R. J. Reynolds Tobacco Company Essay Example

provide crops of high quality, organizing transportation of the tobacco leaves from farms to the industry for processing. After processing of the tobacco, the management must ensure that proper sales and marketing of the tobacco is done to facilitate more sales. Tobacco being an addictive substance, the managers must strategize on the best way to use tobacco advertisement to their advantagefootnoteRef:3.

This study report will cover the history of R.J Reynolds Tobacco Company and the company’s managers strategically were able to dominate the tobacco industry by being the second largest in the industry. 3: Crawford, Richard Joshua Reynolds started R.J. Reynolds Tobacco Company, in 1875. He began a chewing-tobacco manufacturing operation in Winston, North Carolina.

Winston was a town with a small population, but was a production center for flue-cured tobacco leaf, and was close to the railroad line. With geographical advantage, Reynolds saw the rising trend of smoking tobaccos, so he introduced pipe tobaccos, supported by advertising campaigns. In 1913, R.J. Reynolds introduced Camel cigarette, which contained several different types of tobacco. Because of the high-profile advertising in New York City’s Union Square, the Camel cigarette became the most popular cigarette in the United States. At this time, R.J.

Reynolds established the cigarettes packing standard and introduced the first 20 pack of cigarette in 1913, and the single 10- cigarette pack carton in 1915. In 1917, the company bought 84 acres of property in Winston-Salem and built 180 houses to form a development called “Reynolds town.” The factories were the largest building in Winston, with new technologies such as steam power and electric lights. Reynolds died in 1918, and his company already owned 121 buildings at that

time. After Reynolds’ death, his brother William Neal Reynolds took over the company, and Bowman Gray became the chief executive. R.J Reynolds was the top taxpayer in North Carolina and was one of the most profitable companies in the world, which produced two-thirds of the cigarettes in the state.

In 1931, R.J. Reynolds was the first company to use moisture-proof and sealed cellophane outer wrap to package cigarettes, to preserve tobacco’s freshness. In 1954, by introducing the Winston, the first filter cigarette, R.J. Reynolds achieved significant success in the marketplace.

Later in 1956, the company launched Salem, which was the first filter-tipped menthol cigarette. In 1970, R.J. Reynolds decided to diversify into different areas, such as foods and other non-tobacco business. The company bought Pacific Hawaiian Products, which was the makers of Hawaiian Punch, Sea-Land Service, and Del Monte Foods. After company’s diversification, R.J.

Reynolds changed its name to R.J. Reynolds Industries, Inc., and established Reynolds Tobacco Co. as a subsidiary. In 1985, R.J. Reynolds Industries purchased Nabisco Brands and then renamed the company as RFR Nabisco.

In 1988, several firms were bidding to buy RJR Nabisco, and at the end, it merged with Kohlberg Kravis and Roberts &Co (KKR). This acquisition of RJR Nabisco by KKR was marked as the largest corporate transaction in the United States in the history, with value at $25 billion. RJR Nabisco used to be a subsidiary of RJR Nabisco Holdings Corp. (RJRN).

In 1994, the argument of whether nicotine is addictive had been raised in public. The CEO, James Johnston, insisted that nicotine is not addictive. In 1998, under the Tobacco Master Settlement Agreement with 46 U.S. States, R.J.

Reynolds agreed to pay smoking-related

health care costs and restrict advertising to avoid private lawsuitsfootnoteRef:4. In 1999, the company sold its international operations to Japan Tobacco, Inc., so any cigarette sold outside of the U.S., such as Camels, Winston’s, or Salem has, are Japanese cigarettes. RJRN separated the tobacco and food business, and the corporation was renamed as Nabisco Group Holdings Corp. (NGH).

In June 1999, the domestic tobacco business became R.J. Reynolds Tobacco Holdings, Inc., which was a separate publicly traded company from RJRN. 4:  Maciej L. Goniewicz et al., "Nicotine levels in electronic cigarette refill solutions: A comparative analysis of products from the US, Korea, and Poland," International Journal of Drug Policy 26, no.

6 (2015) In 2000 and 2002, R.J. Reynolds Tobacco Holdings acquired Nabisco Group Holdings Corp., and Santa Fe Natural Tobacco Company, Inc. At the same year, the company was fined $15 million for providing free cigarettes at events attended by children and was fined $20 million for advertising cigarettes to youth, which violated the 1998 Master Agreement. In 2004, R.J. Reynolds merged with the U.S. operations of British, Brown & Williamson, the third- largest tobacco company in the U.S., and gained the Pall Mall, Lucky Strike, and Cool cigarette brands.

As part of the transaction, Reynolds American Inc. was established. From 2006 to 2009, the company completed its acquisition of Kenwood Company, the second largest U.S. e-tobacco company with two important brands, Grizzly and Kodiak, and another acquisition with Niconovum AB, a Swedish-based nicotine replacement therapy company. In 2010, Reynolds American closed its manufacturing plants in Winston-Salem, NC, and Puerto Rico, and moved production from those plants to the Tobaccoville, NC plant. In 2012, R.J.

Reynolds Vapor Company was formed, and

the next year the company announced to sell its VUSE Digital Vapor Cigarettes in retail outlets in Colorado. VUSE successfully expanded nationally in 2014. In June 2015, Lorillard was merged with Reynolds American, and that company’s menthol cigarette brand, Newport, was added to R.J. Reynolds.

R.J. Reynolds Tobacco firm is the second-biggest tobacco firm in the United States. It owns Reynolds American Inc. as a subsidiary, which is also the parent company of American Snuff firm, Santa Fe Natural Tobacco firm, Inc., Niconovum USA, Inc., Niconovum AB, and R.J. Reynolds Vapor Company. One-third of cigarette sales in the United States are from R.J.

Reynolds. Table 1 depicts the top four national ranks of cigarette brands by shares, and three of the largest retail market shares are owned by R.J. Reynolds’ brand, which are Newport (13.9%), Camel (8.3%), and Pall Mall (7.7%). R.J. Reynolds’ mission is to build strong brands and provide top quality tobacco.

The tobacco industry faces several regulatory laws that protect the company’s from environmental pollution, harm to the public and illegal use of the products. The tobacco industry is exposed to a variety of safety precautions at every stage of the tobacco development. R.J. Reynolds faces various challenges in ensuring that the company abides by these regulations. The management of the company invests a lot in farmer’s education and provision of safety farming gadgets to prevent tobacco farmer from infection or injuries.

The government requires that the company abide by these regulations to ensure a safe working environment for the company’s employees. The firm is also entitled to provide its employees with insurance cover while at work. The industry contains several chemicals that must be handled

with care. In case the employee is exposed to the chemicals, the company must pay for their treatment and compensation as part of the cover. R.J. Reynolds has faced several lawsuits regarding its advertisement initiatives and presence of nicotine in tobacco.

The company was sued for the advertisement of harmful products to consumers. Nicotine is a highly addictive substance, and too much of tobacco eventually leads to lung cancer. The company had to pay $11million on a court order for advertisement of illegal content. R.J. Reynolds was then sued for the promotion of consumption of tobacco among young people. The company was accused of making tobacco assessable to young people against the federal law.

It had to pay for such damages. The tobacco industry is guided by several regulations which if not honored my follow the company for the rest of its production life. R.J. Reynolds has received numerous awards for its outstanding support of the community. The company is actively engaged in promoting safety precautions in the use of tobacco. The company has heavily invested in education initiatives to reduce tobacco addiction and consumption for persons under the age of 18 years.

These initiatives of the enterprise are per the agreement of promotion of a safety environment to the consumers and non-consumers. R.J. Reynolds leads in community-based efforts of educating the public. The company adheres to all regulations that protect it and the employees. The tobacco industry is one of the highest earning industries in the USA. However, the number of players in this industry is heavily restricted by the significant capital investments made by existing companies.

Entry into the industry is free for new companies. However, the

new businesses must have the enormous capital required for initial investment. The high capital requirement condition locks out new entrance into the industry. The tobacco industry has few players with massive global investments hence it makes it impossible for new companies to enter into the tobacco industryfootnoteRef:5. 5: Rachel Kornfield et al., "Rapidly increasing promotional expenditures for e-cigarettes," Tobacco Control 24, no. 2 (2014) The annual sales revenues generated by these companies are very huge given their global presence.

The companies are characterized by heavy marketing and advertisement expenditures to market their products. However, after a lawsuit was filed against R.J. Reynolds Tobacco Company, the company withdrew its publication initiatives. Tobacco companies engage in production and sale of a highly addictive substance, hence it is easy for the firm to increase its sales volume without making important investment initiatives. Significant acquisitions by companies characterize the level of competition in the tobacco industry are making to increase sales of their products. R.J.

Reynolds Tobacco Company has made significant acquisitions in the past decade to try to increase its sales volume. Rival companies such as Altria have also made a significant investment to remain in control of the tobacco industry. Two businesses that rival each other, the Reynolds America and Altria, mainly monitor the tobacco industry. Altria made an approximate of $25 b billion in sale in 2014, indicating that the company operates at the highest level.

R.J. Reynolds merged with Lorillard in a deal worth $27.4 billion. The deal was meant to increase competition in the tobacco industry. The deal oversaw the creation of market duopoly where two mega companies merged to control the tobacco industry. The mergers and acquisitions are

aimed at increasing the company’s potential returns in future. Lorillard, Altria, and Reynolds America continue to own 90% of the cigarette market in the USA.

The duopoly in the industry has seen the companies steadily increase the prices of their products without respect to the market fundamentals. The weak regulatory laws governing the tobacco industry has enabled the company to gather more power and control of the combustible cigarette market. R.J. Reynolds tobacco merged with British America Tobacco to allow the company control more of its market share.

The merger also prevented discount brands that profoundly threatened the existence of the tobacco industry. The merger and acquisitions play a vital role in ensuring that only two forces dictate the industry. It enables the tobacco company’s raise more sales. It acts as a bargain for helping the company succeed in establishing new brands that can easily be marketable. The acquisitions and mergers in the tobacco industry outline the influence of marketing strategies to ensuring that companies remain top of their performance.

Competition in the tobacco industry is more of an organized settlement between companies on the best prices to sell their commodities. However, having acquired almost all the best businesses in the industry, the two principal companies are free to adjust market prices without considering the market forces. Smaller companies in the tobacco business completely find it difficult to survive in the tobacco industry. R.J.

Reynolds and Altria suppress the activities of other junior companies by yielding a higher proportion of the market. The junior companies can decide to offer discounted brands to consumers. However, to provide such brands the company would have to invest heavily in additional expenses to pay

for escrow. These other costs make them even with the major companies that do not offer discount brands.

Competition in the tobacco industry is not heavily reliant on the advertisement. The small businesses cannot effectively use advertisement as a tool to outperform other companies. The industry is regulated. Hence there is only s particular degree of publication allowed by the regulatory agency or commission. The market is restricted regarding the types of advertisements that can be made by the companies. In all aspects, the small level companies are not capable of making more sales than the big companies make.

R.J. Reynolds Tobacco Company has highly benefited from acquisition and mergers. These mergers and acquisition have significantly increased the company’s level of competitionfootnoteRef:6. 6: Andrew B. Seidenberg, Catherine L.

Jo, and Kurt M. Ribisl, "Differences in the design and sale of e-cigarettes by cigarette manufacturers and non-cigarette manufacturers in the USA: Table 1,"Tobacco Control 25, no. e1 (2015) After the of R.J. Reynolds Tobacco firm and the Lorillard had merged, the company gained a significant portion of the combustible cigarette market. At 43% of the total market, the company can provide the Altria a real competition.

The International presence of the enterprise is also vital in ensuring the company maintains profitable both in the domestic and international level. The competition in the tobacco o industry is not high; it is between two major companies that can strategically adjust products prices without proper consideration to the small companies. R.J. Reynolds Tobacco Company has been laying off its workers while implementing strategies that maximize its returns while minimizing its expenditures. After the company merged with Lorillard, it has been undertaking losses characterized by the tobacco industry. There

is a general decline in consumption of tobacco worldwide.

The decrease in the tobacco industry is not only affecting R.J. Reynolds tobacco company but also all other businesses in the industry. Mergers and acquisitions made by the R.J. Reynolds Tobacco Company present an immediate challenge for management and other logistics about the merger. The mergers also take time before profiting the company.

Mergers and acquisition of large enterprises are strategic techniques used by companies to guarantee a profitable solution to a problem. However, in the short run period, it may be non-profitable. Government regulations heavily affect the performance of the tobacco industry given the precaution and stringent rules applied to the tobacco company. Restrictions on advertisement and lawsuits against promotional activities by R.J. Reynolds Tobacco Company significantly affect the sales of the enterprise. Advertisements lead to increased sales volume. However, the government is technically regulating the companies to avoid consumption of tobacco products to the wrong group.

Tobacco faces a bad publicity with the majority of world health organization cautioning against the use of the cigarette. The bad publicity about cigarette and its harmful effects contribute to the decline in the tobacco industryfootnoteRef:7. 7: G. Syamlal et al., "Cigarette Smoking Trends Among U.S. Working Adult by Industry and Occupation: Findings From the 2004-2012 National Health Interview Survey," Nicotine & Tobacco Research 17, no. 5 (2014) R.J.

Reynolds Tobacco Company has experienced tremendous changes amidst tough economic times. Investments in the company’s shares find it difficult forecasting future changes in the company’s stock prices. The fluctuating prices of tobacco leaves may also contribute to the decline in the performance of the enterprise. The introduction of non-combustible cigarettes is also affecting the sale of

combustible cigarettes hence lowering the sale of cigarettes because more clients demand non-combustible cigarettes.