Tobacco

Corporations

Company Profiles

The following five companies are the top employers in the tobacco industry in North Carolina based on employment data from a survey of available online databases Dun and Bradstreet and One Source, as well as direct correspondence with companies where possible.

For the past few decades, the Big Four Tobacco companies have dominated the tobacco industry: Philip Morris, RJ Reynolds, Brown & Williamson, and Lorillard. A merger between RJ Reynolds and Brown & Williamson in summer 2004 created Reynolds American Inc. Philip Morris was later acquired by Altria and has recently moved its headquarters from Cabarrus County to Richmond, Virginia; Altria controls about 50% of the US market share. The three major players in North Carolina cigarette manufacturing are: RJ Reynolds, Lorillard, and Liggett.

The following top five companies are the most significant players in the North Carolina tobacco industry. Although they all lead the state in the number of jobs they provide, they differ in the specific types of manufacturing/process, types of tobacco they produce, and roles in the value chain they fulfill. Their strategies are slightly different, given their different roles in the domestic and international markets. However, they are all facing similar issues in declining cigarette demand amidst strong anti-tobacco campaigns and challenges of innovation.

The top five companies in terms of employment in NC are:

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Lorillard, Inc.
Introduction

Lorillard Tobacco Company, the country's third largest tobacco producer, is an indirect subsidiary of the Loews Corporation. Founded in 1760, it is currently the oldest continuously operating tobacco company in the United States. Lorillard manufactures well-known brands, such as Newport, Kent, True, Old Gold, and Maverick. The company maintains its headquarters, manufacturing facilities, and storage facilities in Greensboro, NC. Newport, Lorillard’s premium cigarette brand, is the top selling menthol and second largest selling cigarette brand overall in the United States. In April 2012 Lorillard acquired one of the leading US electronic manufacturers, blu e-cigs (1).

Headquarters: Greensboro, NC       
Total Employees (2012): 2,900
NC Employees (2012): 2,900
NC Locations: 7
Total Revenues (2012): $6.62 billion
Year Established: 1760
Primary NAICS: 312230 Tobacco Manufacturing
Sources: (2; 3

Brands & Market Segments

Lorillard’s major market segments are cigarettes, specialized in both menthol and non-menthol, and as of spring 2012, electronic cigarettes. Their major cigarette brands are Newport, Newport non-menthol, and Maverick. In October 2013, Lorillard launched their new cigarette, Newport Non-Menthol Gold, which they anticipate to generate substantial new sales growth (4). Their major e-cigarette brands are blu e-cigs and SKYCIG.

Strategy & Competitiveness

Lorillard was the first big tobacco company to substantially invest in the e-cigarette market (via its acquisition of blu cigs in 2012) (4). In October 2013, Lorillard also acquired British-based SKYCIG, a major electronic cigarette business. At the end of 2013, Lorillard held 49% of the global market share in the electronic cigarette market (4).

In its cigarette business, its most competitive brand is Newport, which in 2011 commanded 11.9% of total US cigarette market share. In the US, Lorillard offered the highest comparative dividend growth rates amongst all US cigarette manufactures for investors between 2009-2013, however, on the contrary, it possessed the second lowest net profit margins (6).

Global Footprint

Even with the company’s expansions into the electronic cigarette businesses (the operations of which do not take place in NC), Lorillard still has significant ties to North Carolina. Virtually all of the company’s cigarette manufacturing and executive decisions take place in Greensboro, NC (3). The company’s headquarters, research and development, manufacturing for all cigarette products, and storage are all in Greensboro (3).

Lorillard Tobacco Company is also the oldest continuously operating tobacco company in the United States and is the third largest manufacturer of cigarettes in the US. Lorillard is increasingly looking to expand internationally. However, as of the beginning of 2014 its international operations were limited, with most of its primary functions occurring in NC (1).

References
  1. Lorillard, Inc. (2014). About Us. Retrieved from www.lorillard.com/about-us
  2. Hoovers. (2014). Company Overview: Lorillard, Inc. Retrieved Feb. 17.
  3. Lorillard, Inc. (2012). Form 10-K. Retrieved from http://investors.lorillard.com/phoenix.zhtml?c=134955&p=financialreporting
  4. Lorillard, Inc. (2014). Company Overview. Retrieved from www.lorillard.com
  5. Goodman, A. (2013). E-cigarettes are Smoking Hot - Four Ways to Invest in Them. Forbes. Retrieved from www.forbes.com/sites/agoodman/2013/12/05/e-cigarettes-are-smoking-hot-4-ways-to-approach-them
  6. Guenette, R. (2014) Will the Lorillard Tobacco Company go up in Smoke? The Motley Fool.Retrieved from http://beta.fool.com/makinmoney2424/2012/08/01/will-lorillard-tobacco-company-go-smoke/8308

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Alliance One International
Introduction

Alliance One International is one of the world's leading independent leaf tobacco dealers. Currently, it is the second largest leaf processor in the world, after a 2005 merger between the then second-ranked DIMON, and third-ranked Standard Commercial Corporation. Alliance purchases and processes tobacco from over 45 countries and sells to domestic and international manufacturers of cigarettes, cigars, and most other tobacco products (1). Alliance One International is not involved in the growing of tobacco; it only buys, processes, stores and resells tobacco. Their demand for particular types of tobacco is based on the demand of their clientele, ranging from toasted burley, flue-cured, cut rag, and various blends like oriental.

Headquarters: Morrisville, NC
Total Employees (2013): 3,030
NC Employees (2012): 919
NC Locations: 3       
Total Revenue (2013): $2.24 billion
Year Established: 2005
Primary NAICS: 424940 Tobacco and Tobacco Product Merchant Wholesalers
Sources: (1; 2; 4)

Brands & Market Segments

As a leaf trader AOI’s product portfolio consists of processed, non-manufactured tobacco leaf. Processing tobacco leaves is essential given the inherent perishability of tobacco, and processing is conducted according to buyer specification for quality, yield, chemistry, particle size, moisture content, and other characteristics (3). AOI primarily trades in flue-cured, burley and oriental tobaccos that are used in various international cigarette brands. For example, most American blend cigarettes contain roughly 50% flue-cured, 37% burley, and 13% oriental tobacco; generally they also contain less nicotine and tar; and taste milder than other international cigarettes containing dark and semi-oriental tobacco (1; 3).

Strategy & Competitiveness

AOI’s strategic competitiveness comes from their global reach in procurement, processing and global market penetration. The global leaf market is highly buyer driven, and AOI promotes their extensive capabilities to meet diverse buyer specifications as a significant source of strategic advantage (1). Competition between leaf traders is based primarily on unit price charged for products and processing services. Additionally, access to financing and a secure supply base are crucial elements of market participation because cigarette manufacturers often demand supply commitments from traders. In this way traders like AOI often act as financiers for producers in developing countries to source tobacco inputs and allows for AOI to better forecast and monitor their annual supply (1; 5). Thus, leveraging its prodigious global volume in supply is another source of AOI’s competitiveness.

Global Footprint

As a global leaf tobacco merchant, AOI purchases and processes tobacco in more than 45 countries around the world, selling its acquired products in more than 90 countries. With such a large global scale, only a portion of the company’s global activities occur within the United States. For example, only two of AOI’s 24 processing facilities are located in the US (North Carolina and Kentucky) the rest are located in other countries, including Italy, the Commonwealth of Independent States, Spain, and Thailand (1). It also has strategic interests in countries where production of specific types of tobacco are produced. Accordingly, AOI has strategic interests in investing in counties where export-quality tobacco is produced. Some of these countries are: Greece and Turkey for oriental tobacco; Argentina, Brazil, and Zimbabwe for flue-cured tobacco; and Malawi for burley tobacco (1). One reason that AOI conducts most of its business outside of the United States, and specifically not in North Carolina, is because it serves multinational cigarette manufacturers who are themselves headquartered around the world. With only $2.24 billion in sales in 2013 (2), it is clear that this stage of tobacco product production is of competitively lower value than the consumer product stage of production and manufacturing.

References
  1. Alliance One International. (2014). Annual Report. Retrieved from www.aointl.com/report.pdf
  2. Hoovers. (2014). Company Overview: Alliance One International. Retrieved Feb. 17.
  3. Alliance One International. (2014). Corporate Profile. Retrieved from www.aointl.com/au
  4. One Source. (2014). Company Profile: Alliance One International. Retrieved Feb. 17.  

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Reynolds American Inc.
Introduction

R.J. Reynolds is the second largest tobacco company in the USA and has approximately 29% market share of US cigarette sales (4). Reynolds American Inc. is a holding company, with operating subsidiaries including: cigarette manufacturer R.J. Reynolds Tobacco Company; the smokeless tobacco producer American Snuff Company, LLC; the manufacturer of a cigarette brand Santa Fe Natural Tobacco Company, Niconovum; and R.J. Reynolds Vapor Company (1).

Headquarters: Winston-Salem, NC
Total Employees (2012): 5,050
NC Employees (2013): 845 
NC Locations (2013): 14
Total Revenues (2012): $8.3 billion
Year Established: 1913
Primary NAICS: 312230 Tobacco Manufacturing
Sources: (2; 3; 4)

Brands & Market Segments

Reynolds American Inc. is one of the leading players in the cigarette and smokeless tobacco market segments. Its major cigarette brand includes its most famous: Camel, Pall Mall, Kool, Winston, and Salem. It also produced the lesser known Doral, Capri, and Misty. Its electronic cigarette line up is championed by VUSE, a digital vapor cigarette.

Strategy & Competitiveness

This company tends to be on the forefront of innovation in responding to customers’ needs, whether it is packaging standards or filter variation. A prominent past example of innovative practices can be drawn on in 2001, when the company began producing cigarettes with reduced levels of principal toxins (1). More recent trends in the total industry include shift from smoking tobacco (cigarettes) to smokeless. Their Camel snus brand in 2012 captured more than 80% of total US market share (7). Additionally, Zonnic, a nicotine-replacement gum introduced by Niconovum USA, RAI’s pharmaceutical subsidiary, has harnessed innovative design and input technologies to drive growth and competitiveness in a highly developed market (7). Furthermore, Reynolds is one of the key players breaking into the domestic electronic cigarette market, where future revenue are expected to overcome traditional cigarette sales by 2021, estimated at $4 billion in comparison to their estimated conventional cigarette sales for 2021, which are $3.9 billion (5;6).

Global Footprint

Seemingly all of Reynolds (RJRT) higher value added executive activities are located in or near Winston-Salem, NC; including their headquarters, research and development and other high value added functions. Their largest manufacturing plant is in Tobaccoville, right outside of Winston-Salem, and it is where most of its manufacturing takes place. Making Reynolds a truly a North Carolina company.

Even though the history of the company brings it throughout the United States, R.J Reynolds was founded in 1913 in North Carolina and kept most of its headquarters and production plants in NC. Brown & Williamson, as it was named at the time, bought J.G. Flynt and R.P. Richardson companies. Brown & Williamson was then acquired by the London-based British American Tobacco Company (which as of 2014, still owned a 42% stake in Reynolds). Under their leadership, the company was reorganized and the factory was moved to Louisville, Kentucky. Executive offices that had been in NYC moved in Louisville, and the company’s Winston-Salem office personnel moved to Louisville too (1927-1930). Overtime though, corporate functions returned back Winston-Salem, NC. 

In 1999 Reynolds solidified its strategic position to primarily service the US market when it sold nearly all of its international business holdings to Japan Tobacco.  Such a move no doubt exposed Reynolds to greater risk amidst a falling US market for cigarettes. Nevertheless, Reynolds’ stock price has continued to grow since then, and at the same time, the company has managed to maintain their position of second-highest market share in the US market –suggesting that their innovative techniques have provided them with significant competitive advantages.

References
  1. Reynolds American Inc. (2014). About. Retrieved from www.reynoldsamerican.com
  2. Reynolds American Inc. (2012). Form 10-K. Retrieved from www.reynoldsamerican.com/secfiling.cfm?filingID=1193125-13-50521
  3. Forbes. (2014). Reynolds American Inc. Retrieved from www.forbes.com/companies/reynolds-american
  4. Hoovers. (2014). Company Overview: Reynolds American Inc. Retrieved Feb. 17.
  5. Robemed, N. (2013). E-cigarette Sales Surpass $1 Billion as Big Tobacco Moves In.  Forbes. Retrieved from www.forbes.com/sites/natalierobehmed/2013/09/17/e-cigarette-sales-surpass-1-billion-as-big-tobacco-moves-in
  6. Winston-Salem Journal. (2013). Projection: E-cigs to overtake Reynolds Revenue in 2021. Retrieved from http://myfox8.com/2013/09/15/projection-e-cigs-to-overtake-reynolds-tobacco-revenue-in-2021
  7. Wajnert, T. (2013). Shareholder Letter: March 2013. Retrieved from http://files.shareholder.com/downloads/RAI/2902089429x0x647587/4213C6F6-252D-4C6A-A099-3DAD0BB666AE/2013_chairman_s_letterlowres.pdf
  8. Campos, A. (2013) This Tobacco Company Offers Great Value.  The Motley Fool. Retrieved from http://beta.fool.com/johnnytrader23/2013/08/05/this-tobacco-company-offers-great-value/42490

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Liggett Vector Brands LLC
Introduction

Liggett Vector Brands LLC is a large manufacturer of various cigarette brands (Liggett Select, Eve, Grand Prix, Jade, Pyramid, Eagle 20’s, and USA). It also provides private-label cigarette brands, including Tourney, Yours, Silver Eagle, and Montego. The company produces over 120 products at its state of the art manufacturing complex in Mebane, NC (1). Liggett has been a North Carolina based company for over a century and has a rich history with the region and in coping with the numerous dynamic global changes affecting the tobacco industry during this time.

Headquarters: Mebane, NC
Total Employees (2012): 468
NC Employees (2012): 468
NC Locations: 2
Total Revenues (2012): $50.8 million
Year Established: 1873 (as Liggett-Myers)
Primary NAICS: 312230 Tobacco Manufacturing
Sources: (2; 4)

Brands & Market Segments

Liggett Vector Brands has long been exclusively in the cigarette market (although as of December 2013, announcements have been made that an indirect subsidiary, Zoom E-Cigs, will begin producing a non-rechargeable electronic cigarette) (3).

The company’s major cigarette brands are: Liggett Select, Eve, Grand Prix, Pyramid, Eagle 20’s, and USA. The Grand Prix brand is available in over 14 styles. Liggett Vector Brands also manufactures private-label cigarette brands, including Tourney, Yours, Silver Eagle, Montego, and Class A (a brand sold exclusively to the US Military) (1).
Strategy & Competitiveness

Their strategy has consistently been based on combining the classic appeal of old cigarettes with new innovation, emphasizing their variety in price, quality, and delivery. The company boasts a state of the art production facility in Mebane, NC as part of their strategy in delivering quality and variety in cigarettes. This emphasis on updated technology may be indicative of a trend towards automation and potentially new products, such as e-cigarettes, and/or it could be an attempt to increase automation and streamline business operations and reduce operating costs.

Liggett is the last of the top four NC cigarette manufacturing companies to invest in electronic cigarettes. However, press releases at the end of 2013 suggest that this is now taking place via Zoom E-Cigs (3). It would appear that the company is keeping the core of its strategy geared towards serving the traditional cigarette markets, adjusting price and quality for international markets from its core of US sales. Its entry into the electronic market is likely a move to capture increasing sales in the US markets as demand for electronic cigarettes soars (3).

Global Footprint

This company has been in North Carolina manufacturing for more than 100 years and is tightly clustered geographically in the triangle area of NC. The company’s manufacturing, purchasing, information technology and distribution are all in Mebane and their headquarters, and sales are stationed just down the road. This location seems to be critical to its strategic branding, as the company touts their place in the heart of the North Carolina tobacco district as distinct competitive advantage. 

The company was started in Illinois then moved to St. Louis. Sixty years later in 1899 American Tobacco Company, run by James B. Duke, acquired it and that’s what brought it to NC. The company has important ties to the Duke family, including a link to the Duke Homestead Site (5). The majority of its international operations were sold to Phillip Morris in 1978 for a sum of $110 USD (6). Currently, Liggett-Myers still sells some tobacco and tobacco-related products internationally, but all operations take place in North Carolina.

References
  1. Liggett Vector Brands. (2014). Manufacturing. Retrieved from www.liggettvectorbrands.com/home.jsp
  2. Hoovers. (2014). Company Overview: Liggett Group LLC. Retrieved Feb. 17.
  3. Tobacco Reporter. (2013). Liggett to Enter US E-cigarette Market. Retrieved from www.tobaccoreporter.com/2013/12/liggett-to-enter-us-e-cigarette-market
  4. Liggett Vector Brands. (2012). Form 10-K. Retrieved from http://vectorgroupltd.com/investor-relations
  5. Duke Homestead State Historic Site. (Undated). The Dukes of Durham. Retrieved from www.learnnc.org/lp/editions/nchist-newsouth/4418
  6. Grant, T. (2001). International Directory of Company Histories: Vector Group Ltd.  Vol. 35. St. James Press. Retrieved from www.fundinguniverse.com/company-histories/vector-group-ltd-history

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Imperial Tobacco Group PLC
Introduction

Imperial Tobacco Group PLC is a leader in international cigarette production, fine cut tobacco, papers, and cigars as well as a growing snus business. Their relation to NC comes from the company’s acquisition of Commonwealth Brands (a Kentucky-based company), which was the fourth largest cigarette manufacturer in the US. Commonwealth Brands has a factory in NC that produces 14 billion cigarettes annually. Imperial is the only cigarette manufacturing company of the leading four employers in NC that has a significant international presence. As a leading global competitor, it is one of the top 5 international publicly traded companies dominating the global cigarette industry.

Headquarters: Bristol, United Kingdom
Total Employees (2013): 37,200
NC Employees (2014): 255
NC Locations: 1
Total Revenues (2013): $45.6 billion
Year Established: 1901
Primary NAICS: 312230 Tobacco Manufacturing
Sources: (1; 2; 7)

Brands & Market Segments

Imperial Tobacco’s major market segments include: fine cut tobacco, cigarettes, cigarette papers, premium cigars, and snus. They are increasingly entering into the e-cigarette market. Vaidoff, Gauloises, Blondes, West, and JSP are the key strategic cigarette brands. Leading brands in the fine-cut tobacco and rolling paper markets include Golden Virginia, Drum, and Riszia. Cohiba and Monte Cristo are cigar brands that make Imperial a world-leading cigar distributer for premium Cuban cigars. Skruf is their leading snus brand (1).

Strategy & Competitiveness

Overall, the international company has focused on slowly moving its focus from cigarette and smoking tobacco production to “snus” or smokeless tobacco pouches. The company prides itself on its global sourcing capabilities that allow them to deliver the highest quality tobacco raw materials from which to supply its global brands (5). In addition, Imperial cite their global investments in state of the art manufacturing capabilities and technological incorporation as key components of their strategic competitiveness. However, in North Carolina its core focus has been increased efficiency in cigarette production.

Global Footprint

Imperial Tobacco entered the North Carolina tobacco industry by acquiring Commonwealth, a Kentucky-based company with its largest manufacturing plant in Reidsville, NC. Now, Commonwealth Altadis, Inc is a sales and distribution company that was established in 2011. They cover sales, marketing, and operational expertise for USA. The subsidiary Commonwealth Atladis, which is completely owned by Imperial, is still based in Bowling Green, Kentucky.

Frank Howell, VP of manufacturing for Commonwealth said, “Cost of doing business in Reidsville was the top factor in the decision to expand there, along with a cooperative relationship with the local union” (3).  In 2010 Commonwealth Brands expanded its Reidsville plant in NC by adding a product line for cigarette tubes, creating 35 jobs and spending $6.7 million on expansion (3). Employment increases brought total employment to 224 in 2010 (4). Their Reidsville location is a key hub for cigarette production that may in time become the center for Imperial’s cigarette manufacturing in the US.

This company’s strategy outside of North Carolina is highly globalized and has long maintained the spot of Europe’s second largest tobacco producer. Imperial has manufacturing and production operations taking place all over the world. It is a large distributer of snus in Sweden and Denmark, the largest distributer of Cuban cigars, and a large distributer for cigarettes, fine-cut tobaccos, and rolling papers. The company’s investor and shareholder information illustrate its interdependence between the US and UK, as well as with other areas of the world (5). In April of 2013, Imperial recorded its first drop in earnings in its 17 year history listing on the London Stock Exchange – no doubt a factor attributable to stagnation in the European markets amidst widespread economic challenges (5).

References
  1. Imperial Tobacco Group PLC. (2013). Form 10-K. Retrieved from www.imperial-tobacco.com/index.asp?page=151
  2. Hoovers. (2014). Company Overview: Imperial Tobacco Group PLC. Retrieved Feb. 17.
  3. Craver, R. (2010). Commonwealth plans 35 more jobs, paying $37,500, in Reidsville: Tobacco-product maker to expand.  Winston-Salem Journal. Retrieved from www.journalnow.com/business/article_94af7c50-221a-581f-a376-9583630686ae.html?TNNoMobile
  4. News & Record. (2010). Maker of Tobacco Products to add 35 Jobs in Reidsville. NC Commerce. Retrieved from www2.nccommerce.com/eclipsfiles/21465.pdf
  5. Imperial Tobacco. (2014). Our Operations. Retrieved from www.imperial-tobacco.com/index.asp?page=276
  6. Thesing, G. (2013). Imperial Tobacco Reports First Profit Decline in 17 Years. Bloomberg. Retrieved from www.bloomberg.com/news/2013-04-30/imperial-tobacco-profit-declines-as-conditions-worsen-in-europe.html   
  7. Smith, M. (2014). Email Correspondence; Director of Corporate Communications.

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