Reynolds American may or may not be the most impactful company in the history of North Carolina commerce. After 150 years in business, it surely is the most resilient.
Its success is made possible by virtue of tobacco, unquestionably the most important product in the state’s history. “If it hadn’t been for tobacco, North Carolina would be West Virginia,” says Gene Hoots, a retired Reynolds executive and the world’s foremost living authority on the company’s history. “I don’t know what our state would have done
without it.”
Started in Forsyth County by Richard Joshua Reynolds in 1875, Reynolds American is now part of British American Tobacco, or BAT Group, which operates in about 180 nations.
As it has since its inception, Reynolds is adapting to changing consumer demands. This time, the shift involves new products gradually gaining importance as the core business of cigarettes, which has defined Reynolds since the early 20th century, slowly fades away.
The business story of Reynolds’ 150 years and the changing world of marketing tobacco and nicotine is compelling. The company enabled Business North Carolina to interview Wade Huckabee, its key strategic planner, for this story. Reynolds’ importance to the economies of North Carolina and Winston-Salem — and that resiliency — is notable.
Since 1875, it has survived government antitrust investigations, condemnation over the health impact of its principal product, parochial leadership that missed some
huge opportunities and a 1980s-era CEO whose self-indulgence and golden parachute earned global infamy.
Before discussing the business, though, it’s important to start with the human side. The long-term benefits of tobacco have touched millions of North Carolinians, most notably Duke University, Wake Forest University, their renowned healthcare operations, Duke Endowment, Reynolds-backed foundations and the sturdy factories left behind for office and condo developers in downtown Winston-Salem.
Then there are the histories of thousands of North Carolina farm families, who benefited from the federal tobacco allotment program started in 1938. Hoots’ family in Yadkin County was one of them, relying on a farm of fewer than 10 acres, growing the world’s most profitable legal crop.
“The allotment allowed small farmers to survive through the Depression until the late 20th century,” he says. “Otherwise, my family would have gone to California and been characters in a Steinbeck novel. Where would people have found employment in North Carolina, especially in eastern North Carolina, which became the heartland because they had big, flat fields?” The company still buys from 700 growers, many in N.C.
Like many human stories, however, there’s also a tragic element. No other legal product has done more harm than cigarette smoking, Dr. Dana Carroll, an epidemiologist who leads the Masonic Cancer Center at the University of Minnesota, told a Minnesota Public Radio podcast in November. Chronic tobacco use is the leading preventable cause of 18 cancer types, heart and pulmonary disease and premature death in the U.S., according to the center’s website.
Those affected by smoking’s impact include Huckabee, who without invitation listed three close family members who died of smoking-related illnesses.
Those experiences naturally made him question whether he should work for Reynolds when he was offered a job as vice president of strategy and planning in 2016. At the time, he was a senior executive at Keurig Dr Pepper in Dallas, but he also knew a lot about Reynolds, because he had previously worked in strategy and investor relations roles at Hanesbrands in Winston-Salem.
A top Reynolds executive, Debra Crew, told Huckabee about her own thought process as she moved to Reynolds in 2014, following posts at PepsiCo, Mars, Nestle and Kraft. She later became CEO.
“She was incredibly eloquent and offered a great deal of personal conviction for what this industry was really all about,” he says. “Once I got on the ground, I got to know everyone and things like that only continued to dispel the misperceptions I had, certainly of Reynolds within the industry, but the industry in general.”
Huckabee, who is now senior vice president of strategy and transformation, is referring to company and industry efforts to shift away from traditional cigarettes. He notes that the smokers in his family didn’t have the option of “viable compelling products” that may have extended their longevity.
Cigarettes remain the profit engine stoking BAT and its global rivals because more than 1.2 billion people still smoke. But the industry says its long-term success relies on shifting those folks to vaping, pouches, e-cigarettes and other products that medical researchers generally agree are much less harmful.
“I think that we’re in a new era and that the new categories that are available today, at least the ones manufactured, marketed and sold by the responsible industry, are going to be the destination for this consumer landscape,” Huckabee says.
Storied past
To be sure, Reynolds and other Big Tobacco companies have been seeking that new destination for decades. Richard Reynolds’ business went public on the New York Stock Exchange in 1922, four years after the founder had died of pancreatic cancer. Over the next six decades, it emerged as a business powerhouse, based on the popularity of its Camel brand, which was introduced in 1913, and the Winston filtered cigarette and Salem menthol brand, which followed in 1954 and 1956, respectively.
The latter marketing innovations were led by John Whittaker, who joined the company in 1913, became president in 1948 and then board chairman in 1952. Hoots credits him as the company’s most influential executive, after R.J. Reynolds.
“He brought the company into the modern age,” Hoots says, citing progressive labor practices such as integrating Reynolds’ factories and adding profit-sharing plans that made its employees the state’s highest-paid manufacturing workers. Union organizing efforts were rebuffed when management noted that the company was paying more than rival Philip Morris and other unionized operations.
Whitaker was also a huge fan of his hometown, a view shared by other senior company leaders. In 1964, Reynolds was the only one among the 60 largest U.S. public companies to be headquartered in the South, based on revenue, according to “Camel City,” an exhibit on Reynolds’ history at the Reynolda House Museum of Modern Art.
As a result, Winston-Salem became a prominent business center. Wachovia emerged as a major Southeast bank, and Womble Carlyle Sandridge & Rice developed into the state’s largest law firm. At its peak, Reynolds employed more than 23,000 in the Winston-Salem area.
Its leaders’ parochial nature also meant Reynolds didn’t press for international expansion like its main, Richmond, Virginia-based rival. “The company largely missed out on the international market, which Philip Morris capitalized on with the Marlboro brand. They ate our lunch,” Hoots says.
In his view, several Reynolds senior executives following Whittaker “didn’t have an abiding faith in tobacco. Some of them were even embarrassed by it because it had a sort of country, down-home Grand Ole Opry image,” he says.
They decided the company needed to diversify, overlooking that few products have ever been as lucrative as cigarettes.
From the mid-’60s through 1985, the renamed R.J. Reynolds Industries spent $19 billion on non-tobacco businesses including Sea-Land Service, Del Monte, Heublein, Canada Dry and others, Hoots says. The icing came in the 1985 purchase of Nabisco Brands, the subsequent headquarters move to Atlanta, and the $25 billion leveraged buyout by Kohlberg, Kravis, Roberts & Co. in 1988.
Books and TV miniseries have covered this period in intimate detail, including casting RJR Nabisco CEO Ross Johnson as among the most controversial CEOs in U.S. history. Infamous for his description of Winston-Salem as “bucolic,” he left RJR in 1989 with a severance package topping $50 million.
The bottom line, Hoots says, is that the non-tobacco businesses were sold for a cumulative loss that equated to $1 billion, for a negative 2% annual return over 20 years.
Meanwhile, the core tobacco business remained extremely profitable. In 1999, RJR Nabisco sold Reynolds’ global tobacco business for $8 billion to Japan Tobacco and broke into separate food and cigarette companies. Reynolds returned as a public company based in Winston-Salem.
In 2004, Reynolds American was created by the merger of Reynolds and the U.S. operations of BAT, which gained a 42% stake in the company. In 2017, BAT bought the balance of the Winston-Salem enterprise for $49 billion.
New categories
It’s been more than a quarter century since the 1998 Master Settlement Agreement, in which the major tobacco companies agreed to pay $206 billion to 46 states to cover healthcare costs associated with smoking. North Carolina’s share is $4.57 billion, with the money used to fund state government and support the Golden LEAF Foundation, which mostly promotes economic development in areas that once relied heavily on tobacco.
The industry took a big financial hit, but survived with the stipulation that it would stop advertising targeted at youth and end NASCAR and other sports sponsorships. The settlement also funded a $1.5 billion anti-smoking campaign that is credited with helping reduce the percentage of Americans who smoke from 24% in 1998 to 11.6% in 2022, according to American Lung Association research. The goal is to push that number to less than 5%.
Reynolds’ cigarette business, which the company calls “combustibles,” enjoys extraordinary profitability compared with most consumer products. It provides the multibillion dollars needed for what the company says is a complete transformation of its business.
“It’s hard for people to reconcile,” Huckabee notes.
“But, yes, we have this [traditional] business that is a large business, and has a very large consumer base. What that business provides is the resources by which we can invest
in new products and do other things to accelerate that smoke-free vision.”
The investment in new categories is paying off for North Carolina, with Reynolds investing $200 million in Triad-area manufacturing plants, mainly for transitioning to smokeless products. It has added about 500 jobs over the past two years and now employs more than 2,000 in the region. This fall, the company set up a worker-training program with Forsyth Tech Community College.
“You think of tobacco as old school, but Reynolds is a forward-thinking company that really cares about North Carolina and Winston-Salem,” says Mark Owens, CEO of the Greater Winston-Salem Inc. business-promotion group.
The change hasn’t come as fast as expected, however.
In 2018, BAT said the new categories would have revenue of 5 billion British pounds by 2025. Instead, the number is expected to be around 3.65 billion pounds, or less than 20% of BAT’s revenue. CEO Tadeu Marroco’s current ambition is to have
more than 50% of revenue from smokeless products by 2035.
Philip Morris has had more success, with about 40% of its revenue coming from smokeless products, largely due to its IQOS brand of smoke-free “tobacco-warming” products that include a charger and pen-like holder. BAT has a competitive brand, Glo, that is not sold
in the U.S.
In the vapor and oral categories, however, Reynolds is much stronger, industry analysts say. (Vaping refers to inhaling an aerosol on a device shaped like a pen, while oral mainly means dropping a small nicotine-laden pouch in one’s mouth.)
The Vuse vape brand was introduced in 2014 and has jockeyed for industry leadership with with San Francisco-based Juul. In recent years, however, Vuse’s sales slid because many consumers are opting for what Reynolds calls “illicit” vapes
and hemp-derived CBD products that aren’t as tightly regulated. “It doesn’t go much further for a lot of consumers than if it’s for sale, and I’m able to buy it right, then it must be a legal product,” Huckabee says. “There are all sorts of unscrupulous people around the world that are happy to make a product just because they think consumers will buy it.”
Many vaping product sales occur at the countless shops that have popped up in recent years in states such as North Carolina, where lawmakers haven’t agreed on how to regulate the products. In November, the congressional bill that reopened the government included new restrictions on CBD-related products, slated to take effect in late 2026.
Reynolds is pressing federal regulators to block illegal vape products from entering the U.S. They also want states to adopt directories of accepted products and to block the sale of flavored vape juices targeted at younger consumers. In states where more restrictive laws have passed, Vuse’s volume is growing significantly, company officials say.
The national Vapor Technology Association, which represents many smaller companies, believes Big Tobacco is making false claims about its competitors, hoping to diminish their marketplace success, Executive Director Tony Abboud says. The industry should unite to promote vaping as a safer alternative to smoking cigarettes, an emerging public health consensus, he adds.
Velo velocity
Reynolds is impressing investors with its Velo nicotine pouches, which it calls “the fastest-growing brand in the fastest-growing segment” in the industry. About 135,000 U.S. stores carry the products, reflecting its unrivaled distribution system. Velo competes with Philip Morris’ Zyn brand, which is also growing fast. Neither contains tobacco like traditional chewing tobacco, or snuff.
In the U.S., Velo’s growth has “gone exponential in terms of its consumer awareness adoption and overall use,” Huckabee says. “Consumers like the nicotine experience and getting the stimulation they are seeking. But they are not burning anything, not creating ash or an odor that can fill up rooms or a car.”
Because the pouches are discreet and portable, the stigma of smoking goes away, he says. “Nicotine pouches are probably the safest way to consume nicotine, with vapes being second,” Robert Kennedy Jr., secretary of Health and Human Services, said earlier this year. “But the thing we really want to get away from are cigarettes.”
Reynolds’ goal of “transforming tobacco” is gaining momentum because its products are becoming more compelling to smokers, Huckabee says. Couple its distribution network with improving AI technology, and Reynolds “essentially knows what people are buying whenever they are buying it, how much they are willing to pay for all of these things — it’s a massive amount of information.”
Even with all of that data, Huckabee is convinced that consumer tastes outpace corporate plans and regulation. “You can’t force consumer behavior,” he says.
Investors are showing confidence that Reynolds can make the smokeless transition in a lucrative way. BAT shares have gained more than 50% in the past year, through
mid-November.
That positive momentum is evident in the city made famous by Richard Reynolds as his company takes a more active role in local affairs, says chamber leader Owens. “When you walk around the city, you see employees with Reynolds badges who are engaged. There’s an energy and vibrancy right at play in the community that wasn’t necessarily the case four or five years ago. They are not just looking back on this 150th year, but looking forward.”■
David Mildenberg is editor of Business North Carolina. Reach him at dmildenberg@businessnc.com.