Ashes to Ashes (18 page)

In June of 1931, despite leaf costs that were the lowest they had been in two decades and a mere 25 percent of their wartime high, despite laborsaving developments such as a new type of ball bearing that raised the speed of production conveyor belts and helped cut industry payrolls to half of what they had been in 1914, despite continued strong sales of a product that proved cheap solace in a time of economic chaos, and despite profits that were annually netting Reynolds stockholders 23 percent on their equity—5 percent above the tobacco industry average and nearly double the return for American industry as a whole—Clay Williams ordered a penny-a-pack rise in the price of Camels. At the time, they and rival Luckies, Chesterfields, and Old Golds were selling for fourteen cents a pack or two for twenty-seven cents; the A&P markets, the nation’s biggest food chain, was selling them at two packs for a quarter, putting heavy pressure on tobacco shops and other retailers to shave their sales price. Reynolds had exercised the pricing leadership in the cigarette business ever since Camel had raced out ahead some fifteen years earlier, but why it chose this moment, as the nation was tobogganing into full-scale depression and the company’s costs were low and under control with profits still strong, was a mystery. Williams would later explain somewhat lamely that the 7 percent price hike to wholesalers, forcing the selling price in the stores to fifteen cents a pack, was needed to cover the added expense of the cellophane wrapper and to help hard-pressed retailers improve their profit margin. Some accused Reynolds of sheer profiteering, others thought the move a form of muscle-flexing in the face of Luckies’ advance, but what was most remarkable about the ill-advised move was that the company’s competitors followed its lead.

George Hill, by then the market leader and paying himself around a million dollars a year, would later explain that he felt American Tobacco had done its bit for the nation’s growing legion of impoverished smokers by cutting the price of the Bull Durham roll-your-owns from eight cents a bag to a nickel for twenty smokes. But he conceded that Luckies’ acquiescence in Camels’ price rise had been sheer profit-seeking opportunism and, in view of the deepening economic crisis, had not been “the right thing” to do. Why, though, hadn’t third-place Liggett & Myers held the price line with Chesterfield and sought
converts? Its executives later rationalized that if they, too, hadn’t boosted the price, the brand’s revenues would have lagged still farther behind the leaders’ and denied the company the dollars needed to sustain its advertising at a competitive level; furthermore, even if the company had held back, retailers would likely have raised their asking price to smokers anyway and pocketed the larger differential. Whatever the reasoning, the industry-wide decision, which smacked of price-fixing, though no evidence of collusion ever surfaced, was shortsighted, if not blind to the reality of the turbulent social landscape, and reaction to the callous step was swift.

Within two months, a small, old-line Richmond tobacco firm, Larus & Brother, put out a new brand called White Rolls, to sell for just ten cents a pack. It could afford to do this because leaf prices were severely depressed, and by letting the bargain price serve as the brand’s chief sales inducement, Larus could save the 15 to 20 percent of production and marketing costs (exclusive of the six-cent-per-pack federal revenue stamp) that the top-selling brands spent on advertising. Then Philip Morris dropped the price of the troubled Paul Jones brand it had inherited from the old Whelan-owned Tobacco Products combine, and within several months the two new ten-cent brands had 4 percent of the national market. Seeing this, two Louisville-based outfits followed suit; Brown & Williamson, purchased in 1927 by big British-American Tobacco, dropped the price of its Midwest regional Wings brand, and Axton-Fisher, whose mainstay was the twenty-cent mentholated Spud brand, came to market with Twenty Grand. And other ten-centers followed, so that by the end of 1931 the Big Four had lost 6 billion units and almost 10 percent of the market to the bargain brands, which along with the roll-your-own lines were operating overtime to meet the demand.

Anxious, partly because the manufacturers of the cheap brands were no fly-by-night operators, the market leaders began denigrating the ten-cent cigarettes as inferior goods, made from low-grade leaf, and certain to vanish soon because at a dime per pack they could not generate the cash for advertising, the industry’s vital nutrient. The upstart proprietors fought back within the trade, insisting that their tobacco was as good as the majors used, that cigarette advertising was mostly wasteful ballyhoo, and that with their manufacturing know-how and absence of greed of the sort that had inspired the Big Four to jack up their prices without justification, they could survive very nicely, thank you, on sliver-thin margins if the public bought enough of their bargain brands. And the public did, for a time. By the end of 1932, the cheapies had grabbed nearly 20 percent of the market. Almost panicky now, Clay Williams slashed the Camel ad budget again, from $9 million to $5 million, thereby compounding the problem, but his chief rivals were also hurting as a result of their colossal pricing error.

Rumors flew now about how the leaders would act to quash the surge by the
dime brands. One report had it that they would soon market ten-cent “fighting brands” of their own. Another held that the majors would shortly begin bidding higher during the leaf auction season to drive up costs in the one area where the bargain brands were most vulnerable. While RJR dithered over how best to recoup, George Hill up in New York saw the national economy as well as his own market share plunging and knew it was time to admit a mistake. Over the first two months of 1933, American Tobacco slashed the price of Lucky Strike by 20 perqent. It was enough to allow the brand to be priced on a par with or close to the ten-centers, though it meant that retailers were realizing less than one-third of a cent in profit per pack. For the major cigarette houses, all of which followed George Hill’s lead, the slash meant operating at breakeven or actually in the red for a large part of that year. But in the process they succeeded in driving down the cheap brands’ market share to 7 percent and regaining a substantial piece of their lost volume. Fat with profits as they had been, however, the leaders could not survive a price war indefinitely, and so, at the beginning of 1934, American Tobacco again broke ranks and edged the price of Luckies back up to two packs for a quarter. Profits improved, but at the cost of granting the bargain brands about 11 percent of the market over the rest of the ’Thirties.

Actually, it was less the hammering tactics of the major companies than the humane economic programs of the New Deal that squelched the rise of the ten-cent brands. By the beginning of the 1930s, tobacco farmers, for the most part poorly instructed in the ways of agronomy, had been reduced to near peonage. Strapped for cash as prices eroded, they were forced to pay a full year’s interest charge for credit, although they needed loans for only half a year or less; the result was murderous rates as high as 37 percent for fertilizer and 27 percent for other supplies. And farmers were in a perpetual quandary as to how much and what grades of tobacco to grow—whether, for example, to fertilize heavily for a high yield of lower-grade leaf or lightly for a medium yield of high-grade leaf. Of vital help, of course, would have been some clue from the manufacturers as to the likely extent of their production needs, but given their tremendous concentration of buying power, the companies were hardly inclined to yield their bargaining advantage. Thus subject to chronic uncertainty as to how the auction market would greet their harvest, tobacco growers were unmercifully buffeted by the vagaries of the cigarette industry’s needs of the moment. The reality was that the manufacturers maintained two- to three-year leaf inventories precisely to insulate themselves against gyrating prices and keep the growers at bay. By early 1933, this hardfisted policy had devastated the farmers. In North Carolina, the heart of tobacco country, 25 percent of all families were on relief; credit facilities were crumbling; and faced with ruin, the growers turned to state and local government for relief while threatening to
withhold their harvest from the market altogether unless their most elemental needs were met.

The new Roosevelt administration was sympathetic, and the big cigarette makers reluctantly recognized they had suffered a setback in their public standing by the pricing maneuvers they had now abandoned. The new, vigorous Secretary of Agriculture, Henry A. Wallace, threatened to put cigarette prices under government control and open up the industry’s books for inspection against profiteering if the manufacturers did not bend in recognition of the farmers’ desperate condition. With Clay Williams as their spokesman, the majors did what they could readily afford to do—agree to pay at least seventeen cents a pound for leaf in the coming auction season, up from ten cents the previous year. From this commitment the federal tobacco price support system was fashioned under the Agricultural Adjustment Act. The essence of the program was the growers’ agreement to limit their output by accepting acreage (and later poundage) allotments—violators faced a stiff 33 percent penalty tax if they brought over-quota leaf to market—in exchange for the government’s agreement to buy up any leaf not bid for at a preset parity price pegged to the farmers’ costs for doing business at the average prices prevailing during the ’Twenties. For their part, the manufacturers, besides displaying a willingness to pay a fairer price for leaf, agreed to advise the Department of Agriculture of their approximate supply needs in advance of the planting season so government administrators could better gauge where to set the guaranteed support level.

It worked. By 1936, leaf prices were twice what they had been a few years earlier—good news for everyone but the producers of the economy cigarette brands. Higher tobacco costs left them with nearly invisible profits as demand for their product continued strong. Philip Morris’s Paul Jones was now moving 2 billion units a year, but at a dime a pack, it was a pyrrhic victory. As one Philip Morris sales official wrote in 1935 in commendation of his company’s late president: “Paul Jones … stepped forward with a speed that took our breath away, and Rube Ellis, God bless him, quickly saw the dangers of allowing the brand to step into heavy volume and [he] put the brakes on, thereby saving our manufacturing life There is no profit in ten-cent cigarettes.”

II

IN
an industry in which rival products were essentially identical, packaging innovations were readily copied, and lockstep prices were all but inevitable, Clay Williams came to see that his chief weapon in the battle to put Camels back into the lead that Lucky Strike had seized was more vigorous advertising.
The brand’s starved ad budget was plumped up, and the bland Ayer agency’s approach, featuring a covert denial of Luckies’ “Toasted” blarney and the belated introduction of women smokers in the layouts, was abandoned. A new agency headed by a young, unorthodox New Yorker who had campaigned for the assignment was given the coveted Reynolds account.

William Esty, dark and intense, was the scion of a long line of New England ministers. An Amherst dropout and World War I machine gunner, he had taken a turn as a boardwalk barker on Coney Island and become an amateur magician before going to work as a space salesman for
The New York Times
and later as a copywriter for the big J. Walter Thompson agency, pushing Lux soap. After only seven years in the ad business, Bill Esty raised $100,000 and laid siege to Winston-Salem, claiming he could boost sagging Camels sales. His first suggestion was to pretty up the Camel pack; the brand name and the package colors tended to put off women, now a prime sales target. RJR executives, swallowing their indignation, said any tampering with the Camel look would raise concern among customers that the brand’s quality had also been tampered with; Esty was told to do the job he was hired for.

“It’s Fun to Be Fooled” was the theme of his earliest effort, a series of cartoon panels stemming from Esty’s fascination with magic tricks and subtly urging smokers not to be hoodwinked by Lucky Strike’s fake claims. “To avoid illusion about cigarettes remember this: Camels are made from finer, more expensive tobaccos than any other popular brand.” It was an unverifiable claim and one that Will Reynolds, that savvy leaf-buyer, could not have relished, since his prime function on earth was to obtain good tobacco for Camels at the lowest possible price. Strict veracity, though, was not a serious inhibition for Bill Esty, and Reynolds’s high command was too anxious to put George W. Hill in his place to be sticklers for the truth. RJR would fight malarkey with malarkey now.

The magic-show ads won a following but did not notably advance Camel’s sales figures, so Esty launched a more daring series of campaigns characterized by inelegant layouts—a jumble of headings, photos, drawings, captions, and text blocks in boxes and reverse (white type on a black background), all clamoring for the reader’s attention—and product claims that made George Hill’s advertising read as if it had been crafted by Eagle Scouts. Esty’s first sortie was his least adventurous flight of fancy: the cigarette as sedative, especially for those in tense or risky occupations. “It Takes Steady Nerves to Fly the Mail at Night,” said one headline, and the text block had the plucky pilot elaborating, “That’s why I smoke Camels. And I smoke plenty! Camels never ruffle or jangle my nerves, and I like their mild, rich flavor.” That “mild” and “rich” may have been opposite qualities as applied to flavor was a quibble. What mattered was that “Camel’s Costlier Tobaccos
NEVER GET ON YOUR NERVES, NEVER TIRE YOUR TASTE
,” and a procession of big-game hunters,
broncobusters, and bridge champions testified to as much at high decibels. And even if you were no daredevil or professional competitor but just a habitual nail-biter, pencil-chewer, or hair-puller, as Esty’s snappy copy therapeutically prescribed, “Get enough sleep and fresh air—find time for recreation. Make Camels your cigarette. You can smoke as many Camels as you please” since they would never jangle your nerves. It did not matter that there was hardly a scintilla of evidence that habitual smoking had any calming effect beyond preventing those hooked on the habit from spinning out of orbit if they were too long deprived of their next smoke.