Authors: Richard Kluger
But Hill did not live long enough to see his beloved Lucky Strike in sharp decline. Indeed, 1946, the year he died, was a banner one for American Tobacco, which added 36 billion units to its sales total—a 47 percent gain on top of the 41 percent advance during the previous four years together and the largest one-year gain ever by a U.S. cigarette maker. True, its profit margin was just over half the prewar level, due to higher costs and price controls, and below the net rate on sales achieved by R. J. Reynolds. But American Tobacco was selling one-third more units than RJR, and so, despite its lower profitability, brought substantially more dollars to the bottom line. When Hill died at sixty-one that fall at his fishing camp in Quebec, the house he left behind was the envy of the industry. Its factories were cleaner and more modern, their grounds meticulously landscaped, their tobacco stored in spotless warehouses that the company owned—not rented, as its competitors did—and its flatbed delivery trucks, made of aluminum and half again as costly as everyone else’s carriers, were regularly washed in the company’s oversize garages and emerged with the sparkling look of winners.
With Hill’s departure, Buck Duke’s legacy of rugged individualism came to an end at American Tobacco, which thereafter became a closely orchestrated organization instead of the one-man band it had so long been. Hill was succeeded by a caretaker president, Vincent Riggio, an able but overaged Hill loyalist who had directed American’s sales operations but lacked the scope and tools to pilot the company through the choppier waters just ahead. After four years the reins were passed over early in 1950 to Hill’s soft-spoken protege, Paul Hahn, whose achievement with Pall Mall suggested that he was far more than a competent technician. This hopeful assessment would prove to be mistaken.
III
BILLBOARDS
were not considered exactly avant-garde advertising by 1942, but it could not have done George Hill’s blood pressure much good when his chief competitor, the North Carolina crowd at Reynolds Tobacco, invaded American Tobacco’s headquarters town that year and put up a huge sign
for Camel in Times Square. Overnight it became the nation’s most famous billboard.
It was a model of simplicity. Two stories high and running half a block between Forty-third and Forty-fourth streets on the east side of Broadway, the sign had just three elements: the brand name in giant letters, its old slogan “I’d Walk a Mile for a Camel,” and the huge head and shoulders of an American serviceman—a soldier one season, a sailor the next, an airman the one after that—who had for a mouth a perfectly round hole about a yard wide. Behind the hole and the surface of the sign was a chamber with a synthetic rubber backing that a cam would pull taut as the chamber filled with piped-in steam; a second gear would then cause the elastic membrane to relax with a whooshing sound and propel out the hole several times a minute a perfect simulated smoke ring that would grow to about fifteen feet in width as it wafted over the heart of the nation’s premier entertainment district. Countless millions gawked at the Camel “smoking” sign during the twenty-five years it remained in place, serving as the prototype for some two dozen smaller versions around the country.
The famous sign, however, was an anomaly in RJR’s otherwise lackluster advertising program during the ’Forties, as Camel fell further and further behind Lucky Strike and in 1944 even dropped below Chesterfield’s sales. Its drab campaigns featured the report that in a poll of more than 11,000 doctors by three independent organizations, Camel was the preferred brand—a shopworn version of Hill’s brainstorm of some fifteen years earlier—and urged smokers to try the “T-Zone Test” to see if Camel was not kinder to their taste and throat.
This pedestrian advertising was emblematic of what Reynolds Tobacco had become: a sound, profitable, unadventurous outfit, largely dependent on a single product that appealed mainly to males in rural and small-town America. Wary of outsiders by tradition, the company remained provincial by design and grew inbred by habit. In 1939, it had fewer than 2,500 stockholders, the largest twenty of whom controlled 60 percent of the common. By 1944, as management and ownership grew ever more tightly bound, 78 percent of the common stock was held by RJR employees, and its board of directors consisted entirely of company officers and department heads.
The company ran Winston-Salem like a classic corporate fiefdom; the town’s chief manufacturer, bank, utilities, board of trade, politics, and religious institutions were under tight, interlocking control, and potential major employers who might raise the demand for labor, and with it the local wage scale, were not avidly solicited. As a result, Reynolds’s pay to factory hands averaged less than at the notoriously stingy textile mills domiciled in the proudly, fiercely antiunion Carolinas. Not averse to progressive policies under its founder, RJR had turned stodgy and almost antiquarian. There were few
college men in its employ, except at the very highest level, as if too much learning might soften a man and make him unfit for the hard practicalities of the tobacco business. Private offices were rare, telephones were scarce (and the chief executive officer had to approve of every new one installed), the accounting department still featured high stools and green eyeshades of Dickensian quaintness, and there was no air-conditioning despite the dank summer climate. Other than the close surveillance it exercised over just who was buying the company’s stock, Reynolds operated with dispassionate leadership under the somewhat aloof board chairman, Clay Williams, and his chief operating overseer, the acidic ex-banker James Gray, who served as president from 1934 to 1946 and whose universe was bound by the company, his family, the Methodist church, and the University of North Carolina athletic teams.
Guided largely by short-term effects on the bottom line, Reynolds policies in this period reflected a small-mindedness that was nevertheless able to justify itself by the company’s sustained prosperity. During the war, it had not been willing to risk profitability to pursue higher sales volume, and so its loss of market share was readily rationalized by a return on its relatively narrow equity base which remained 20 percent above the industry’s average, thanks to RJR’s low wages, absence of debt service, and generally cheaper costs of doing business. Once the war ended and pricing began to catch up with costs, Reynolds grew more aggressive in its selling practices. But its social consciousness was slow to awaken. The company’s employment policies, not unique for the South in that era, were white supremacist; blacks were denied skilled, better-paying jobs and relegated largely to the dusty, often stifling leaf-processing rooms. By maintaining a two-tier wage scale for a workforce split about equally between white and black employees, the company effectively stymied union-organizing efforts across the whole rank and file. Reform efforts to improve wages and living conditions in the community, led by teachers, black preachers, and white union organizers, were promptly labeled as communistic by the company, dedicated to maintaining its cheap labor supply. After a boisterous, five-week strike in 1947, marked by standard repressive tactics like confiscation of the organizers’ sound truck and arrest of its occupants as agitators, the house union emerged stronger than ever. Intermittent efforts to organize continued over the next eight years until the union movement was finally routed by an eight-to-five ratio when 13,000 RJR workers voted on theissue in 1955. The company would remain the only non-union shop in the industry.
Reynolds’s lackadaisical marketing notwithstanding, Camels had nearly overtaken Luckies for the brand leadership by the end of 1948, but American Tobacco was still selling a healthy 20 percent more cigarettes than RJR, due partly to the rise of Pall Mall. Clay Williams decided that the moment was ripe—a whole decade after his main foe had taken the plunge—for RJR to
market a king-size brand of its own and end its dependency on Camel. But as American had done, Reynolds wanted the new entry to differ markedly from its bellwether. Williams himself, while on a trip to Canada, had become taken with the Players brand, an all-Virginia smoke, as the British styled the Bright leaf cigarettes with very little flavoring that the Commonwealth preferred. Why not an all-Bright king for the new Reynolds entry, Williams suggested; the unblended tobacco was near at hand, minimal flavoring additives would further reduce costs, and nobody would mistake the product for a Camel. In effect, he was proposing that Reynolds go back to the pre-Camel days before the company had invented the American blended cigarette, and few in the RJR upper echelon chose to argue with the boss. The new brand was christened Cavalier to evoke the Virginia origin of its Bright leaf ingredients, and after promising test-market results, the new king was rolled out nationally in 1949. RJR salesmen, dressed up in swashbuckling seventeenth-century “musketeer” costumes, marched in promotional parades with local celebrities to kick off the first new Reynolds product in thirty-six years.
There was just one thing wrong—RJR had devoted those thirty-six years to habituating American smokers’ taste to the highly flavored blended cigarette. Cavalier tasted bland by comparison, and the harshness of “natural” tobacco that sweeteners usually masked was unwelcome. Reorders failed to materialize, and there was no inventive advertising pitch to jar smokers loose from their old brands. RJR scrambled to adjust the taste, revamp the package, and juice up the advertising, but to no avail. Cavalier was a $30 million dud that its sire, Clay Williams, did not live long enough to see skewered. But the experience so soured James Gray, the new RJR chairman, on risky new products that the company had to await his death four years later before moving decisively into the new age of smoking.
In one area of its operations, however, Reynolds took the industry leadership in the late ’Forties. Cigarettes were perceived as a product that by and large sold itself on the strength of the advertising “pull” generated by company marketers and the creative agencies they hired. Industry salesmen in the field could do little beyond sampling to push brands individually with the millions of faceless customers; instead, their job was to hobnob with distributors, place point-of-sale displays, and do their best to see that retailers’ stocks were regularly replenished. American Tobacco’s more forceful advertising further diminished the importance of its footmen, who served primarily as order-takers. The Reynolds field force had to work harder, and it was not an easy life. There was much physical work involved as they drove their cars, often poorly equipped for cold weather, to even the most remote outlets to show the RJR flag, lugged fresh stock and signage in shabby canvas bags, got paid low wages and bare subsistence travel allowances, and were nagged by communiques from company headquarters often sharply critical of their performance but
rarely dispensing constructive advice. Those who made it up the ranks to division and regional managerships enjoyed little authority under the company’s highly centralized operations. As a reward for their efforts, top sales personnel were likely to be mercilessly summoned to Winston-Salem for an annual strategy session over the Christmas holidays, presumably a time when little business could be booked. Morale was understandably low, and it was hard to retain good men in cigarette sales.
But as postwar margins improved with the lifting of price controls, selling cigarettes took on the rudimentary aspects of a profession. Manufacturers at that time sold mainly through some 3,000 wholesalers, many of them small, family operations that were inefficient and chaotic and fought endlessly over territory in a business without exclusive dealerships. And since all manufacturers’ shipments were on consignment—returnable if unsold—it took little capital to go into tobacco jobbing. The typically overcrowded warehouse was a jumble of incoming shipments and outgoing orders, often colliding in the same space, and a lot of dusty, flyspecked, and ignored display materials; profits, not surprisingly, were measured in fractions of a percentage point. But since wholesalers were the industry’s lifeline to the smoking public, company sales reps could hardly dwell on the inadequacies of the jobbing system; what they could and did begin to do, though, was revise the thinking of the million or so cigarette retailers toward the product. For them profit margins fluctuated widely, depending on their competitive situation: Chicago outlets, for example, might net as much as 18 percent per pack against only 10 percent in the more crowded New York City market. But because the markup for cigarettes was lower than for almost all other merchandise, the impression had crystallized in dealers’ minds that the main value of the product was to create store traffic as smokers fed their daily habit and, it was hoped, bought other goods in the process. By the late 1940s, however, close analysis disclosed a quite different picture.
If dealers paid proper attention and gave adequate display space to cigarettes, gross profits on their sale were very high relative to the capital invested in their inventory, thanks to the product’s remarkably high turnover rate and frequent, reliable deliveries by wholesalers. Per dollar of inventory investment, in fact, cigarettes were found to be almost five times as profitable as any other item on the store shelf; none moved as fast as, or in the volume of, smokes. One ideally located New York drugstore, plainly an extreme example of the phenomenon, was able through daily deliveries to post cigarette sales of $36,450 for 1949 on an average inventory investment of only $155. Though they accounted for just 3 percent of retailers’ sales and storage space, cigarettes produced a disproportionate 5 percent of profits and, according to a 1950 survey of food retailers by Curtis Publishing researchers, the cigarette department delivered ten times as much profit per square foot of floor
space occupied as any other grocery item. Cigarettes, moveover, were about the least troublesome product to handle: they were lightweight and durably packed, rarely spoiled, were hard to steal since they were usually sold from behind the counter, underwent few price changes, and required almost no selling effort.