R. J. Reynolds Tobacco Company

R. J. Reynolds Tobacco Company (RJR), based in Winston-Salem, North Carolina and founded by R. J. Reynolds in 1874, is the second-largest tobacco company in the U.S. (behind Altria Group). RJR is an indirect wholly owned subsidiary of Reynolds American Inc. which in turn is 42% owned by British American Tobacco.

History

Early history

George Washington, early cut plug tobacco brand manufactured by Reynolds

The son of a tobacco farmer in Virginia, R. J. Reynolds sold his shares of his father's company in Patrick County, Virginia, and ventured to the nearest town with a railroad connection, Winston-Salem, to start his own tobacco company. He bought his first factory building from the Moravian Church and established the "little red factory" with seasonal workers. The first year, he produced 150,000 pounds of tobacco; by the 1890s, production had increased to several million pounds a year. The company's factory buildings were the largest buildings in Winston-Salem, with new technologies such as steam power and electric lights. The second primary factory building, built in 1892, is the oldest Reynolds factory still standing and was sold to Forsyth County in 1990.

At the beginning of the 1900s, Reynolds bought most of the competing tobacco factories in Winston-Salem. The company produced 25% of America's chewing tobacco. 1907's Prince Albert chewing tobacco became the company's national showcase product, which led to high-profile advertising in New York City's Union Square. The Camel cigarette became the most popular cigarette in the country. The Reynolds company imported so much French cigarette paper and Turkish tobacco for Camel cigarettes that Winston-Salem was designated by the United States federal government as an official port of entry for the United States, despite the city being 200 miles inland. Winston-Salem was the eighth-largest port of entry in the United States by 1916.

In 1917, the company bought 84 acres of property in Winston-Salem and built 180 houses that it sold at cost to workers, to form a development called "Reynoldstown."

At the time Reynolds died in 1918 (of pancreatic cancer), his company owned 121 buildings in Winston-Salem. He was so integral to company operations that executives did not hang another chief executive's portrait next to Reynolds' in the company board room until 41 years later. Reynolds' brother William Neal Reynolds took over following Reynolds' death, and six years later Bowman Gray became the chief executive. By that time, Reynolds Co. was the top taxpayer in the state of North Carolina, paying $1 out of every $2.50 paid in income taxes in the state, and was one of the most profitable corporations in the world. It made two-thirds of the cigarettes in the state.

Reynolds Co.'s success during this period can also be measured by the concurrent success of many Winston-Salem companies which received large amounts of business from Reynolds: Wachovia National Bank became one of the largest banks in the Southeast, and the company's law firm Womble Carlyle Sandridge & Rice became the largest law firm in North Carolina.

Reynolds diversified into other areas, buying Pacific Hawaiian Products, the makers of Hawaiian Punch, in 1962, and Del Monte Foods in 1979.

Recent history

R. J. Reynolds merged with Nabisco Brands in 1985 to form RJR Nabisco. In 1987, a bidding war ensued between several financial firms to acquire RJR Nabisco. Finally, the private equity takeover firmf Kohlberg Kravis and Roberts & Co (commonly referred to as KKR) was responsible for the 1988 leveraged buyout of RJR Nabisco. This was documented in several articles in The Wall Street Journal by Bryan Burrough and John Helyar. These articles were later used as the basis of a bestselling book, Barbarians at the Gate: The Fall of RJR Nabisco, and then into a made-for-TV film. As a result, in February 1989, RJR Nabisco paid executive F. Ross Johnson US$53,800,000 as part of a golden handshake clause, the largest such deal in history at the time, as severance compensation for his acceptance of the KKR takeover. He used the money to open his own investment firm, RJM Group, Inc.

In 1998, the company was part of the Master Settlement Agreement.

In 1999, R. J. Reynolds was spun out of RJR Nabisco. The same year, the company sold all its non-US operations to Japan Tobacco, which made those operations into its international arm, JT International. Consequently, any Camels, Winstons or Salems sold outside the US are now actually Japanese cigarettes.

In 2002, the company was fined $15m for handing out free cigarettes at events attended by children, and was fined $20m for breaking a 1998 agreement between tobacco companies and 46 states, which restricts targeting youth in its tobacco advertisements.

In October 2002, the European Community accused R. J. Reynolds of selling black market cigarettes to drug traffickers and mobsters from Italy, Russia, Colombia and the Balkans.

On July 30, 2004, R. J. Reynolds merged with the U.S. operations of British American Tobacco (operating under the name of Brown & Williamson). A new parent holding company, Reynolds American Inc., was established as part of the transaction.

In May 2006 former R. J. Reynolds vice-president of sales Stan Smith pleaded guilty to charges of defrauding the Canadian government of $1,200,000,000 (CDN) through a cigarette smuggling operation. Smith confessed to overseeing the 1990s operation while employed by RJR. Canadian-brand cigarettes were smuggled out of and back into Canada, or smuggled from Puerto Rico, and sold on the black market to avoid taxes. The judge referred to it as biggest fraud case in Canadian history.

Since 2006, R.J. Reynolds has been the subject of a Farm Labor Organizing Committee (FLOC) campaign to reduce the exploitative nature of its tobacco procurement system. FLOC's goal is to meet with Reynolds executives, growers, and workers in collective bargaining to improve farmworkers' pay and living conditions. Although there are many layers of subcontractors within the procurement system that seemingly absolve Reynolds of responsibility, FLOC asserts that its executives have the ability to make changes within the system due to their wealth and enormous power. Despite repeated refusals to meet from CEO Susan Ivey, FLOC continues the campaign against R.J. Reynolds Tobacco Company.

Marketing, sponsorships and criticisms

From 1972, R. J. Reynolds was a title sponsor of NHRA drag racing, the NASCAR Winston Cup Series and until 1993, the IMSA Camel GT for sportscars.

The NHRA sponsorship lasted up to 2001, before a new governing rule stated the Master Settlement Agreement, restricting R. J. Reynolds to one sponsorship of a sporting event; as a result, they chose NASCAR, which lasted up to 2003.

Joe Camel

File:Cigarettemachine-joecamel.jpg

A cigarette machine from the late 1980s or early 1990s, seen in 2008, featuring Joe Camel.

In 1987, RJR resurrected the mascot for their Camel brand of cigarette, Joe Camel. Joe Camel, an anthropomorphic cartoon camel wearing sunglasses, was claimed to be a ploy to entice and interest the underaged in smoking. R. J. Reynolds maintained that Joe's "smooth character" was meant only to appeal to adult smokers.

This criticism was reinforced by a 1991 study published in the Journal of the American Medical Association showing that more children 5 and 6 years old could recognize Joe Camel than could recognize Mickey Mouse or Fred Flintstone (coincidentally, Fred Flintstone was also once used to sell R. J. Reynolds' Winston cigarettes) and alleged that the Joe Camel ad campaign was targeting children, despite R. J. Reynolds' contention that the campaign had been researched only among adults and was directed only at the smokers of other brands. In response to this criticism, RJR instituted "Let's Clear the Air on Smoking," a campaign of full-page advertisements consisting entirely of large type text, which denied the charges and declared that smoking is "an adult custom."

In late 2005, R. J. Reynolds opened the Marshall McGearty Lounge in the Wicker Park neighborhood of Chicago as part of a marketing strategy to promote a brand of "superpremium" cigarettes and counteract local smoking bans in restaurants and cafes that took effect in 2006. The lounge, which offers thirteen varieties of exclusive "hand-crafted" cigarette, along with alcohol and "light food", has been "well received" in the neighborhood and by the targeted upscale market, according to company officials. The lounge has since been closed due to Chicago indoor smoking restrictions.

The company planned to open a second location in Winston-Salem in the summer of 2007, but scrapped those plans within weeks of opening, citing the increasing number of smoking restrictions in public places by state and local governments.

Brands

R. J. Reynolds brands include Camel, Kool, Winston, Salem, Doral, Eclipse, Export A and Pall Mall. Brands still manufactured but no longer receiving significant marketing support include Barclay, Belair, Capri, Carlton, GPC, Camel, Lucky Strike, Misty, Monarch, More, Now, Tareyton, Vantage, and Viceroy. The company also manufactures certain private-label brands. Five of the company's brands are among the top ten best selling cigarette brands in the United States, and it is estimated that one in three cigarettes sold in the country were manufactured by R. J. Reynolds Tobacco Company. In 2006 R. J. Reynolds acquired the rights to the smokeless tobacco products Kodiak and Grizzly dip.

Facilities

The company's headquarters were located in the Reynolds Building in Winston-Salem for 80 years. Built in 1929, the 21-story building was designed by the same architects (Shreve & Lamb) who later designed the Empire State Building in New York City. The current headquarters, the RJR Plaza Building, is 16 stories tall and was completed in 1982.

R. J. Reynolds' largest plant, Tobaccoville, a 2 million square foot (190,000 m²) facility constructed in 1986, is located in the town of Tobaccoville, North Carolina near Winston-Salem.

The company's Whitaker Park plant, located in Winston-Salem, was built in 1961 and is about 1 million square feet (90,000 m²).

Macon manufacturing, located in Macon, Ga., resides in a 1.4 million square foot (130,000 m²) facility built in 1974. This manufacturing plant was formerly known as Brown & Williamson, which was purchased by Reynolds and eventually closed in 2006.

The company also has tobacco-sheet manufacturing operations in Chester, Va. (closed in 2006), and Winston-Salem; leaf operations in Wilson, N.C.; tobacco-storage facilities in Blacksburg, S.C. and Richmond, Va.; and a significant research-and-development facility in Winston-Salem.

Among these facilities, R. J. Reynolds employs approximately 6,800 people.

R. J. Reynolds' subsidiary R. J. Reynolds Tobacco Foreign Sales Corporation is established in the British Virgin Islands to optimize its tax liability.

References

• Collins, Kristin. "Farm union targets RJR." News & Observer. October 27, 2007.

External links

• Official site