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American Tobacco Company
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American Tobacco Company
The American Tobacco Company was a tobacco company founded in 1890 by J. B. Duke through a merger between a number of U.S. tobacco manufacturers including Allen and Ginter, Goodwin & Company, and Kinney Brothers. The company was one of the original 12 members of the Dow Jones Industrial Average in 1896. The American Tobacco Company dominated the industry by acquiring the Lucky Strike Company and over 200 other rival firms. Federal Antitrust action begun in 1907 broke the company into several major companies in 1911.
The American Tobacco Company restructured itself in 1969, forming a holding company called American Brands, Inc., which operated American Tobacco as a subsidiary. American Brands acquired a variety of non-tobacco businesses during the 1970s and 1980s and sold its tobacco operations to Brown & Williamson in 1994. American Brands subsequently renamed itself "Fortune Brands".
James Buchanan Duke's entrance into the cigarette industry came about in 1879 when he elected to enter a new business rather than face competition in the shredded pouched smoking tobacco business against the Bull Durham brand, also from Durham, North Carolina.
In 1882, two years after W. Duke, Sons & Company entered into the cigarette business, James Bonsack invented a cigarette-rolling machine. It produced over 133 cigarettes per minute, the equivalent of what a skilled hand roller could produce in one hour, and reduced the cost of rolling cigarettes by 50%. It cut each cigarette with precision, creating uniformity in the cigarettes it rolled. Public stigma was attached to this machine-rolled uniformity, and Allen & Ginter rejected the machine almost immediately.
The first Bonsack machine was installed in the Durham Duke tobacco plant on April 30, 1884. Duke set a deal with the Bonsack Machine Company when he installed his machine. Duke agreed to produce all cigarettes with his two rented Bonsack machines and in return, Bonsack reduced Duke's royalties from $0.30 per thousand cigarettes to $0.20 per thousand. Duke also hired one of Bonsack's mechanics, resulting in fewer breakdowns of his machines than his competitors’. This secret contract resulted in a competitive advantage over Duke's competitors; he was able to lower his prices further than others could.
In the 1880s, while Duke was beginning to machine-roll all his cigarettes, he saw that growth rates in the cigarette industry were declining. His solution was to combine companies and found “one of the first great holding companies in American history.” Duke spent $800,000 on advertising in 1889 and lowered his prices, accepting net profits of less than $400,000, forcing his major competitors to lower their prices and, in 1890, join his consortium by the name of the American Tobacco Company. The five constituent companies of American Tobacco: W. Duke & Sons, Allen & Ginter, W.S. Kimball & Company, Kinney Tobacco, and Goodwin & Company – produced 90% of the cigarettes made in 1890, the first year the American Tobacco Company was listed on the NYSE. Within two decades of its founding, the American Tobacco company absorbed about 250 companies and produced 80% of the cigarettes, plug tobacco, smoking tobacco, and snuff produced in the United States. With Duke's market control, American Tobacco grew its equity from $25,000,000 to $316,000,000.
American Tobacco Company quickly became known as the “Tobacco Trust” upon its founding. Duke controlled the cigarette market, and his trust caught the attention of legislators in the United States, a country with historical aversion to monopolies.
American Tobacco Company focused solely on making and selling cigarettes, leaving growing of tobacco and retail distribution to independent North Carolina farmers. Nonetheless, Duke aimed to eliminate inefficiencies and middlemen through vertical consolidation. Vertical consolidation is the act of buying companies that perform services or produce goods on different parts of the supply chain. The American Tobacco Company began to expand to Great Britain, China, and Japan. The company also maintained an interest in producing other tobacco products in case trends within the cigarette market shifted. Duke wanted to be sure that he would be prepared with a multitude of tobacco styles. While Duke did gain a sort of monopoly over the tobacco industry, the Tobacco Trust's international expansion in conjunction with its consolidation of all types of tobacco “ultimately made the Trust so vulnerable to regulation and judicial dissolution”.
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American Tobacco Company
The American Tobacco Company was a tobacco company founded in 1890 by J. B. Duke through a merger between a number of U.S. tobacco manufacturers including Allen and Ginter, Goodwin & Company, and Kinney Brothers. The company was one of the original 12 members of the Dow Jones Industrial Average in 1896. The American Tobacco Company dominated the industry by acquiring the Lucky Strike Company and over 200 other rival firms. Federal Antitrust action begun in 1907 broke the company into several major companies in 1911.
The American Tobacco Company restructured itself in 1969, forming a holding company called American Brands, Inc., which operated American Tobacco as a subsidiary. American Brands acquired a variety of non-tobacco businesses during the 1970s and 1980s and sold its tobacco operations to Brown & Williamson in 1994. American Brands subsequently renamed itself "Fortune Brands".
James Buchanan Duke's entrance into the cigarette industry came about in 1879 when he elected to enter a new business rather than face competition in the shredded pouched smoking tobacco business against the Bull Durham brand, also from Durham, North Carolina.
In 1882, two years after W. Duke, Sons & Company entered into the cigarette business, James Bonsack invented a cigarette-rolling machine. It produced over 133 cigarettes per minute, the equivalent of what a skilled hand roller could produce in one hour, and reduced the cost of rolling cigarettes by 50%. It cut each cigarette with precision, creating uniformity in the cigarettes it rolled. Public stigma was attached to this machine-rolled uniformity, and Allen & Ginter rejected the machine almost immediately.
The first Bonsack machine was installed in the Durham Duke tobacco plant on April 30, 1884. Duke set a deal with the Bonsack Machine Company when he installed his machine. Duke agreed to produce all cigarettes with his two rented Bonsack machines and in return, Bonsack reduced Duke's royalties from $0.30 per thousand cigarettes to $0.20 per thousand. Duke also hired one of Bonsack's mechanics, resulting in fewer breakdowns of his machines than his competitors’. This secret contract resulted in a competitive advantage over Duke's competitors; he was able to lower his prices further than others could.
In the 1880s, while Duke was beginning to machine-roll all his cigarettes, he saw that growth rates in the cigarette industry were declining. His solution was to combine companies and found “one of the first great holding companies in American history.” Duke spent $800,000 on advertising in 1889 and lowered his prices, accepting net profits of less than $400,000, forcing his major competitors to lower their prices and, in 1890, join his consortium by the name of the American Tobacco Company. The five constituent companies of American Tobacco: W. Duke & Sons, Allen & Ginter, W.S. Kimball & Company, Kinney Tobacco, and Goodwin & Company – produced 90% of the cigarettes made in 1890, the first year the American Tobacco Company was listed on the NYSE. Within two decades of its founding, the American Tobacco company absorbed about 250 companies and produced 80% of the cigarettes, plug tobacco, smoking tobacco, and snuff produced in the United States. With Duke's market control, American Tobacco grew its equity from $25,000,000 to $316,000,000.
American Tobacco Company quickly became known as the “Tobacco Trust” upon its founding. Duke controlled the cigarette market, and his trust caught the attention of legislators in the United States, a country with historical aversion to monopolies.
American Tobacco Company focused solely on making and selling cigarettes, leaving growing of tobacco and retail distribution to independent North Carolina farmers. Nonetheless, Duke aimed to eliminate inefficiencies and middlemen through vertical consolidation. Vertical consolidation is the act of buying companies that perform services or produce goods on different parts of the supply chain. The American Tobacco Company began to expand to Great Britain, China, and Japan. The company also maintained an interest in producing other tobacco products in case trends within the cigarette market shifted. Duke wanted to be sure that he would be prepared with a multitude of tobacco styles. While Duke did gain a sort of monopoly over the tobacco industry, the Tobacco Trust's international expansion in conjunction with its consolidation of all types of tobacco “ultimately made the Trust so vulnerable to regulation and judicial dissolution”.