American Tobacco Co.

Published on .

In 1890, James Buchanan "Buck" Duke founded the American Tobacco Co. in Durham, N.C., by forcing several rival firms to unite with his W. Duke Sons & Co. American Tobacco Co. led the industry, continuing to acquire more properties until, by 1898, its holdings gave it an 85% share of the U.S. cigarette market.

American Tobacco Co. profited but also drew heavy fire from its remaining competitors, antitrust reformers and a growing antitobacco movement. In fact, the antitobacco lobby succeeded in getting 14 states to pass laws restricting cigarettes, but the laws did little to slow the growth of cigarette smoking or to harm the "tobacco trust," as American Tobacco came to be known.

In 1911, a federal court ordered the trust dissolved. However, a significant part of Mr. Duke's empire survived. A leaner American Tobacco Co., then headed by Percival Hill, was one of the four companies spun off from the old trust. (The other three were R.J. Reynolds Tobacco Co., P. Lorillard Co. and Liggett & Myers, all of which had existed prior to the formation of the trust and which had maintained varying levels of autonomy within it.)

The new American Tobacco Co. retained roughly a third of the cigarette and smoking tobacco market, a quarter of the plug or chewing tobacco trade and a very small fraction of the cigar market.

The era of the Hills

The efforts of Mr. Hill, and especially those of his son George Washington Hill, made the new American Tobacco Co. as much a force to be reckoned with as the old company had been. The younger Mr. Hill introduced packaging innovations—vacuum-packed tobacco tins, glassine-wrapped cigarette cartons and product dating—that were meant to persuade retailers and consumers of the superiority and freshness of his company's products.

Mr. Hill's particular obsession, however, was the Lucky Strike brand, which debuted in 1916 in response to RJR's spectacularly successful Camel cigarettes. Camel had debuted in 1913 and broke every mold in the business. In an era that favored cigarettes of Turkish or domestic Bright tobacco, Camel blended a significant portion of Burley tobacco with Maryland, Bright and Turkish.

On top of that, RJR offered 20 Camels for 10¢, while its rivals—L&M's Fatima, Lorillard's Zubelda and American's Turkish Omar—sold for 15¢. Finally, RJR hired N.W. Ayer & Son to engineer a $1 million national ad campaign for the brand.

By 1916, RJR—which had emerged from the dissolution of the tobacco trust with no cigarette brands—topped L&M in market share and sales, and was closing in on American Tobacco. Within five years, Camel took the lead, becoming the first truly national brand and transforming the way cigarettes were sold.

Under Mr. Hill's leadership in the 1920s and '30s, the company sold nearly 500 brands, but none gave American Tobacco a national brand identity. To remedy that deficiency, Mr. Hill unearthed Lucky Strike from among the marketer's old brands.

To suggest Lucky Strike's flavorful appeal, early advertising relied on the simple slogan, "It's toasted" (1916). The new brand did well enough in its first year, capturing about 11% of the market, but its progress was stalled by the entry of the U.S. into World War I.

In 1924, American Tobacco retained Lord & Thomas to work on the Lucky Strike account. L&T owner Albert Lasker persuaded Mr. Hill to focus the majority of the marketer's ad budget on that single brand. By 1925, Lucky Strike had 16% of the cigarette market, a distant third behind Camel (40%) and L&M's Chesterfield (25%).

Luckies attained market dominance when G.W. Hill became president of American Tobacco in early 1926, after the death of his father. In the 1920s and '30s, he cajoled celebrities, respected businessmen and even physicians into lending their names and images to his product.

Reaching women

In 1928, American Tobacco began an effort to win women smokers to Lucky Strike. Lord & Thomas introduced the famous "Reach for a Lucky instead of a sweet," asserting a connection between health, thinness, fashion and Lucky Strike. On Easter Sunday 1929, PR executive Edward Bernays extended that effort with the "Torches of Freedom March" down New York's Fifth Avenue, in which 10 debutantes publicly puffed their cigarettes as they strolled down the avenue, creating a sensation on the nation's front pages.

Between 1925 and 1931, American Tobacco's profits more than doubled, from $21 million to $46 million, and Lucky Strike moved ahead of Camel.

When radio and TV became viable mass media, American Tobacco sponsored a variety of popular shows that included the "Lucky Strike Dance Orchestra" (later the "Lucky Strike Hit Parade," 1935-59) and "The Lucky Strike Program With Jack Benny" (1944-1960).

Luckies, Camel and Chesterfield jockeyed for market position throughout the 1930s and into the '40s. In 1942, American Tobacco repackaged Luckies and announced that "Lucky Strike green has gone to war." This patriotic declaration—and the fact that cigarettes were regarded as essential to the soldier's kit—bolstered sales during and after World War II. Sales of Lucky Strike increased by 38% in the six weeks after the "Gone to War" campaign commenced. In 1946, as soldiers returned home, domestic sales increased by some 32 billion units.

Mr. Hill's son, G.W. Hill Jr., took over as chairman in 1946 when his father died. But a power struggle quickly developed between Mr. Hill and Vincent Riggio, the company's president. In March 1948, Mr. Hill resigned, and three days later FCB, the successor agency to Lord & Thomas, startled the advertising industry by resigning the $12 million account. At the time, it was the largest account any agency had ever resigned.

Lucky Strike moved to Batten, Barton, Durstine & Osborn, which resigned its Brown & Williamson Kool business to take on the account. After Mr. Hill's resignation, Luckies lost its preeminence at American Tobacco, becoming one among many brands, such as Herbert Tareyton, to receive support.

As part of the shakeup in 1948, Pall Mall, an old American Tobacco brand, moved to Sullivan, Stauffer, Colwell & Bayles, an agency formed in June 1946 by former executives at Ruthrauff & Ryan, which had handled Lucky Strike and Pall Mall radio production. Mildness became the strategy SSC&B used to tout the cigarette.

A changing world for cigarettes

The decade after World War II was the high-water mark for the American cigarette industry. The public was in comfortable denial of any health risks posed by the cigarette habit and more Americans smoked than ever before or since. Profits soared and the industry met the government in court, congressional hearings and Department of Justice investigations more than once concerning issues of trade collusion and fraudulent advertising and, generally, it emerged the winner.

Those heady days ended in 1964, when U.S. Surgeon General Luther Terry issued a report that specifically linked cigarettes to death and disease, and the tobacco wars began in earnest.

Well before Dr. Terry's report, American Tobacco Co. and its competitors tacitly recognized in their advertising possible health risks posed by smoking. They denied, however, that any cigarette posed a grave danger and also denied that their products posed even minor risks.

Almost from the beginning, American Tobacco claimed that the "toasting" of Luckies offered "Your Throat Protection—against irritation—against cough." In the 1940s, ads claimed that the length of new, improved Pall Mall Kings "gentles the smoke," making it milder, cooler and less irritable to the throat.

While American Tobacco had dealt with criticism based on health threats earlier, in the 1950s, numerous scientific studies began to assert clear, statistical links between cigarette smoking and lung cancer. In the December 1953 issue of Cancer Research, two researchers at the Sloan Kettering Institute offered compelling evidence that cigarette smoking was probably linked to lung cancer. In the wake of this article, industry leaders gathered to discuss their options.

They decided to form a jointly funded research organization to examine issues of smoking and health, hoping to find that cigarettes either were not harmful or that they could be made safe without significant expense. In the meantime, however, they retained Hill & Knowlton to launch a PR campaign that expressed concern for consumers' health, denied the tobacco companies would ever knowingly market a dangerous product and called into question the validity of the charges leveled against them.

The public, however, was worried. Per-capita cigarette consumption declined 10% in the early 1950s. In response, the industry continued to deny that its products were at all dangerous but simultaneously began to produce filtered cigarettes that were advertised as healthier than other, nonfilter brands.

However, American Tobacco President Paul Hahn believed that filters robbed cigarettes of their flavor and so American Tobacco alone failed to put any real effort into fielding a filter brand in the 1950s.

Robert "Barney" Walker shifted the policy on filters when he assumed the company presidency in 1963. In 1964, American Tobacco rolled out Carlton cigarettes, advertised as being low in tar and nicotine. Between 1963 and 1966, the marketer introduced a host of other filtered brands at the rate of seven a year, but none of them succeeded commercially.

The "Unswitchables" campaign for Tareyton—featuring a smoker with a black eye proudly declaring "I'd rather fight than switch"—enjoyed brief success and made American Tobacco a momentary contender in the filter field.

Government restrictions

In the months following the surgeon general's report in 1964, the Federal Trade Commission moved to restrict cigarette advertising and mandate strong health warnings on packaging. The industry united behind the front of the Tobacco Institute, whose lobbying forces persuaded Congress to pass the Cigarette Labeling & Advertising Act of 1965. The law required mild health warnings on packaging but blocked state and local action against the industry while it prevented the FTC and other federal agencies from taking action to regulate tobacco advertising.

In 1969, when the FCC used the so-called Fairness Doctrine to force broadcasters to balance the amount of airtime they sold to tobacco marketers by making an equal amount available to antismoking forces, American Tobacco and the rest of the industry voluntarily withdrew from advertising on radio and TV.

Broadcast media had accounted for 80% of the industry's advertising in 1969, but the industry initiated a transition away from those media to print and outdoor advertising. In that manner it managed to escape significant regulation of its advertising. Low-tar brands proliferated, and by 1978 represented 28% of the domestic market, thanks to the ability of companies to market the cigarettes as being safer.

In 1969, American Tobacco acquired the U.K.-based Gallaher Limited, immediately increasing the tobacco marketer's overseas market. That same year, the company began to acquire nontobacco business and established American Brands as a holding company for all its businesses.

By 1975, the majority of American Tobacco's tobacco sales and earnings came from its Gallaher subsidiary and, by 1990, less than 10% of American Brands' revenue came from American Tobacco. In 1994, the parent company sold American Tobacco to Brown & Williamson. There, American's old marquee brands Lucky Strike and Pall Mall survived but with none of the luster of their heyday.

Most Popular
In this article: