Philip Morris Companies

Philip Morris Companies

• Founder: Philip Morris.
• Distinction: Made cigarettes popular; now struggling because of them.
• Primary products: Cigarettes, beer, and food products.
• Annual sales: $78.596 billion.
• Number of employees: 137,000.
• Major competitors: Anheuser-Busch, British American Tobacco, Nestlé.
• Chairman and CEO: Geoffrey C. Bible.
• Headquarters: New York, N.Y.
• Year founded: 1919.
• Web site: www.philipmorris.com.

Philip Morris Companies

Over the course of the past half-century, people everywhere who thought they were cool (whether they actually were or not) seemed to prefer products made by Philip Morris. What cigarette was favored by every self-respecting James Dean wannabe? Marlboro, of course. What beer did ex-jocks reach for when their bellies started sagging and they lost a few steps? Miller Lite, naturally. And when astronauts and their kids got together? The punch bowls simply had to be filled with Tang and Kool-Aid.
During those same 50 years, Philip Morris evolved from being a company that was largely admired, to one that is generally reviled. Not surprisingly, it has battled through this with more personality changes than Jim Carrey at his manic peak. There was the macho defiance of Marlboro Country. The common-man charm of Miller Lite. The family appeal of General Foods and Kraft. This was bolstered in the summer of 2000 by the acquisition of Nabisco—and with their absorption a huge stable of comfortable brand names, such as Alpha-Bits, Oreos, Oscar Mayer, and Maxwell House.
With this mix, Philip Morris became one powerful global enterprise. It remains the world’s leading tobacco company, doing business in more than 180 nations and producing one out of every six cigarettes smoked on earth. It’s the second-largest brewer in North America, selling nearly five dozen different varieties of beer in over 100 countries. It is also North America’s biggest food company—and one of the three largest in the world—counting over 150 markets as clients for a product line that runs from beverages and condiments to processed meats and frozen pizzas. And this doesn’t even take into consideration its interests in financial services and real estate.
But ever since a 1952 Reader’s Digest article linked cigarettes to lung cancer—the impetus, for Philip Morris’ launch to corporate prominence in the first place—the company’s very existence has hinged on its single biggest money maker. It just so happens that this product also kills the people who use it.

Philip Morris was an Englishman who opened a tobacco shop on London’s Bond Street in the mid-1800s. The company that took his name later incorporated in New York, an appropriate spot on the global stage for a product that was initially picked up from native Americans by the earliest European settlers, and then enthusiastically spread around the world. Over time it became a major crop for farmers across the southern United States, and it is grown today in 21 states (with Kentucky and North Carolina accounting for two-thirds of the annual 1.48 billion-pound crop).
Cigarettes became popular after the Civil War, when James Bonsack invented the rolling machine. The idea of a fast smoke, rather than an unhurried cigar, grew even more appealing as the century turned. Philip Morris was a minor player when it started, with competitors’ unfiltered Lucky Strike and Camel brands dominating the early market. That all changed when Reader’s Digest publicly linked cigarettes to cancer for the first time. Responses from the newly besieged industry included the introduction of “safer” brands with filters. Marlboro was among them, but it was initially positioned as an upscale European-type cigarette and failed to catch the public’s fancy. The company totally remade it in 1955, though, and unveiled the famous flip-top box and rugged Western visuals that evoked America at its best. The combination immediately took the marketplace by storm.

By the 1970s, Marlboro was America’s top brand and Philip Morris was riding high, despite almost two decades of anti-smoking activism. But when opponents got cigarette ads banned from radio and TV, and forced the addition of warning labels printed directly on each package, the entire industry felt compelled to react. Its primary response was diversification, in both product and geography. In the former area, this translated into mentholated, king-sized, “light” cigarettes, hard packs, budget brands—the beginning of a dizzying Philip Morris lineup that today includes 18 different names in the United States alone. In the latter it meant expanded marketing efforts and production facilities overseas, where the company became quickly entrenched and now sells a mind-boggling 76 brands ranging from the most popular at home (Virginia Slims, Merit and Marlboro, among them) to those with exotic and strikingly familiar names (such as Apollo Soyuz, Le Mans and Colorado).

The biggest diversification of all, however, took the tobacco companies into other fields entirely. Philip Morris broadened its portfolio by purchasing the centuryold Miller Brewing Company. They owned the rights to a regional low-calorie beer that seemed a natural for invigorating the underperforming brand. The retagged Miller Lite went national in the early 1970s, and with help from popular TV ads starring self-deprecating retired athletes (who loudly argued whether the beer was better because it “tastes great,” or because it was “less filling”), it soon captured the number-one spot in this hot new beverage category. By then employing marketing twists used in the cigarette business—adding brand extensions such as “regular” and “draft”—Philip Morris propelled Miller to second-place among U.S. brewers.

The next big change took place soon after, when the company acquired General Foods and Kraft. Kraft Foods has successfully contributed a powerful litany of venerable household names to the corporate effort. These run the gamut from Sanka and Shredded Wheat, to Jell-O and Cool Whip. Not all diversification attempts were as successful, to be sure, with the most prominent failure being the $520 million acquisition of 7-up in 1978. (It was sold at a small loss less than a decade later, when Philip Morris realized that it had paid too much to ever make it work.)
Its beleaguered tobacco business also appeared to be withstanding the onslaught of opponents, who by now had engineered spot bans on smoking in public places.

Cigarette sales may have dropped throughout the industry, but they rose at Philip Morris. The company also increased its overseas ventures, and topped rival R.J. Reynolds to become the biggest in the business. But even this master of consumer marketing couldn’t successfully fend off all the lawsuits, aggressively battle all the proposed taxes, and perpetually deflect antismoking sentiment. And so, by the 1990s, it was considered something of a pariah. Its stock stagnated and its image was constantly under siege.

Knowledgeable observers nonetheless remained impressed by the way it was handling its unique situation. The company lowered cigarette prices sharply in 1993 to match the discount brands which had suddenly become popular. It vigorously denied smoking’s dangers, repeatedly lodged court challenges against regulatory efforts, and enthusiastically aided all efforts to protest proposed cigarette-tax hikes. It also broadened its support for worthy causes—ranging from education reform to the arts. And America’s seventh-largest industrial enterprise, with sales of $60.9 billion, looked like it just might weather the storm. “Don’t underestimate the champ,” Forbes magazine proclaimed in a 1993 cover story.

And then, the very next year, a congressional subcommittee revealed a memo written a decade earlier by a Philip Morris researcher who confirmed what everyone else already acknowledged: That nicotine was addictive.Because the company had always steadfastly rejected this view, and vehemently denied that its officials knew of any evidence to the contrary, “the champ” found itself once again on the ropes.