just down the Rue de Lausanne, are the grandiose offices of British American Tobacco (BAT), Philip Morris International (PMI) and Japan Tobacco International (JTI), who have chosen one of the world’s most private and secretive corporate environments in which to base their global operations and house their massive profits. The setting stands in stark contrast to the addiction, devastation and ruin that their products dispense to the world with Swiss-like efficiency.

The industry has come a long way since the invention of the paper-rolled cigarette in Turkey in 1832. During the siege of Acre, an Egyptian artilleryman’s crew improved their rate of fire by rolling the gunpowder in paper tubes and were rewarded with a pound of tobacco. Their only pipe was broken, so they rolled the pipe tobacco in the same paper – giving the world its first paper-rolled cigarettes.1

Somewhere between the birth of hand-rolled Turkish cigarettes and PMI, BAT, JTI and Imperial dominating the scene today, lies the story of James Bonsack and Buck Duke.

Buck Duke’s father owned a US-based tobacco company, which he took over in the 1880s, over time earning himself the moniker of ‘robber baron’. He is often referred to as the ‘father of the modern cigarette’.

At the time, the cigarette market was small – cigarettes were expensive and hand-rolled by ‘cigarette girls’. In 1881, James Bonsack created a machine that was capable of rolling cigarettes 13 times faster than a cigarette girl could. But the industry wasn’t interested. Because the market for cigarettes was so small, they didn’t see the benefit of investing in a machine that produced more than they believed the market could consume.2

Buck Duke – who at that stage controlled a modest 1,5% of the tobacco market in America – seized his chance. He signed an agreement with Bonsack, giving him exclusive rights to use the machines (and paying very little by way of royalties).

He now had the capacity to produce millions of cigarettes but needed to create a market for them. He did so using spectacular promotions and advertising campaigns, spending an unheard of $800 000 in billboard and newspaper advertising (making Duke and Bonsack not only the godfathers of the industrialised cigarette trade but also of modern mass-market advertising and promotion). By 1887, Duke and Bonsack had refined the machines, and could easily produce 120 000 cigarettes in 10 hours.

With the power of both mass production and mass marketing behind him, Duke set out to conquer the tobacco market. He bought out Ligget&Myers; took over RJ Reynolds; absorbed Lorillard; and over time took over more than 200 other rival firms. So began the American Tobacco Company. He controlled 90% of the American tobacco market; and his company became one of the original 12 members of the Dow Jones Industrial Average, which is used to measure the performance of the stock market.

Not content with dominating just one side of the Atlantic, Duke set his sights on the British tobacco market. To avoid being gobbled up as part of Duke’s expansion plans, four smaller British manufacturers joined forces to create Imperial Tobacco.

Eventually, Duke and Imperial struck a deal: Duke would control the market in America; Imperial the market in British territories; and the rest of the world would be controlled by a new joint venture set up between them: British American Tobacco.

The American Tobacco Company was ultimately charged with breaking anti-trust legislation, and in 1911 the US Supreme Court dissolved the company as a monopoly, freeing RJ Reynolds and others from the American Tobacco stable.

With that, the tobacco wars really started.

Long before Duke started trading – as far back as 1847 – a gentleman named Philip Morris had opened a shop on London’s Bond Street, selling tobacco and hand-rolled Turkish cigarettes. It became the centre of the retail tobacco trade in Britain. Morris died in 1873, but his namesake company lived on.3

By 1901, when Queen Victoria – who passionately hated cigarettes – died, her successor, Edward VII, gathered friends in a large drawing room at Buckingham Palace and announced, ‘Gentlemen, you may smoke.’ By royal warrant, he appointed Philip Morris as tobacconist to the King.

Philip Morris had its next seminal moment when RJ Reynolds decided to hike cigarette prices at the start of the Great Depression in 1930, leaving a perfect opening for Philip Morris to counter with low-priced brands, in the process painting Reynolds as greedy and opportunistic.

By the time Duke’s monopoly was disbanded in 1911, Philip Morris was well-established, mainly off the back of brands like Marlboro, which initially targeted women.

Philip Morris embarked on a quest for world domination: buying out not just countless other tobacco companies but also the Miller Brewing Company (then the 7th largest brewery), most of the Seven-Up Company, General Foods and Kraft, a share in Brazil’s leading chocolate company, and Nabisco Holdings Corp for $18,9 billion – making it the world’s second-biggest food company (only trailing Switzerland’s Nestlé).

Aside from expanding its business empire beyond tobacco, PMI also made another strategic move: it began to establish a series of structures aimed at managing the public discourse around tobacco, setting up the Tobacco Research Centre in 1973 and the Tobacco Institute in 1978.

In 2001 Philip Morris decided to split its corporate identity: Altria (predominantly housing Miller Beer and Kraft Foods), and the two cigarette branches, Philip Morris USA and Philip Morris International. (At the time of writing, there were rumours that PMI and Altria are talking about a merger.)

As an aside, this book does not dwell on tobacco in China, because it warrants an entire book by itself. China has its own version of big tobacco, the China National Tobacco Corporation. It’s a state-owned monopoly, producing 2,5 trillion cigarettes a year – 43% of global output. It makes more money than BAT, PMI and Altria combined, and is responsible for somewhere between 7% and 11% of China’s government revenues every year.4

South Africa – where much of this book plays out – has its own tobacco-related rags-to-riches story (which ultimately ends up circling back to Lausanne decades later). In the 1940s a small tobacco farmer, Anton Rupert, noted that even the depression did not seem to decrease people’s consumption of tobacco and liquor, and started manufacturing cigarettes in his garage with an initial investment of £10,5 which he eventually built into the tobacco and industrial conglomerate Rembrandt Group. He has been credited with innovations ranging from king-size filter cigarettes, foil-wrapped packs and menthol filters, and the international hit brand Peter Stuyvesant.

In 1988, Rupert’s Rembrandt group founded the Swiss luxury goods company Richemont, effectively turning his earlier £10 investment into a company with annual net sales of $10 billion. In 1995, Rembrandt and Richemont consolidated their tobacco interests into Rothmans International (at the time controlling 93% of the legal tobacco market in South Africa). Their market share was ultimately ceded to BAT, handing over what was a virtual monopoly,6 and setting BAT up for dominance in the local market for decades to come.

Today, BAT is estimated to control around 74% of the local licit market, followed by JTI with 9% and PMI with 8%. This dominance, combined with the high excise tax on cigarettes, makes BAT one of the largest contributors to the fiscus.7

Whether it’s South Africa or America or mostly anywhere, the story almost always plays out the same way: a man makes some cigarettes; he finds a faster and cheaper way to make more cigarettes; he expands into other products; he gets bought up by a larger company; that big company merges with another conglomerate.

Oligopolies that started in somebody’s garage.

In recent years, a confluence of events has started putting pressure on what was previously a seemingly invincible industry. And industries under pressure bring out the big guns and the dirty tricks.

The first reason why big tobacco has been forced into a defensive posture has to do with simple market dynamics: smaller, local, low-cost manufacturers who are making inroads into its market share.

The second dynamic is a general increase in the awareness of big tobacco’s chequered past, resulting in more efforts around the world to regulate its business practices more effectively (especially in places like Western Europe).

The third is an obligation imposed under an Illicit Trade Protocol in the World Health Organization’s Framework Convention on Tobacco Control8 to introduce a track-and-trace system for cigarettes, so that cigarettes end up where they are supposed to, and packs that do make their way to the black market can be traced back to their manufacturer.

A fourth problem facing the industry is that governments are increasingly being pressured to introduce higher tax rates, as an incentive for people to stop smoking. Quite understandably, this is the last thing the tobacco industry needs.

Make no mistake: Impressive bottom lines notwithstanding, big tobacco is under pressure.

Which perhaps in part explains why it feels the need to take out the competition that is mercilessly chipping away at their market share. While the focus of this book is on big tobacco, it helps to understand the upcoming crop of independent manufacturers who are giving the big boys a run for their money.