Ashes to Ashes (44 page)

As McComas’s final contribution to the salvaging and reshaping of PM, he diversified the company’s product line with the purchase in 1957 of Minneapolis-based Milprint, Inc., a manufacturer of flexible packaging materials and a supplier to Philip Morris of foil, laminated cigarette-carton cellophane, and the little red “tear tape” for opening packs. Here, through vertical integration, was a way for PM to cut its supply costs while also ending its total dependency on cigarette sales. The new unit added some 15 percent to Philip Morris’s gross revenues, but its low profit margins, characteristic of highly competitive industries like packaging, did nothing to lift PM’s net, stuck in the range of 4 percent of revenues, the lowest in the tobacco industry and only one-third as high as top-earning RJR’s figure.

IX

PARKER MCCOMAS
never regained consciousness after exploratory surgery for pancreatic cancer at New York’s Lenox Hill Hospital the last week in November of 1957; he suffered a postoperative heart attack in his room and died at sixty-two. For all his success in righting the company, though, Philip Morris under his presidency had essentially been running just to stay in place. Its share of the cigarette market—9 percent—was less than it had been a decade earlier, and had not advanced in five years.

His successor, Joseph Cullman, age forty-five, was chosen within a week. His first task on picking up the reins was to attend to Marlboro’s slowing progress after the brand’s spectacular debut. Most of the new filter-tip brands were slumping now, in the wake of poor publicity about their misleading advertising and the largely cosmetic nature of the filters. Cullman, who had had relatively little to do with devising the reconceived Marlboro but hovered over it like an adoring guardian for the rest of his Philip Morris career, was urged by some at the company to bring the brand’s tar and nicotine numbers way down, out of the running, really, against Winston and L&M, and position it against Kent as a tastier choice for health-conscious smokers. “I rejected that,” Cullman recalled. “I thought it was a short-term fix. I didn’t want to get into a derby with Kent—we would have succeeded only in prostituting ourselves.”

Instead, the Marlboro filter was reengineered to make it more effective and the tobacco was given an infusion of reconstituted leaf that both lowered the numbers and allowed for the smoother blending of flavorants. The rejiggered Marlboro, as a result, had a tar and nicotine yield only two-thirds of Winston’s, which Reynolds would not bring down for another year or so. Cullman also overruled Marlboro’s passionate brand manager, Ross Millhiser, in making several changes in the pack. The little ersatz royal crest above the brand name was altered from dark blue-gray to gold to class up the image a bit. More important, Cullman had long been urging his colleagues to offer Marlboro in a soft pack as well as the flip-top box, which had been so useful in establishing the brand. A Roper poll showed that one in four soft-pack users of other brands had tried a boxed brand and rejected the harder-edge package; Kent in the soft pack was outselling its own boxed version by four to one, while Winston’s ratio was ten to one. “It was like having a car company that sold only roadsters,” recounted Cullman, who ordered the creation of the alternate package.

It was not Marlboro, though, that showed a sales spurt after its fix-up but Parliament, which the company elected to position against Kent in the lower-yield sector of the market. Its premium price differential dropped, Parliament was put in a smart new white and blue package prominently featuring
a Cadillac-like chevron device to suggest it was a high-quality product, and its numbers were brought down very close to Kent’s. Parliament sales surged 122 percent in 1958 and an additional 54 percent the next year, to place it No. 15 in overall sales, with a unit volume nearly half that of Marlboro, which picked up a mere 3 percent in 1959 and slipped to No. 10 in the market, leaving Cullman and his company in the industry’s sales basement by decade’s end. The Marlboro Man ads seemed spent as criticism rose over his omnipresent tattoo, actually drawn on the models’ hands with a ballpoint pen shortly before each shoot but suspected of being a permanent disfigurement with the attendant risk of blood poisoning. Instead, Marlboro customers were now urged to “take a tip from [professional football star] Sam Huff—settle back and have a full-flavored smoke.” But the “settle-back” campaign, displaying a series of bulky males stretched supine while luxuriating in their favorite smoke, was not the tonic the brand needed.

Nor was the company scoring well in trying to penetrate the hot new mentholated market, where Salem was running wild and B&W’s Kools and Lorillard’s new Newport entry were also gaining. To replace its old Spud menthol, never a winner, Philip Morris brought out Alpine in 1959 and gave it a package that mimicked the Marlboro design, only in green instead of red and with a snowy mountain peak instead of the peaked roof. Alpine began promisingly but quickly turned into a me-too brand, and the company, at any rate, did not have the cash to spare to sustain yet another major marketing effort.

Even while struggling to improve his share of the cigarette market, Cullman also saw the virtues of diversification, which his predecessor had set in motion. Philip Morris picked up Polymer Industries, a maker of adhesives, and put Milprint, its packaging components producer, into play in Europe. Cullman remarked with candor to the press, “The cigarette industry is strong today, but the situation may not continue indefinitely.” The health issue never crossed his lips. Instead, he added: “Besides, there are very few one-product companies around today.” Thus hedging his bet and trying to lift Philip Morris’s laggard profit margin, Cullman made his first major move to diversify in the consumer products field in 1960 by buying out ASR, formerly called the American Safety Razor Company, for about $22 million in PM stock—the same price his family got for selling Benson & Hedges six years before. ASR, maker of Gem and Pal razor blades, other shaving products, and surgical equipment, was a distant third behind Gillette and Schick in its field, but Cullman had served on its board, knew its owners well, and saw a ripe growth opportunity for building up a product line that, like cigarettes, consisted of low-priced goods, in daily use, readily disposable, and sold over many of the same counters. Strengthened by Philip Morris know-how in sales, packaging, and advertising, it was hoped, ASR would soon vault into the big time.

But the company’s 1960 net, adjusted for cost-of-living rises, was hardly
above what it had been in 1950, when cigarettes were its only product. Hungry for higher margins and new markets, Cullman now looked hard at Philip Morris’s overseas operations, which, though hardly out of the incubator, were still far ahead of the rest of the tobacco industry, preoccupied as it was with domestic challenges. As the world recovered from its postwar trauma and markets everywhere revived, Cullman envisioned global possibilities for his Marlboro brand if it could be made to a uniform standard of quality and taste and marketed vigorously, though priced at a premium over domestic brands.

To move deeper into this complex marketplace, Cullman turned to two key aides. One was Paul Smith, a pudgy, irascible attorney whom Cullman had brought in from the Conboy, Hewitt firm in order to have a strong legal counselor at his elbow. Smith, whose behavior ranged narrowly between the cantankerous and the abrasive, made no secret of his conviction that most company executives sat around all day with their thumbs up their bungs, and he thought even peppy Joe Cullman was still pretty wet behind the ears and badly in need of an avuncular hand to guide him. Among Smith’s pet peeves was the international cigarette business if it meant that Philip Morris had to put itself at the mercy of foreign licensees and distributors, with whom it had to share marketing and technological expertise but from whom it gained very little in return beyond a show of the company flag. Far better to take the plunge, Smith argued, by going in with real partners over whom the company could exercise a degree of control or by opening up independent operations using foreign nationals—if competent ones could be found.

Smith’s view entailed a far larger commitment of capital and attention than Philip Morris had thus far allotted. Real diplomacy would also be required, which meant that direction of an expanded overseas operation could not be vested in the crotchety Smith. Instead, Cullman turned to his chief marketing hand, the versatile and imaginative George Weissman, whose affability Smith viewed as the smooth facade of a P.R. man—than which, on the lawyer’s index of certifiable callings, there was nothing lower.

Weissman, by then a corporate director, had taken a combined-business-and-pleasure trip to Europe in 1960 and brought along a number of cartons of Marlboro. “Everywhere I went in Europe,” he recalled, “people were grabbing my Marlboros—they were intrigued by the box and flavor.” He came back raving to Cullman and Al Lyon about the brand’s European potential, especially in Germany, where a large contingent of American occupation forces could provide a solid foundation for locally made Marlboros. Cullman decided to harness Weissman’s enthusiasm and offered him the presidency of PM Overseas, a newly created entity to coordinate all the company’s foreign tobacco operations. Weissman, who had been close to the core of the company’s domestic operations, feared that the assignment might actually be a ploy to get
rid of him. Reassured of his value to Philip Morris, he took up the new job and saw major problems everywhere he looked. The Australian plant was teetering at breakeven. In Venezuela, the government was cracking down on imports, so Philip Morris had the choice of getting out or getting in more deeply with C.A. Tabacalera Nacional (CATANA), in which it already had a controlling interest, to make both domestic and Philip Morris brands. At Smith’s urging, they got in all the way. A foray into the Canadian market was complicated by Philip Morris’s lack of rights to the Marlboro name, because the company’s British ancestor had retained them for Commonwealth nations. And in Britain, with its strong preference for all-Virginia light tobaccos without sweeteners, PM’s output was finding few takers. More promising from the first, as Weissman had forecast, was the German market, which Philip Morris entered through a licensing deal with the big Brinkmann firm. But before long, the arrangement in Germany would bear out Smith’s caveat against bedding down with partners who could not tolerate competition from an increasingly popular American brand.

Cullman’s tapping of Weissman to give Philip Morris true global reach would prove over time to have been a masterstroke, one that disclosed perhaps his greatest gift as a chief executive—how to deploy the diverse talent at his disposal and make it mesh productively even when his operatives, as in the case of Smith and Weissman, did not care much for each other. He was also given to stopping a subordinate from any department when he passed him in the hall or ran into him on the elevator, where he would confront him with a proposed new pack design and ask for an opinion or what he thought of the latest Marlboro commercial. Cullman’s effect on the place was electric, even if it did not produce instantaneous results.

“Everyone who came into contact with him was impressed by how much Joe knew about the business,” recalled Hamish Maxwell, then a young Briton who had joined the company the same year as Cullman and worked in sales and marketing. “He was excellent at establishing his priorities and dealing with people—he didn’t get bogged down in nitpicking and chickenshit.” And while he could flash his temper, he was never gratuitously cruel nor did he invite bootlicking. “You felt you were going to do well or not at Philip Morris on the merits,” said Maxwell, who would do very well indeed.

Among those from whom Joe Cullman sought counsel was his tobacco research director in Richmond, Robert DuPuis. In a memo to the company brass late in 1959 regarding desirable future product developments, DuPuis urged the high command to permit his department to “[c]orrelate our chemical knowledge with medical knowledge” in product modification that could combine both substantially lowered tar and nicotine yields and “good flavor and burning properties. … We must consider not only what is technically sound,
but what is forced on us by the press, enemies and competitors. … The health problem overrides all of our research work and is probably the most important and most difficult problem facing the industry.”

Such a conviction stood in marked contrast with Cullman’s pop-off comment the year before that “the worst is over” with regard to public fears over the health issue. With Paul Smith’s cautionary hand hovering nearby, Cullman would rarely put his foot in his mouth like that thereafter. Nor, though, would he share DuPuis’s candor with the public. Rather, Philip Morris, along with the rest of the cigarette trade, kept on assiduously reassuring its customers that their product was, if not entirely harmless, certainly not guilty of manslaughter.

Grand Inquisitors

AS STUDIES
multiplied on the manner and immensity of disease formation from smoking cigarettes, just what role government as guardian of the public health could or should play remained debatable. Was smoking a public or private matter? What right did the state have to intrude upon the personal behavior of its citizens, even if they chose to indulge in bad habits that threatened their own survival? How would this differ from interfering in their choice of speech, dress, diet, recreational activities, or any other legal conduct? Freedom to live life as one chose, so long as others were not materially affected in the process, was the essence of each American’s birthright.