American Tobacco Company
Encyclopedia
James Buchanan Duke
James Buchanan Duke was a U.S. tobacco and electric power industrialist best known for his involvement with Duke University.-Personal life:...
through a merger between a number of U.S. tobacco
Tobacco
Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines...
manufacturers including Allen and Ginter
Allen and Ginter
Allen and Ginter was the Richmond, Virginia, tobacco manufacturing firm formed by John Allen and Lewis Ginter in 1875 that created and marketed the first cigarette cards for collecting and trading. Some of the cards in the series include Charles Comiskey, Cap Anson, Jack Glasscock, and Buffalo Bill...
and Goodwin & Company
Goodwin & Company
Goodwin & Company was an American tobacco manufacturer from New York City. Initially E. Goodwin and Brother, the company was founded before the American Civil War. It was known for its cigarette brands "Gypsy Queen" and "Old Judge"...
. The company was one of the original 12 members of the Dow Jones Industrial Average
Dow Jones Industrial Average
The Dow Jones Industrial Average , also called the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow...
in 1896.
The American Tobacco Company dominated the industry by acquiring the Lucky Strike Company and over 200 other rival firms. Antitrust
Antitrust
The United States antitrust law is a body of laws that prohibits anti-competitive behavior and unfair business practices. Antitrust laws are intended to encourage competition in the marketplace. These competition laws make illegal certain practices deemed to hurt businesses or consumers or both,...
action begun in 1907 broke the company into several major companies in 1911.
The American Tobacco Company, which started acquiring a wide range of non-tobacco products during the 1970s and 1980s, renamed itself American Brands in 1986, and has since been renamed Fortune Brands
Fortune Brands
Fortune Brands was a holding company founded in 1969 as American Brands and later renamed in 1997 and split apart in 2011. The corporate headquarters was in Deerfield, Illinois in the United States. The company historically had a significant diversity of product offerings...
. American Tobacco became a subsidiary of American Brands for the next ten years until the company shed its tobacco brands to competitors.
Origins
James Buchanan DukeJames Buchanan Duke
James Buchanan Duke was a U.S. tobacco and electric power industrialist best known for his involvement with Duke University.-Personal life:...
’s entrance into the cigarette industry came about in 1879 when he elected to enter a new business rather than face competition in the smoking tobacco business against the Bull Durham
Bull Durham
Bull Durham is a 1988 American romantic comedy baseball film. It is based upon the minor league experiences of writer/director Ron Shelton and depicts the players and fans of the Durham Bulls, a minor league baseball team in Durham, North Carolina....
brand, also from Durham, North Carolina
Durham, North Carolina
Durham is a city in the U.S. state of North Carolina. It is the county seat of Durham County and also extends into Wake County. It is the fifth-largest city in the state, and the 85th-largest in the United States by population, with 228,330 residents as of the 2010 United States census...
.
In 1881, two years after W. Duke Sons & Company entered into the cigarette business, James Bonsack invented a cigarette-rolling machine. It produced over 200 cigarettes per minute, the equivalent of what a skilled hand roller could produce in one hour, and reduced the cost of rolling cigarettes by fifty percent. It cut each cigarette with precision, creating uniformity among the cigarettes it rolled. There was public stigma attached to this machine-rolled uniformity, and Allen & Ginter rejected the machine almost immediately.
Duke set a deal with the Bonsack Machine Company in 1884. Duke agreed to produce all cigarettes with his two rented Bonsack machines and in return Bonsack reduced Duke’s royalties from $0.30 per thousand to $0.20 per thousand. Duke also hired one of Bonsack’s mechanics, resulting in fewer breakdowns of his machines than his competitors’. This secret contract resulted in a competitive advantage over Duke’s competitors; he was able to lower his prices further than others could.
In the 1880s, while Duke was beginning to machine-roll all his cigarettes, he saw that growth rates in the cigarette industry were declining. His solution was to combine companies and found “one of the first great holding companies in American history.” Duke spent $800,000 on advertising in 1889 and lowered his prices, accepting net profits of less than $400,000, forcing his major competitors to lower their prices and, in 1890, join his consortium by the name of the American Tobacco Company. The five constituent companies of American Tobacco: W. Duke & Sons, Allen & Ginter, W.S. Kimball & Company, Kinney Tobacco and Goodwin & Company
Goodwin & Company
Goodwin & Company was an American tobacco manufacturer from New York City. Initially E. Goodwin and Brother, the company was founded before the American Civil War. It was known for its cigarette brands "Gypsy Queen" and "Old Judge"...
– produced 90% of the cigarettes made in 1890, the first year the American Tobacco Company was listed on the NYSE. Within two decades of its founding, the American Tobacco company absorbed about 250 companies and produced 80% of the cigarettes, plug tobacco, smoking tobacco, and snuff produced in the United States. With Duke’s innovation, American Tobacco grew its equity from $25,000,000 to $316,000,000.
The "Tobacco Trust"
American Tobacco Company quickly became known as the “Tobacco Trust” upon its founding. Duke controlled the cigarette market, and his trust caught the attention of legislators in the United States, a country with historical aversion to monopoliesMonopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
.
American Tobacco Company focused solely on making and selling cigarettes, leaving growing of tobacco and retail distribution to independent entrepreneurs. Nonetheless, Duke aimed to eliminate inefficiencies and middlemen through vertical consolidation
Vertical integration
In microeconomics and management, the term vertical integration describes a style of management control. Vertically integrated companies in a supply chain are united through a common owner. Usually each member of the supply chain produces a different product or service, and the products combine to...
. The American Tobacco Company began to expand to Great Britain, China, and Japan. The company also maintained an interest in producing other tobacco products in case fads shifted; Duke wanted to be sure that he would be prepared with a multitude of tobacco styles. The Tobacco Trust’s international expansion in conjunction with its consolidation of all types of tobacco is what “ultimately made the Trust so vulnerable to regulation and judicial dissolution”.
The Sherman Antitrust Act
Sherman Antitrust Act
The Sherman Antitrust Act requires the United States federal government to investigate and pursue trusts, companies, and organizations suspected of violating the Act. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by...
was created in 1890, and in 1907 the American Tobacco Company was indicted in violation of it. In 1908 when the Department of Justice filed suit against the company, sixty-five companies and twenty-nine individuals were named in the suit. The Supreme Court ordered the company to dissolve in 1911 on the same day that it ordered the Standard Oil Trust to dissolve. The ruling stated that the combination of the tobacco companies “in and of itself, as well as each and all of the elements composing it whether corporate or individual, whether considered collectively or separately [was] in restraint of trade and an attempt to monopolize, and a monopolization within the first and second sections of the Anti-Trust Act.”
Dissolution
Dissolution proved complicated. The American Tobacco Company had combined many prior companies and processes. One department would manage a certain process for the entire organization, producing brands previously owned by other companies. “Plants had been assigned specific products without regard for previous ownership.” Over the course of eight months, a plan for the dissolution, meant to assure competition among the new companies, was negotiated.The Trust needed to dissolve in such a way that no manufacturer had a monopoly on any type of tobacco product. Investors, holding millions of dollars of securities, also needed to be considered. A large question was how to distribute trademarks and brands between the resulting companies.
Four firms were created from the American Tobacco Company’s assets: American Tobacco Company, R. J. Reynolds, Liggett & Myers, and Lorillard. The monopoly became an oligopoly. The main result of the dissolution of American Tobacco Trust and the creation of these companies was an increase in advertising and promotion in the industry as a form of competition.
Liggett & Myers
Liggett & Myers kept control of the following plants: Liggett and Myers, St. Louis; Spaulding and Merrick, Chicago; Allen and Ginter, Richmond; smoking tobacco factory in Chicago; Nall and Williams, Louisville; John Bollman Company, San Francisco; Pinkerton Company, Toledo; W. R. Irby, New Orleans; two cigar factories in Baltimore and Philadelphia, and the Duke-Durham branch of the American Tobacco Company.P. Lorillard
P. Lorillard retained the Lorillard properties in addition to S. Anargyos; the Luhrman and Wilburn Tobacco Company; plants in Philadelphia, Wilmington, Brooklyn, Baltimore, and Danville; and the Federal Cigar Company.More recent history
At the same time as the antitrust action in 1911, the company's share in British American TobaccoBritish American Tobacco
British American Tobacco p.l.c. is a global tobacco company headquartered in London, United Kingdom. It is the world’s second largest quoted tobacco company by global market share , with a leading position in more than 50 countries and a presence in more than 180 countries...
(BAT) was sold. In 1994 BAT acquired its former parent, American Tobacco Company (though reorganized after antitrust proceedings). This brought the Lucky Strike
Lucky Strike
Lucky Strike is a brand of cigarette owned by the R.J. Reynolds Tobacco Company and British American Tobacco groups. Often referred to as "Luckies", Lucky Strike was the top selling cigarette in the United States during the 1930s.- History :...
and Pall Mall
Pall Mall (cigarette)
Pall Mall cigarettes are a brand of cigarettes produced by R. J. Reynolds Tobacco Company in Winston-Salem, North Carolina, and internationally by British American Tobacco at multiple sites.- History :...
brands into BAT's portfolio as part of BAT's American arm, Brown & Williamson
Brown & Williamson
Brown & Williamson was an American tobacco company and subsidiary of the giant British American Tobacco, that produced several popular cigarette brands. It became infamous as the focus of investigations for chemically enhancing the addictiveness of cigarettes...
. B&W later merged with R. J. Reynolds Tobacco Company in 2004.
American Tobacco left Reidsville and Durham in the late 1980s.
Redevelopment
In 2004, the previously abandoned American Tobacco Campus (ATC) in Durham was reopened as a complex of offices, shops, and restaurants. Developed by Capitol Broadcasting and reopened as the American Tobacco Historic District; Phase 1 consisted of the Fowler, Crowe, Strickland, Reed, and Washington Buildings, and included the construction of two new parking garages and a water fall feature through the center of the campus designed by Smallwood,Reynolds,Stewart,Stewart of Atlanta, Georgia and constructed by W.P.Law Inc. based in Lexington, South Carolina. Phase 2, consisting of the remaining buildings and expansion of the water feature at the north end of the site, is under construction as of late 2006. Many office spaces in the ATC are now used by Duke UniversityDuke University
Duke University is a private research university located in Durham, North Carolina, United States. Founded by Methodists and Quakers in the present day town of Trinity in 1838, the school moved to Durham in 1892. In 1924, tobacco industrialist James B...
.
The American Tobacco Trail
American Tobacco Trail
The American Tobacco Trail is a long Rails-to-Trails project located in the Research Triangle region of North Carolina, running along an abandoned railroad bed originally built for the American Tobacco Company in the 1970s. The route crosses through the City of Durham, Durham County, Chatham...
, named for the company, is a multi-use rail-trail that begins just south of the Durham complex and runs 22 miles (35.4 km) towards Chatham and Wake counties. It follows the route of the railroad (Norfolk Southern Railway (former)
Norfolk Southern Railway (former)
The Norfolk Southern Railway was the final name of a railroad running from Norfolk, Virginia southwest and west to Charlotte, North Carolina. It was acquired by the Southern Railway in 1974, which was merged with the Norfolk and Western Railway in 1990 to form the current entity of the Norfolk...
Durham Branch) that once served the factories, but was later abandoned when these facilities were shut down.