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Gallaher Limited is an international company whose interests include tobacco, distilled spirits, optical services and products, retail distribution, and housewares. Its employees are spread throughout the world, with the majority located in the company's headquarters country of the United Kingdom. Until 1997, Gallaher was a wholly-owned subsidiary of American Brands, Inc., of Old Greenwich, Connecticut, in the United States. Following the divestiture, American Brands then changed its name to Fortune Brands, Inc. That company is itself a diversified group of companies, with core businesses in tobacco, distilled spirits, life insurance, office products, hardware, and home improvement products.
The Early Years
Gallaher was founded by Tom Gallaher, who in 1857 started his own business in Londonderry, making and selling pipe tobaccos. Within sixteen years, he had prospered enough to move to larger premises in Belfast. Toward the end of the 1870s, Tom Gallaher crossed the Atlantic for the first time in order to personally supervise the buying of his company's tobacco leaves. He visited Kentucky, North Carolina, Virginia, and Missouri, and following his first trip the expedition became an annual event. Gallaher rose to become a notable figure in trade on both sides of the Atlantic.
During the first half of the 19th century, the pipe had gradually given way in popularity to the cigar. The military was largely credited with this shift, as British soldiers returning from the Crimea campaign of 1854-1856 introduced an item they had adopted from their French and Turkish allies--the cigarette. Smoking fashions in Britain underwent a change that Gallaher was astute enough to exploit. Soon other tobacco manufacturers also began to cater to this change in tastes. By 1888, he was producing flake tobaccos and cigarettes, which, included in the full range of Gallaher products, were displayed at the Irish exhibition in London during that same year. The expedition also saw the opening of Gallaher's first London premises, just inside the famous "square mile" of the City, at 60 Holborn Viaduct.
The first London factory was opened the following year at Clerkenwell Road to increase production, and in 1896 the Belfast factory moved into larger quarters. That same year, the company was incorporated as Gallaher Limited. An important development two years later was the discovery of a yellow and white burley leaf. Gallaher started to use it immediately, and in 1908 completed a transaction important to the history of the industry by purchasing the entire Irish tobacco crop.
The social history of smoking in the late Victorian and Edwardian ages was marked by the triumph of the cigarette. To that point in time, tobacco manufacturers had employed manual labor to make cigarettes as required, but soon cigarette-making machinery sped up production and thus, satisfied the rising demand. It became acceptable for women to smoke, and new types of cigarettes were created to serve that market as well. By the outbreak of World War I in 1914, the cigarette had established its dominance over all other forms of smoking; it was considered vital to the welfare and morale of the armed forces and a valuable means of exchange.
Production increased hugely, and Tom Gallaher was the master of a thriving business when he died in 1927 at the age of 87. He had maintained an active interest in the company until the time of his death, and had achieved great civic respectability as a governor of the Royal Victoria Hospital in Belfast. He was also credited with being the first person in the tobacco industry to introduce a 47-hour working week and annual paid holiday.
The Mid-1900s: Gallaher's Expansion Efforts
Smoking, and cigarette smoking in particular, enjoyed a continuous popularity throughout the 1930s and 1940s. The anxieties of World War II were a further stimulus to tobacco consumption. In the 1950s, however, evidence was produced that not only linked smoking to lung cancer and heart disease, but also suggested that long-term cigarette smokers might be more susceptible to lung cancer than pipe or cigar users, or nonsmokers. These findings seemed to do no harm to Gallaher Limited, however, which was looking to expand in 1955 and succeeded in acquiring the U.K. and Irish interests of the prestigious Benson & Hedges company.
Benson & Hedges had enjoyed parallel development and success to Gallaher Limited, though in a more elevated style. Richard Benson and William Hedges began their business in 1873. Benson & Hedges notably departed from the custom of dispensing tobacco by weight. Their tobacco was prepared as a blend or mixture, and packed in a sealed tin. This assured the customer that his goods would reach him in the freshest possible condition, and also had experienced no tampering. The business also benefited from the patronage of the bon vivant Prince of Wales, later King Edward VII, who asked Benson & Hedges to prepare and make into cigarettes a parcel of Egyptian tobacco leaf that he had acquired. They did this, and adapted the style to market "Cairo Citadel," one of the first Egyptian-type cigarettes to be made in Britain.
When smoking became popular with women during Edward's reign, Benson & Hedges produced variations of the cigarette designed to appeal to women, tipped with rose leaves or violets for example, or on a miniature scale. Increasing demand led to the establishment of a separate factory, although their original shop remained at its location on Old Bond Street. During World War II, the shop was bombed and practically destroyed, but was rebuilt with the return of peace. When Benson & Hedges joined Gallaher, it brought not only its best-selling cigarettes, but also its Royal Warrant, which was first bestowed by Queen Victoria "to purvey cigarettes and cigars for use in her household," and later renewed by subsequent monarchs.
In 1962, Gallaher acquired J. Wix and Sons Ltd. of London, the makers of Kensitas, a well-known cigarette. The company's vendor was The American Tobacco Company, which made the transaction in exchange for a stake in Gallaher's stock. By 1968, American Tobacco had increased its holdings in Gallaher shares to 67 percent. American Tobacco had been a relative failure in its native tobacco market, but was now using a steady cash flow wisely to buy and diversify. In 1969, in recognition of its changing profile, it was renamed American Brands, Inc.
The 1970s and 1980s as an American Brands Subsidiary
Meanwhile, Gallaher itself began to broaden its scope. An interesting and substantial acquisition in 1970 was the Dollond & Aitchison Group, whose main specialty was the supply of optical services and advice, spectacles, contact lenses, and accessories. Dollond & Aitchison possessed an extensive branch network throughout the United Kingdom. Also acquired was a small ophthalmic instruments manufacturing and distributing operation, called Keeler Limited.
Gallaher continued this diversification phase by making its first foray into retail distribution. In 1971 it established the Marshell Group, a retail franchise operation that sold mainly tobacco products and confectionery through concessions within major retail stores across the United Kingdom. Within 20 years the concessions numbered around 635, and the company also had over 50 of its own retail outlets.
Two similar acquisitions followed in 1973. The TM Group, previously called Mayfair, was a company operating vending machines that dispensed cigarettes, drinks, and snacks in licensed and industrial catering outlets. Perhaps TM's best known manifestation in the United Kingdom was the ubiquitous Vendepac machine. Another purchase was that of Forbuoys plc, a chain of shops selling tobacco, confectionery, newspapers, and magazines, again with branches throughout the United Kingdom.
Using its standing as a subsidiary of a giant conglomerate, Gallaher was able to continue its expansion and diversification without severely troubling its balance sheet. Dollond & Aitchison's overseas expansion began in 1974 with the acquisition of the Italian company Salmoiraghi Vigano, which added the retailing of optical and medical instruments to the group's interests. The following year, American Brands finally controlled 100 percent of Gallaher's shares. It was arranged that the chairman and chief executive of Gallaher Limited would sit on the board of American Brands, while American Brands would have non-executive directors on the Gallaher board.
Gallaher continued to make acquisitions. In 1984, it purchased Prestige Group plc. Under the "Prestige" brand name, the company produced stainless steel cookware, pressure cookers, bake ware, and kitchen tools and accessories. Under another brand name, Ewbank, it also marketed carpet sweepers. Established in 1937, Prestige was the leading non-electrical housewares manufacturer in the United Kingdom. Following the Prestige acquisition in 1984, Dollond & Aitchison opened the first fast-service optical department store in Europe at Yardley near Birmingham, England. Further stores called "Eyeland Express" have followed since then.
In 1988, along with other companies in Northern Ireland, Gallaher was approached by the former Fair Employment Agency for Northern Ireland, which sought cooperation in a study to ascertain to what degree equality of opportunity was being afforded to Protestants and Roman Catholics. The agency had been advised of Gallaher's long-standing interest in the question, and the report concluded: "The efforts made by the company and the local Trade Union officials to introduce locally meaningful equal opportunity measures are positive and encouraging and the Agency is satisfied that the action taken is indicative of real commitment to provide equality of opportunity."
The following year, the section of Gallaher's business represented by Dollond & Aitchison suffered a setback when the British government abolished free vision tests for the majority of people, and spectacles and contact lenses for retail became liable for value-added tax. In fact, this severely affected the entire industry in the United Kingdom, but Gallaher remained confident, and continued as planned with the expansion of the Eyeland Express chain. Within two years, Dollond & Aitchison had virtually completed a major restructuring of its retail and service facilities. It became the largest optical group in Europe, with more than 500 outlets in the United Kingdom alone and strong and profitable overseas business.
The 1990s and Beyond
Gallaher Limited began the 1990s with a strategy based on diversification. Further strategic development of the Gallaher's non-tobacco interests continued with the acquisition of Whyte & Mackay Distillers Ltd., in February 1990. The company, as well as its three Scottish distilleries, was headquartered in Glasgow. One of those distilleries was a bottling company, William Muir (Bond 9) Limited, based in Leith, near Edinburgh. Its products were the blended whiskeys Whyte & Mackay Special Reserve and The Claymore, as well as the single malts The Dalmore, Tomintoul-Glenlivet and Old Fettercairn. In April 1990, Whyte & Mackay reinforced its branded business and acquired the worldwide trademark rights to Vladivar vodka, the United Kingdom's second-largest vodka brand. Other than scotch whisky, vodka was the most popular distilled spirit in the United Kingdom.
Meanwhile, the tobacco business, managed by Gallaher Tobacco, remained a strong performer. In the declining U.K. cigarette market, Gallaher had increased its volume of sales and was making the three leading brands: Benson and Hedges Special Filter, Silk Cut, and Berkeley Superkings. Gallaher also manufactured the leading U.K. pipe tobacco, the leading cigar, and the second largest brand of hand-rolling tobacco in the United Kingdom. Gallaher International, the export arm, was also undergoing increased development in the early-1990s, and was well placed to take advantage of the trend toward low-tar cigarettes, pushing for markets in France, Spain, and Greece.
Since its inception, Gallaher had maintained considerable holdings in Northern Ireland, and by the 1990s was one of the largest manufacturing employers there. Operations included a warehouse complex for tobacco leaf at Connswater, East Belfast, and a sales distribution center on the outskirts of the city. Production took place at Lisnafillan, near Ballymena, County Antrim, in a modern factory complex handling cigarettes, pipe tobacco, and handrolling tobacco. Also at Lisnafillan was the company's research and development division, which was a particularly vital establishment to Gallaher's drive to keep its position as market leader in low-tar cigarettes.
Gallaher also continued to operate in the Republic of Ireland, where it was the second largest tobacco company. Cigarettes, pipe tobacco, and hand-rolling tobacco were manufactured in a factory just outside Dublin. On the British mainland, three top-selling cigarette brands and a wide range of smaller brands were made at the famous Senior Service factory at Hyde, east of Manchester, and cigars were produced at Cardiff and Port Talbot in South Wales.
In the mid-1990s, Gallaher continued to increase recognition of its name in its home market, through various types of sponsorship. Although it had withdrawn patronage of the Silk Cut Tennis Championship in 1990, the Benson & Hedges Cup at Lord's remained an important sponsorship. This cricket competition was vital to the Test and County Cricket Board during those years, as the sponsorship arrangement guaranteed the organization £3 million over a five year period. Other sponsorships within the Benson & Hedges portfolio were the International Open Golf Championship at St. Mellion, Cornwall; the Masters Snooker Tournament at Wembley; the Silk Cut Showjumping Derby; and the Silk Cut Nautical Awards. In Northern Ireland, small business development was encouraged by the Gallaher Business Challenge Award Scheme, and the company was also the major private sponsor of the Ulster Orchestra.
As Gallaher entered the last few years of the century, the strength of its tobacco industry holdings was tested when the European Community (EC) banned all advertising of tobacco products on U.K. television. At the time the ban was instituted, Gallaher owned the United Kingdom's biggest cigar brand, Hamlet, but was fighting for continued market share dominance with Imperial's Castella brand. During the weeks preceding the ban, Gallaher ran most of its old and new advertisements on U.K. television in a last-ditch effort to maintain its edge. For years, the Hamlet television advertisements had been wildly popular with the U.K. public, and had won 15 Lion awards at the International Advertising Film Festival at Cannes. Gallaher also produced a 30-minute video showcase of the best of the Hamlet advertisements over the years, which was then sold to the public to keep the spirit of the 27-year Hamlet campaign alive.
Within a year of the tobacco advertising ban, Gallaher introduced a new entry in the budget-priced sector of the cigarette market. The brand Mayfair was introduced, and joined Gallaher's Berkeley Superkings brand, which was currently the best selling brand in the budget-priced market. Mayfair was immediately given a poster advertisement campaign, which focused mainly on the low price of the product. Furthermore, Gallaher attempted to appeal to potential customers by lowering the cost of Mayfair by the same amount that the government had just added as duty to the cost of the cigarettes. Soon thereafter, Gallaher also introduced its Eclipse brand, which was classified as a "super luxury length" product and joined other cigarettes at the opposite end of the spectrum from Mayfair. At that time, Gallaher was producing the top three cigarette brands in the United Kingdom.
Gallaher continued to reap success, even despite criticisms and raised eyebrows from industry analysts regarding marketing and pricing decisions made by the company. By 1996, Gallaher had grown to account for more than 50 percent of American Brands' yearly sales figures. The following year, American Brands made the decision to spin off Gallaher to become its own free-standing entity. Prior to the spin-off, Gallaher had helped American Brands achieve $6.9 million in 1996 tobacco sales alone. Following the divestiture, American Brands changed its name to Fortune Brands, Inc. The new name more accurately reflected that corporation's holdings, as ironically "American" Brands had been responsible for numerous international holdings for years, including Gallaher. As the end of the decade ushered in the 21st century, Gallaher's ability to stand on its own and enjoy future profitability and growth would be decided.
Principal Subsidiaries: Benson & Hedges, Ltd.; Cope Brothers & Co. Ltd.; Cope & Lloyd (Overseas) Ltd.; John Cotton Ltd.; J.R. Freeman & Son Ltd.; Gallaher International Ltd.; Gallaher Tobacco Ltd.; Gallaher Tobacco (UK) Ltd.; Old Holborn Ltd.; Senior Service Tobacco Ltd.; Silk Cut Ltd.; Sobranie Ltd.; Sullivan Powell & Co. Ltd.; Benson & Hedges (Dublin) Ltd.; Gallaher (Dublin) Ltd.; Silk Cut (Dublin) Ltd.; Gallaher Canarias SA (Spain); Gallaher España SA (Spain); Silk Cut France SARL; Silk Cut Hellas Epe. (Greece); Dollond & Aitchison Group plc; Dollond & Aitchison Ltd.; Theodore Hamblin Ltd.; First Sight; Keeler Ltd.; Filotecnica Salmoiraghi SpA (Italy, 99.9%); Istituto Ottico Vigano SpA (Italy); General Optica SA (Spain, 92.5%); Donal MacNally Opticians Ltd. (80%); Forbuoys plc; NSS Newsagents plc; TM Group plc; Hargreaves Vending Ltd.; UBM Wittenborg Ltd.; Marshell Group Ltd.; The Prestige Group plc.; Prestige Group UK plc; Bonny Products Ltd.; Prestige Medical Ltd.; Prestige Industrial Ltd.; Prestige Group (Australia) Pty. Ltd.; Prestige Housewares (NZ) Pty. Ltd. (New Zealand); Prestige Benelux SA (Belgium); Prestige France SA (France): Prestige Haushaltswaren GmbH (Germany); Prestige Italiana SpA; Fabricados Inoxidables SA (Spain); The Galleon Insurance Co. Ltd.; The Schooner Insurance Co. Ltd.; Whyte & Mackay Distillers Ltd.; Dalmore Distillers Ltd.; Fettercairn Distillery Ltd.; The Tomintoul-Glenlivet Distillery Ltd.; William Muir (Bond 9) Ltd.; The Scotch Whiskey Heritage Centre Ltd. (54.9%).
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