Philip Morris Companies
Founders: Philip Morris.
Distinction: Made cigarettes popular
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
Over the course of the past half-century, people everywhere who
thought they were cool seemed to prefer products made by Philip Morris.
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 Maxell 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
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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
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,
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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 mindboggling
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 century-old 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 secondplace
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.
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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 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.
Only one is four Americans now smoke, half the percentage of 40
years ago. In addition, strong restrictions on the marketing, retailing, and
use of cigarettes across the United States has demanded innovative
response. But make no mistake: The tobacco business remains very
lucrative. Philip Morris stock is still languishing at multiples lower than
comparable non-tobacco firms–in part because of more than 600 lawsuits
row pending against it–and its domestic opportunities to increase market
shares are practically nil. But the company managed to hike price 32
percent in 1999 while demand dropped just 8 percent, and it has been
boosting overseas efforts with deals in formerly unconquered territories
such as Hungary, Lithuania, and China.
Although cigarettes at home and abroad remain responsible for the
lion’s share of its overall business, Philip Morris is counting on its food and
beverage divisions to produce a bigger chunk of the total pie in years to
come. At the turn of the century, about 40 percent of the company’s total
sales and one-third of its overall profits came from these areas. To boost
those shares, it has eliminated jobs, closed plants, and cut prices. Results
in the food industry initially proved more positive than those in the beer
market. But both of these remain fluid and expectations remain strong.
It is with cigarettes, though, that the fate of Philip Morris has
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always hung–and, most likely, always will. Tarnished by mounting
scientific evidence and growing public scorn, it finally conceded (on its
Web site) that there is “overwhelming medical consensus that smoking
causes diseases.” It outlined what is was doing to help steer youngsters
away from the habit, and unveiled new products (such as a cigarette that
doesn’t start fires if dropped.) Most surprising, it also announced that it
would no longer oppose government regulations. Some observers took
this news as a positive sign; other were more skeptical. But most thought
it meant that Philip Morris was still a long way from throwing in the towel,
even if the company name was no longer considered “cool.”
Wal-Mart Stores Inc.
Founders: Sam Walton.
Distinction: Parlayed retailing innovations into worldwide dominance.
Primary Products: Softgoods, hardgoods, electronics, groceries..
Annual sales: $165.013 billion.
Number of employees: 1,140,000.
Major competitors: Costco Wholesale, Kmart, Target.
Chairman: S. Robson Walton; Chairman of the Executive Committee:
David D. Glass; CEO and President: H. Lee Scott Jr.
Headquarters: Bentonville, Ark.
Year founded: 1962.
Web site: www.wal-mart.com.
On a crisp fall day in 1983, just about all of the 9,300 residents of
Bentonville, Ark., turned out to toast the neighbors who made good. It
was Sam and Helen Walton Appreciation Day. A rousing parade with
bands and floats had been organized to honor the locals who changed the
course of retailing–and the town they called home. Portraits of the couple
were everywhere. The newspaper printed a special souvenir edition.
President Reagan phoned to offer congratulations. And the Waltons
happily soaked it all up from a reviewing stand on Main Street, directly
across from the site where they opened a five-and-dime store in 1950.
Things, of course, had gone rather well during the ensuing three
decades for Sam Walton and the Wal-Mart discount chain he later founded
from this spot in the Ozarks. He was already considered the king of retail.
And in just two years, Forbes magazine would declare him America’s
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But the start of Wal-Mart may have caused Walton to wonder
whether he had indeed chosen the proper career path. The very same
year he broke ground on his first Wal-Mart Discount City in Rogers, Ark.,
three other major chains–Kmart, Woolco and Target–also opened their
doors. And when Walton launched his second store in nearby Harrison,
two truckloads of promotional watermelons that were spread along the
sidewalk exploded ominously in the summer heat.
Still, Walton preserved and his vision proved a winner long before
his death in 1992 at age 74. By the turn of the century, his company was
selling everything from sporting goods and apparel to auto accessories
and groceries. Its three types of stores (traditional discounters,
superstores, and membership warehouses) were omnipresent across the
globe, with some 4,000 operating in all 50 states and nine countries from
Canada to China. Along with a fledgling Web site with tremendous
potential, the combination solidly cemented Wal-Mart’s position as the
world’s number-one retailer.
While some critics have blasted it for destroying small mom-andpop
stores, Wal-Mart has nonetheless done much to benefit neighbors and
employees. And, for better or worse, it has certainly changed the face of
It seems that Samuel Moore Walton always was destined for
greatness. The son of a farm-mortgage broker, he was the youngest
Eagle Scout ever in his native Missouri. He was also president of his high
school student council, as well as quarterback of its state-champion
football team. As a young boy he dreamed of becoming U.S. president,
and as a teenager yearned to seek an M.B.A. from the prestigious
Wharton School. Economic realities got in the way, however, and three
days after his 1940 graduation from the University of Missouri he
accepted a management trainee position at a J.D. Penney store in Des
The work was hard and the salary was just $75 a month. But the
challenge and potential convinced Walton from the start that business in
general–and retailing in particular–was the key to his future. He became
even more confident of that when the chain’s founder, James Cash
Penney, dropped in one day and personally taught the young man how to
tie an appealing package with minimal twine and paper. The dual lesson
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of hands-on management and corporate frugality impressed Walton
greatly. These lessons would stay with him for the rest of his life.
Walton left the business world briefly for a stint in the Army. Upon
his release in 1945, he bought a Ben Franklin variety store in Newport,
Ark. (He wanted to open in St. Louis, he said later, but Helen wouldn’t
move to a town with more than 10,000 residents.) Walton quickly became
the consummate small-town merchant, catering to his neighbors’ specific
tastes and needs. At the same time, he began seeking out sources around
the region who offered these goods at prices lower than his official
suppliers. After working in the store all day, he would hitch a trailer or his
car and drive across the state line into Tennessee and Missouri in search
of the products desired by his customers. He’d then price them as cheaply
as possible and quickly sell out his entire inventory.
Walton, of course, had discovered the essence of discounting: by
cutting prices, sales increased and profits soared. The folks at Ben
Franklin didn’t like it, but customers certainly did. In less than five years,
Walton’s store had become a huge success. His landlord, however,
decided that it would make a perfect business for his own son. He refused
to renew the store’s lease. Walton–who had no place else to move in the
tiny town–was forced to sell out and start fresh somewhere else. He
settled on the even smaller Bentonville, he noted in his memoirs, because
it offered access to the hunting seasons in four states.
Around this time he read of two “self-service” discount stores in
Minnesota, and decided after visiting them that his new Bentonville shop
should also feature open merchandise racks with checkout registers at the
front He called it “Walton’s Fie and Dime,” and promoted it with specials,
such as a dozen clothespins for 9 cents. Eager customers came from day
one, and kept coming every day after that.
By 1960, Walton and his younger brother, James L. “Bud” Walton,
owned 15 such stores tallying $1.4 million in total annual sales. But Mr.
Sam, as he liked to be the massive discount stores cropping up in urban
areas from coast to coast, which were selling more types of items at lower
prices than any of their competitors. When one encroached on his
Arkansas territory, Walton knew he had to act. And on July 2, 1962–at
the age of 44–he opened Wal-Mart No. 1 in Rogers.
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Everyone thought Walton’s dream of brining the discount concept to
small rural towns was crazy. He and Helen were forced to co-sign all the
loan notes, pledging their home and property as security. But the idea
caught on. Within five years he had 19 such stores including one in his old
haunt of Newport (where the landlord’s son’s Ben Franklin had since
closed). By contrast, Kmart opened in 250 locations during the same
period. It steadfastly ignored towns with populations under 50,000, which
gave Wal-Mart free rein to exploit its chosen niche.
Walton focused on utilizing everything he had learned over the past
two decades. Each store catered to local tastes and featured locally made
goods. All honored hometown achievements and supported neighborhood
charities. Employees were called “associates” and offered generous profitsharing
plans. Shoppers were personally greeted upon arrival. Building
designs were minimal; product variety was paramount. And, most
importantly, prices were the absolute lowest they could be. The
combination helped Wal-Mart flourish. And in 1970, it went public.
The subsequent cash influx pushed the company’s growth into high
gear. It funded a self-contained ordering and distribution system, which
helped serve the increasingly out-of-the-way locations that traditional
suppliers wouldn’t touch. It also made the founders very rich, but didn’t
alter their values or plans one bit. Like his former boss James Cash
Penney, Walton strove to visit every store at least once a year. And even
though he bought airplanes to do so (he piloted them himself), he still
drove around Bentonville in a Ford Pickup. “What am I supposed to haul
my dogs around in, a Rolls–Royce?” he once asked.
By the 1980s, Wal-Mart began implementing a computerized sales
and inventory system that made it even more efficient. It quickly became
the envy of the retail industry. Through it all, Walton remained in close
touch with every facet of his burgeoning operation. He would still don a
Wal-Mart cap and name tag and travel from store to store, pumping up
associates with his famous cheer (Give me a W… Give me an A…) and
questioning them on prices and sales percentages. If a competitor opened
nearby, he would slip off the cap and name tag and anonymously check it
out. Often, he would treat hourly employees to lunch. And he once took
dozens of donuts to a distribution center at 2:30 a.m., so he could pick
the brains of night workers on the loading dock.
Walton was first listed as America’s riches man in 1985. However,
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he hated the tag so much he distributed his billions among family
members to shed it. The only thing that proved beyond his indefatigable
spirit, in fact, was the bone cancer that eventually felled him less than
one month after President Bush gave him the Presidential Medal of
Freedom. Bush called him “an American original who embodied the
entrepreneurial spirit and epitomized the American dream.”
David Glass had replaced Walton as CEO four years earlier. Before
accepting his current position as chairman of the executive committee at
the start of 2000, Glass infused the company with renewed energy by
adding hundreds of supercenters (which combine full-line groceries with
the discount stores). He also expanded the Sam’s Club membership-only
warehouse concept initiated in 1983. He cemented Wal-Mart’s position as
the number-two company in the Fortune 500 by expanding
internationally. It is now the top retailer in Canada and Mexico, as well as
the United States.
Wal-Mart’s impressive success, though, really continues because it
still closely follows the tenets originally laid out by its legendary founder.