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UST Inc., considered the United States' most profitable firm because of its top-rated return on assets, is a holding company for four subsidiaries: United States Tobacco Company, International Wine & Spirits Ltd., UST Enterprises, Inc., and UST International Inc. United States Tobacco Company is the country's leading producer of moist smokeless tobacco products and is the central business of UST.
Although health concerns cut down on growth in the rest of the tobacco industry, snuff sales were increasing during the first part of the 1990s. Snuff is pulverized tobacco that is placed between the cheek and gums. Snuff, practically a UST monopoly, was the fastest growing segment of the U.S. tobacco industry, increasing at three to five percent a year. UST controls between one-third and one-half the oral tobacco market, which includes chewing tobacco, dry tobacco, moist snuff, and several other products.
The formation of the United States Tobacco Company dates back to 1911, when the U.S. government dissolved the tobacco monopoly of James Buchanon Duke. From that dissolution, several cigarette companies, including as R.J. Reynolds, Liggett & Myers, and Lorillard, as well as several smaller tobacco concerns, including Weyman-Bruton Co., were formed. Weyman-Burton Co., a snuff manufacturer in 1911, eventually became United States Tobacco Company and came to control about 85 percent of the U.S. snuff market.
Although oral tobacco products have been UST's mainstay, it has been in and out of many businesses. In 1958, it acquired Circus Foods, a candy bar and nut products manufacturer. However, the market was already dominated by Planters, according to Louis Bantle, UST's chief executive officer from 1972 to 1992. Shortly after that, UST purchased pet food company B.A. Bernard and marketed Cadillac dog food. According to Bantle, UST was a few years too late with that venture as well, since Alpo already had established itself as the top premium dog food company.
W. H. Snyder & Sons, a Pennsylvania cigar company, became a subsidiary of UST in 1965. It was later merged into Wolf Brothers Cigar Co., and the name was changed to House of Windsor, Inc. In 1981, UST acquired the assets of Havano Cigar Corp. of Tampa, Florida, and transferred its operations to House of Windsor. House of Windsor, however, was sold to its employees in 1987. UST continued to produce and market Don Tomas premium cigars, handmade in Honduras, in the early 1990s.
In 1969, United States Tobacco acquired Henry, Leonard & Thomas Inc., which manufactured Dr. Grabow pre-smoked pipes. UST added to its pipe business in 1974 by acquiring Mastercraft Pipes, Marxman Imports, Inc., and Manhattan Briar Pipes, Ltd. UST continues to market Borkum Riff, the best-selling brand of imported tobacco in the United States, as well as Dill pipe-cleaners.
While UST had been testing the waters in outside industries for decades, the 1980s saw both further diversification and the divestiture of incompatible businesses. In 1980, UST acquired WPBN-TV and WTOM-TV but five years later sold these broadcast holdings. A year later, UST bought Heritage Health, which operated 14 drug- and alcohol-abuse clinics in hospitals. A few years later, however, UST turned around and sold it because it was not consistent with the company's core business. It also sold its interests in its pen and pencil company and its cigar company. UST considered its diversification into the premium wine business a good complement to its core tobacco business, and kept its ownership of Washington state wineries Chateau St. Michelle and Columbia Crest and California's Conn Creek and Villa Mt. Eden.
UST's top brand, Copenhagen, the world's best-selling brand of moist smokeless tobacco, is one of the oldest packaged consumer brands in the United States, according to the company. Skoal, a wintergreen-flavored moist smokeless tobacco and UST's other flagship brand, was launched in 1934. While United States Tobacco Company had been making inroads into new regional markets, it wasn't until the last half of the 1970s that moist smokeless tobacco use and UST sales soared. Between 1974 and 1979, sales had increased by more than ten percent annually, bringing 1979 United States Tobacco sales to more than $233 million, with 60 percent of that total coming from sales of moist smokeless tobacco products Happy Days, Skoal, and Copenhagen. Its earnings were $32 million, up 15 percent from the year 1978. Most of the company's growth was from sales to young men between the ages of 18 and 35. According to a University of Nebraska study, snuff use increased 30 percent between 1988 and 1992 and one in five male high school seniors used the smokeless tobacco product.
According to CEO Louis F. Bantle, the company's primary markets had been "Chicago through North and South Dakota, Minnesota, Montana out to Washington state." UST had not even introduced its products to the Southwest until 1950 or to the Southeast until the mid-1960s. Between 1974 and 1979, sales in the Southeast and Southwest leaped 145 percent and 108 percent respectively. Bantle told Forbes, "If you go to high school in Texas and you don't have a can of snuff in your pocket, you're out." The company growth strategy included ads featuring sports and rodeo stars attesting to the sense of "individuality" expressed by snuff users. Since then, the tobacco industry agreed to stop using athletes in advertising and smokeless tobacco has been banned at some levels of pro baseball and in some college conferences. Some major league teams banned distribution of free samples in their clubhouses.
Research showed that in the 1970s the moist tobacco market was comprised mostly of men whose work or activities made cigarette smoking inconvenient or even hazardous. Users were miners, lumberjacks, and petroleum workers--men who had to keep their hands free for their work or for whom a burning cigarette could cause fire or explosion. This was a small market compared to the cigarette industry's market, but UST practically had a monopoly on this smokeless market. Bantle predicted that the snuff market would increase to 100 million pounds by the turn of the century and that most of the users would be people who had quit smoking but could not give up tobacco use. By 1992, males in the Southeast, Mountain/Plain, and Southwestern regions had per capita use of more than ten cans of smokeless tobacco annually. The Northeast region had a per capita use of only two cans. UST had an 85 percent share of the moist smokeless tobacco market, the largest segment of the smokeless tobacco market.
In 1983, UST introduced Skoal Bandits, small, "tea-bag" pouches of wintergreen-flavored tobacco designed for novice snuff users. Its four-week $2-million ad campaign for New York City touted the Bandits as an alternative to smoking and invited potential users to "take a pouch instead of a puff." By 1990, Bandits comprised five percent of UST's business.
According to FDA Consumer, moist smokeless tobacco use caught on among teens because of UST's aggressive ad campaigns, which specifically targeted them. The campaigns featured popular sports heroes, including Yankee pitcher Catfish Hunter, Houston Oilers running back Earl Campbell, and Dallas Cowboys running back Walt Garrison. FDA Consumer claimed that with this campaign, "smokeless tobacco became a socially acceptable symbol of virility, machismo and coolness." The article added that UST attracted teens with free samples of low-nicotine and fruit-flavored tobaccos. Although UST had been accused of promoting Skoal and Copenhagen among minors, UST denied the allegation. Walt Garrison also denied the charge.
Like other tobacco products, snuff and chewing tobacco have been criticized as menaces to health. In 1986, Betty Ann Marsee brought a $147-million lawsuit against UST. Marsee claimed her son's death at age 19 from mouth cancer was the direct result of his use of UST's smokeless tobacco. The trial was closely covered by the national news media, bringing the issue of the safety of smokeless tobacco to the public's attention even though Marsee's lawyers were unable to prove that UST was liable for her son's health problems.
Snuff had been touted by UST as a safe alternative to cigarettes, capitalizing on the growing evidence that smoking was responsible for many life-threatening conditions. The 1986 Smokeless Tobacco Act, passed during the same spring the Marsee trial occurred, ended snuff's exemption from the restrictions placed on cigarettes in the 1960s and 1970s. The 1986 law called for three rotating labels warning that the products could cause mouth cancer; that they could cause gum disease and tooth loss; and that smokeless tobacco is not a safe alternative to cigarette smoking.
The 1986 legislation enacted an excise tax on smokeless tobacco of about two cents a can, although a nine-cent tax had been proposed by some legislators and anti-tobacco lobbyists. Senate Majority Leader Robert Dole of Kansas promised a hike would be considered if a forthcoming Surgeon General's report on smokeless tobacco was unfavorable. Despite a Surgeon General's report that concluded that "smokeless tobacco can cause cancer and a number of noncancerous oral conditions and can lead to nicotine addiction," the tax remained at two cents until several years later, when it was raised about one cent per can. State excise taxes varied widely, from 65 percent of wholesale price per can in Washington to no tax in a majority of states. Meanwhile, health officials called for an excise tax comparable to that on cigarettes as well as an extra $1 or $2 per can to discourage teen use of the products.
The 1986 law also imposed a ban on broadcast ads for smokeless products, a tactic popular since the 1950s. However, the act did not allocate sufficient funds to finance the anti-smokeless tobacco campaign that the act legislated. In 1993, Congress did allocate slightly more than $10 million for public education about snuff and other smokeless products. In 1991 alone, however, UST had spent $14 million to distribute free samples of its products. According to company officials, the individual approach is important because novices need a personal introduction to use of snuff since they usually need instruction as to its use. In addition, UST spent millions of dollars annually on political contributions and lobbying in Washington to block anti-snuff legislation. Bantle called legislation and taxes the greatest threats to his company and the industry.
Since the Marsee case, the threat of litigation against UST diminished. A ruling by the National Academy of Sciences concluded that there was no epidemiological or clinical data that proved that moist smokeless tobacco caused cancer. While this ruling was reassuring to investors, it also was likely to deter users or their families from filing suit against the company. A recent Supreme Court ruling that said cigarette companies could not be sued for failure to warn was also likely to be a deterrent to litigation against UST, which now included warnings on its products.
UST expected to benefit from the growing trend towards banning smoking in public places and office buildings. Of the oral tobacco market, which included chewing tobacco, dry tobacco, and moist snuff, moist snuff was the only product showing sales increases. UST controlled half the oral tobacco market through its 85 percent share of the moist snuff market. UST marketed ten products in its Skoal line, but Copenhagen was responsible for 50 percent of sales.
The company continued to rely on its core business for its success, with relatively modest contributions from its wine subsidiary and its other smaller concerns, including Dr. Grabow Pre-Smoked pipes, Dill's pipe cleaners, and Cabin Fever Enterprises, which developed, produced and marketed video programming with an American theme.
In the early 1990s, exports to countries other than Canada accounted for about one percent of sales. Moist smokeless tobacco products were little known outside of the United States and Sweden, where it originated. Several nations had imposed stiff restrictions on snuff, including Australia, Hong Kong, Ireland, Israel, New Zealand, Saudi Arabia, Singapore, Tasmania, Thailand, the United Kingdom, and other European nations. However, Bantle considered the international market, especially the countries of Eastern Europe, UST's greatest opportunity for growth. Louis Bantle announced he would retire at the end of 1993 after 20 years as CEO. During this period UST sales grew from $100 million to just over $1 billion.
Principal Subsidiaries: United States Tobacco Company; International Wine & Spirits Ltd.; UST Enterprises, Inc.; UST International Inc.
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