The
tobacco industry has been around for many years dating back to the 19th
century. W. Duke and Sons was one of the
earliest cigarette companies and was started in 1881. When cigarettes were first produced, they
were blends of Turkish leaf and bright tobacco and could only be made by a
trained cigarette maker at a rate of four cigarettes per minute. A man by the name of James Bonsack developed
a cigarette making machine that could make 120,000 cigarettes a day. In 1890 the American Tobacco Company was
founded and controlled 90% of the nations cigarette manufacturing, but in 1911
the Supreme Court ruled that they violated the Sherman Anti-Trust Act and
forced the company to break up. From
this break up the Big Four emerged and included R.J. Reynolds, Ligget and
Myers, Lorillard, and American. During
this time period, slow tobacco markets were a large problem. Things got to the point that the Interstate
Tobacco Growers Protection Association threatened to hold all of the tobacco
until the price demands were met. When
World War one came, the demand for tobacco went up drastically, but after the
war prices went back down.
The
tobacco industry would start to face many problems so changes had to be made to
help deal with the problems. Advertising
come on to the scene and proved to be very important to the industry. One very popular form of advertising used by
American Tobacco Company was the use of baseball cards. Also slogans were adopted such as “I’d walk a
mile for a camel”. Figures such as Camel
Joe and Marlboro Man also came into play.
One
of the biggest challenges the cigarette industry has faced has been the link of
cigarettes to lung cancer and other diseases.
In hopes of elimating the harmful effects of cigarettes companies
introduced new filtered cigarettes that would try to eliminate some of the
harmful effects. In lieu of this new
health concern, the surgeon general ordered warnings be placed on all cigarette
boxes, informing people of the dangers of cigarette smoking. Presently, companies are promoting ad
campaigns to inform and prevent people from smoking.
The
tobacco industry is a very competitive industry despite having only a few key
players. Phillip-Morris is by far the
worlds leading tobacco distributor and paid $4.5b in taxes last year and is the
largest single taxpayer in the country.
The market values of RJ Reynolds, American Brands, and Loews Corp. are
very similar. This similar market value
allows then the ability to easily take over another company and increase their
market value. The tobacco industry also
competes with the government and the public at times. For example, no longer legal avertising in
sports such as Nascar which tobacco companies were major sponsors. The only competition U.S. tobacco companies
face globally is the United Kingdom.
Three of the major five companies are located there.
Technology
has also started to be a problem for tobacco companies and created
competition. Contraband companies exist
that sell counterfeit cigarettes over the internet and gain major profits. Ligitmate cigarette distributors are now
beginning to sell cigarettes online to keep up with the importance of internet
shopping. Genetically engineered tobacco
plants have also come into play that are more health friendly to smokers.
The
tobacco industry has a very large impact on the economy. The industry produces jobs in manufacturing
and farming. The tobacco industry also
spends up to $6b on advertising, while the government spends $250m a year to
counteract tobacco adervertising with anti-tobacco advertising. While the tobacco industry raises a large
$11b in tax funds, it does not come close to paying for the government Medicare
payments to cover tobacco-related illness.
Tax- payers pay $16b for Medicare.
The Gross Domestic Product for the tobacco industry is $21.1b. To give you an idea on how much a tobacco
company makes; In 2001 Phillip Morris’ sales were $89,927m.
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