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History

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Tobacconist Philip Morris

Early years

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The company traces its history to a London tobacconist's, Philip Morris, 1847 opening of a single shop on London’s Bond Street.[1] The shop enjoys increased popularity after the Crimean War, where Turkish tobacco had become popular among returning soldiers who had begun to replace pipe tobacco and cigars with cigarettes: Morris soon started to hire more employees to hand-roll them.[2][3] Upon Morris' death in 1873, his widow Margaret runs the business along with his brother Leopold; the latter becomes sole owner in 1880 and soon set up a partnership with Joseph Grunebaum: Philip Morris & Company and Grunebaum, Ltd., is formally incorporated in 1881, with a public offering more than six times oversubscribed.[4] The company becomes simply Philip Morris & Co., Ltd., when the partnership dissolves in 1885. High in debt, it is purchased by one of its creditors, William Curtis Thomson, in 1894.[1]

In 1902, King Edward, a long-time familiar of the shop, appoints Philip Morris as royal tobacconist: under this favourable patronage, business is brisk.[4] The same year, the company is incorporated in the United States by Gustav Eckmeyer, who had been its sole importer and distributor in the New World since 1872.[5] Ownership is shared between Eckmeyer and the parent company, and the venture begins selling its first indigenous brands along with its tradiitonal luxury imports (among which Marlborough, named after one of the London manufactories located on Marlborough street, in London[6]).

Becoming an American company

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1919 turns out to be a crucial year: the American subsidiary is bought by investor Georges Whelan and incorporated in Virginia under the name of Philip Morris & Co., Ltd. Inc.[7] The company's coronet logo is also created at that time.[8] With Turkish tobacco falling out of fashion and its brands sitting firmly in the luxury and premium segments, total sales account for as little as 0.5% of the total cigarette market in 1925.[9]

Things improve under the leadership of Reuben Ellis, a recent transfer from Whelan's other tobacco interests. A new factory is opened in Richmond and new brands are launched or repositioned: among them, Marlborough sheds three letters in 1924 and is relaunched as a premium cigarette for the growing female market. As his boss' empire crumbles in the 1929 crash, Ellis pruchases the company for himself.

In 1933, in the middle of the Great Depression, then-flagship Philip Morris moves to a more popular segment, trading at 15 cents a pack instead of 25, enlisting the help of bellboy Johnny Roventini and his famous "Call for Philip Morris".[9][10] Success is immediate, but dragged by a general price war among major tobacco manufacturers, the company's best seller remains Paul Jones, a low-cost brand at 10 cents a pack. At the same time, with the Roosevelt administration stepping in to help struggling tobacco farmers and threatening to impose government prices, manufacturers have no choice but to subscribe to the Agricultural Adjustement Act: by 1936 leaf prices had doubled, Reuben Ellis was dead and margins had all but disappeared.[11]

The company emerges from WWII has a distant fourth in terms of market share: sales were up but still driven by cheap Paul Jones, whose attractiveness was declining in a full-employment economy; whatever profits that were to be made came from the company's namesake brand, at 15 cents a pack.[12] But the end of the war -and with it the end of rationing and scarcity- brings an unexpected consequence: hoarding had become pointless, just as U.S. military orders also dropped substantially. To compound the problem, the new president Al Lyon had made a choice to remove the cellophane wrapping from the packs so as to accelerate shipments. While this was not a problem when demand was higher than supply, in a society of renewed abundance this meant a longer time spent on shelves and, as a consequence, a merchandise that would become stale far quicker than its competitors. With inventory returns and an ill-advised attempt at re-packaging old boxes, factories end 1945 getting more returns than they were shipping.[13] The situation finally comes back to normal, particularly with the onboarding of Oliver McComas, a banker who during his time at Bankers Trust had both Philip Morris and Lehman Brothers: at the urging of the latter, he is hired by the former at the end of 1946. McComas imposes stricter financial controls; downsizes staff and improves compensations for those who remain; coordination between sales and production is dramatically improved; and a younger management team quickly emerges at the New York headquarters.

Advent of the Marlboro Man

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Philip Morris' -the brand- advertisment had by then become tired, and Federal lawsuits brought against the brand's sweeping claims (driven by the use of diethylene glycol instead of glycerol as a humectant to reduce throat irritation) did not help: by the time the matter was settled with the Federal Trade Commission, Philip Morris had long dropped them, but Pall Mall had also surpassed it as the fourth best-selling brand.[14][15]

In the early 1950's, growing concerns about the health effects of cigarettes prompt most manufacturers to equip them with filters: by the end of 1954, filtered brands had taken up more than 10 percent of sales volumes.[16] To enter this market, Philip Morris' executives first decide to purchase Benson & Hedges in 1954, which had pioneered the market with its Parliaments: but the brand loses nearly 10% of its market share under the new management.[16] They then move to rebrand a premium yet stagnant brand from their portfolio: Marlboro, while traditionnally associated with female smokers, had a suitably male ring to its name, and surveys had shown it to benefit from a generally positive image. George Weissman, the new vice-president for marketing and new products, signs up young and upcoming Leo Burnett to the task. The agency's challenge was to appeal to male smokers that were concerned enough about their health to consider switching to filter cigarettes, yet found these too "girlie" and lacking in taste. The blend is reworked to become more flavourful, and a new flip-top box is used as packaging, along with a completely reworked logo design - from the shape of the letters to the "roof-top", whose simple shape could be recognized on black-and-white television, regardless of distortion.[17] The old "Mild as May" slogan is also replaced with a decidedly manlier "Delivers the good on flavour", and supported by a series of Marlboro Men: over the years the brand will vary the figure of its representative (initially dubbed as "tatooed man" and often taken from the company's own ranks or their friends). Be it with a sailor, soldier, racecar driver or cowboy, the campaign is a success: within a month of it test-marketing in New York City, the brand reaches the top-selling position.[18] Within a year of its national roll-out, volumes increased an extraordinary 3,200%, bringing it almost immediately to the fourth best-selling rank.[19][20]

Becoming an international giant

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Increasing sales drive the company's expansion: in 1954, Philip Morris Australia becomes the first international affiliate of the company.[8] In 1957, the Swiss Fabriques de Tabac Réunies in Neuchatel are in turn the first to gain foreign licensing rights to produce the booming Marlboro (and the first European foray for the company since it left Britain), before being entirely purchased in 1963.[21] The overseas division is renamed Philip Morris International in 1961, along with Philip Morris Domestic and Philip Morris Industrial.[22]

Riding the wave of 1960's Hollywood Western movies that help popularize around the world the brand's "working-class frontier rebel" appeal[23] (the Marlboro theme is taken from Elmer Bernstein's soundtrack of The Magnificent Seven), the company expands dramatically over the decade: by 1965, Philip Morris products are available in 140 countries and territories.[22] Domestically, Marlboro had become the leading brand in the United States in 1972, but it takes until the early-1980s for Philip Morris to become the country's largest cigarette maker.[24]

The company also pursues a string of international partnerships with local monopolies, so much so thatits products reach consumers in more than 170 countries and territories by 1980.[22] The fall of the USSR in the early 1990's provides for yet another expansion opportunity, and Philip Morris International -which had been incorporated as an operating company of Philip Morris, Inc. in 1987[1]- is often found to be one of the first US companies to operate in the former Communist bloc. In 1990, a full two years before actually opening an office in the country, PMI accepts an oil for cigarettes deal with the failing Soviet state to help it deal with cigarette shortages,.[25][26] PMI is also one of the first US entrant on the Vietnamese market, opening a manufacturing plant a few months before the two countries normalize their relations.[27]

By the mid-60s the company had also started constituting an horizontal conglomerate[28], gradually purchasing various entities such as Miller brewing (1968), Seven-Up (1978), Kraft Foods (1988) and many others.[20] By the early 90's, Philip Morris has significant market shares in various chocolate, beer, and coffee markets around the world.[27] The importance of Philip Morris across the consumer products industry materializes on 2 April 1993, when the company suddendly slashes the price of its flagship brand by 20%, in an attempt to stave off increasing competition from generic cigarettes: Marlboro Friday, as it became known, sees the company's stock drop by 26% within a day, with others such as The Coca-Cola Company, Procter & Gamble or Disney taking large losses as well as many investors start to believe that brands are not such a valuable equity anymore.[29][30]

 
PMI's operation center in Lausanne

PMI as an independent entity

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On 27 January 2003 Philip Morris Companies Inc. changes its name to Altria. The conglomerate then gradually refocuses its operations, selling off large parts of its non-tobacco consumer products holdings: Kraft Foods Inc. is spun off in March 2007, with the company's 88.1% stake being distributed to Altria shareholders.[31] The same year, Altria begins the process of spinning off Philip Morris International in order to let it pursue growth opportunities abroad without the legal uncertainties stemming from its US arm.[32] Altria shareholders are given shares in PMI, which is listed on the New York Stock Exchange and other stock exchanges.[33] Under the separation agreements, both companies share brand ownership but can not compete in each other's markets: Philip Morris USA remains in the US, while PMI is free to operate in the rest of the world. Louis Camilleri, who had been Altria's CEO, becomes PMI's new Chief Executive.[34]

The newly-independent entity remains incorporated in New York, but its operational center is in Lausanne, Switzerland.[35] The company pursues its expansion across the world, and eventhough cigarette sales are declining across most markets, it sold more than 800 billion units in 2016.[36] It also aggressively engaged in a research and development effort to develop potentially "Reduced-risk products".[37] After trying a joint-venture with Swedish Match to market snus (2009-2015)[38][39], the company launches IQOS in 2014, a heated tobacco product with significantly reduced emissions.[40] In light of the product's success in Japan and other markets, PMI announces in late 2016 that it intends to release other similar platforms and aims to move away from combustible tobacco products in the long term.[41]

  1. ^ a b c "Key Milestones". www.pmi.com. Retrieved 29 April 2017.
  2. ^ Axton, W.F. (1979). Tobacco and Kentucky. University Press of Kentucky. p. 114. ISBN 978-0-8131-9340-3.
  3. ^ Snowdon, Christopher (2009). Velvet glove, iron fist. Little dice. p. 25. ISBN 978-0-9562265-0-1.
  4. ^ a b Kluger, Richard (2010). Ashes to Ashes. Knopf Doubleday Publishing Group. pp. 49–50. ISBN 9780307432834.
  5. ^ Hirschfelder, Arlene B. (1999). Encyclopedia of Smoking and Tobacco. Oryx Press. p. 242. ISBN 9781573562027.
  6. ^ "Marlboro cigarettes - name origin of the brand". High Names - International Naming Service, Brand Name, Product Name. 2013-01-11. Retrieved 2017-04-29.
  7. ^ Martin, Jonathan; Shelton, Pamela L. "Philip Morris Companies Inc" (PDF). Industry Documents Digital Library. University of California, San Francisco. Retrieved July 24, 2015.
  8. ^ a b Novac, Jenny. "The major historical dates of Philip Morris International". CigarettesReporter.com. Retrieved 2017-04-30.
  9. ^ a b Kluger, Richard (2010). Ashes to Ashes. Knopf Doubleday Publishing Group. p. 74. ISBN 9780307432834.
  10. ^ "Johnny's History". www.bellhop.org. Retrieved 2017-05-04.
  11. ^ Kluger, Richard (1997). Ashes to Ashes. Vintage. p. 85. ISBN 0-394-57076-6.
  12. ^ Kluger, Richard (1997). Ashes to Ashes. Vintage. p. 105. ISBN 0-394-57076-6.
  13. ^ Kluger, Richard (1997). Ashes to Ashes. Vintage. pp. 124–129. ISBN 0-394-57076-6.
  14. ^ Kluger, Richard (1997). Ashes to Ashes. Vintage. p. 132. ISBN 0-394-57076-6.
  15. ^ Kluger, Richard (1997). Ashes to Ashes. Vintage. p. 152. ISBN 0-394-57076-6.
  16. ^ a b McDonough, John; Egolf, Karen (2015). The Advertising Age Encyclopedia of Advertising. Routledge. pp. 1228–1230. ISBN 9781135949068.
  17. ^ Wrzosiński, Piotr (29 January 2014). "A Marlboro Man Story". www.k-message.com. Retrieved 2017-05-04.
  18. ^ Barnet, Richard J.; Cavanagh, John (1995). Global Dreams. Simon and Schuster. p. 190. ISBN 9780684800271.
  19. ^ Shirk, Adrian. "The Real Marlboro Man". The Atlantic. Retrieved 2017-05-04.
  20. ^ a b "The Marlboro Man". Ad Age. 29 March 1999. Retrieved 2017-05-04.
  21. ^ Froidevaux, Yves. "Fabriques de tabac réunies". HLS-DHS-DSS.CH (in French). Retrieved 2017-05-04.
  22. ^ a b c Luo, Yadong (2002). Multinational Enterprises in Emerging Markets. Copenhagen Business School Press DK. pp. 351–353. ISBN 9788763000468.
  23. ^ Holt, Douglas; Cameron, Douglas (2010). Cultural Strategy. Oxford University Press. ISBN 9780191615207.
  24. ^ Kluger, Richard (1997). Ashes to Ashes. Vintage. pp. 515–517. ISBN 0-394-57076-6.
  25. ^ Luo, Yadong (2002). Multinational Enterprises in Emerging Markets. Copenhagen Business School Press DK. p. 357. ISBN 9788763000468.
  26. ^ Ramirez, Anthony (1990-09-14). "Two U.S. Companies Plan to Sell Soviets 34 Billion Cigarettes". The New York Times. ISSN 0362-4331. Retrieved 2017-05-06.
  27. ^ a b Kluger, Richard (1997). Ashes to Ashes. Vintage. p. 727. ISBN 0-394-57076-6.
  28. ^ Axton, W.F. (2015). Tobacco and Kentucky. University Press of Kentucky. p. 119. ISBN 9780813150222.
  29. ^ Housel, Morgan (2017-05-05). "How Marlboro Friday Changed the World". The Motley Fool. Retrieved 2017-05-05.
  30. ^ "Marlboro Friday Definition from Financial Times Lexicon". lexicon.ft.com. Retrieved 2017-05-05.
  31. ^ Martin, Andrew (2007-01-30). "Sale of Kraft Foods will allow Altria to focus on tobacco". The New York Times. ISSN 0362-4331. Retrieved 2017-05-05.
  32. ^ The Associated Press (2007-08-30). "Altria Plans to Spin Off Overseas Unit". The New York Times. ISSN 0362-4331. Retrieved 2017-05-05.
  33. ^ Bary, Andrew (31 March 2008). "The Long-Awaited Spinoff of Philip Morris From Altria Is the Smart Thing to Do". Barron's. Retrieved 2017-04-29.
  34. ^ "Altria to spin off Philip Morris International". msnbc.com. 2007-08-29. Retrieved 2017-05-05.
  35. ^ "En Suisse, Philip Morris International fabrique 24 milliards de cigarettes" (in French). Retrieved 2017-05-05.
  36. ^ Cite error: The named reference Letter to Shareholders was invoked but never defined (see the help page).
  37. ^ "Smoke signals". The Economist. Retrieved 2017-05-05.
  38. ^ Ram, Vidya (2009-02-03). "Philip Morris Gets Up To Snuff". Forbes. Retrieved 2017-05-05.
  39. ^ "Swedish Match - Swedish Match and Philip Morris International to dissolve smokeless joint venture". www.swedishmatch.com. Retrieved 2017-05-05.
  40. ^ "Big Tobacco Wants to Turn Japan's Smokers Into Vapers". Bloomberg.com. 2016-08-28. Retrieved 2017-05-05.
  41. ^ "Philip Morris looks beyond cigarettes with alternative products". Reuters. 2016-11-30. Retrieved 2017-05-05.
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