Tuesday, May 4, 2010


Philip Morris Companies

Fact File

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.

Fact File

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

richest man.

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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

Moines, Iowa.

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.


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