The Bounties We Are Given
“Tobacco Road is not a real highway. It is a culture that reflects a rich four-hundred-year heritage paved with memories.” - Gene Hoots, Going Down Tobacco Road
The 1911 court-ordered dissolution of the American Tobacco Trust would forever alter the tobacco industry’s trajectory. R. J. Reynolds, released from the vice-like grip of James Buchanan Duke, was free to exercise his grand vision. In 1913, his company, R. J. Reynolds Tobacco Company (RJR), initially focused on producing chewing tobacco, unleashed a new product, the Camel cigarette, after teasing the public with a series of secretive ads.
Camel cigarettes use a blend of domestic and Turkish tobacco, providing a taste that was certainly unique at the time of launch. Unlike other brands that focused on regional markets, Camel was marketed nationwide. And unlike others, there were no coupons—it stood on its own as a high-quality product. Yet, it was priced under the leading brands of the day. Profits quickly grew, far outpacing competition and making RJR a leader in industry profits by 1924.
With great profits comes great responsibility—one which all tobacco majors have struggled with at different times. RJR remained famously profitable but could not protect the kingdom built. You can point to competition, diversification driven by pessimism towards the core business, macro and microeconomic factors, and numerous other considerations. Much of RJR’s path ultimately came down to one word, often difficult to articulate and grasp: Culture. The guard changed from purebred tobacco men to those who were outsiders who had backgrounds and ideas often at odds with what had successfully built a dynasty. In 1983, only a few years before KKR’s legendary leveraged buyout of RJR, Philip Morris became the share leader in the U.S. market.
There are many books, expertly researched and written, that cover RJR’s triumphs and shortcomings alike. My favorite capturing of events is Going Down Tobacco Road, written by my good friend Gene Hoots. Gene, all too modest, downplays its significance. The book is built upon his insights from working within the company and relationships with other insiders. Paired with his deep connection, it is a raw display of his fierce, unyielding interest in history and storytelling.
Carl Sagan once said of books, “For the price of a modest meal, you get the history of Rome.” But it is also true that as insightful and illuminating books may be, they often struggle to capture the full essence of a time or place. Earlier this month, Gene was kind enough to plan an excursion where a small group with a deep interest in the industry traveled to Winston-Salem, North Carolina, to see where this story started. I count myself truly fortunate to have been able to attend.
Several significant tours were taken. One was of Reynolda, the sprawling 1917 estate of R.J. and Katherine Reynolds, a 33,000 square foot ‘bungalow’ surrounded by acres of grass, gardens, and forest. The rooms are too many to count, but perhaps the most memorable are the two separate breakfast dining areas, which were used at different times of the year for optimal natural lighting. Reynolda captures decades of Reynolds family history and is also home to an exquisite art collection, including pieces by John Singer Sargent, Georgia O’Keeffe, Robert Rauschenberg, Lee Krasner, Stuart Davis, Chuck Close, Jasper Johns, Andy Warhol, and many others. The second tour was of Graylyn, the historic 1932 estate of Bowman and Nathalie Gray. The 46,000-square-foot manor includes numerous murals, bespoke stone and ironwork, and priceless art. Without question, the most unique pieces within are the wooden panels covering the walls and ceiling of the Persian Card Room, now a private dining area. The wood panels originate from Damascus, Syria, and are hand-carved with intricate gilding, dating back to 1700-01.
Both tours displayed a level of opulence you rarely see outside of royalty—the enormous wealth produced by executives during the company’s earlier years. But neither was close to being the highlight of the trip. Days were filled with stories, meals, and endless strolls throughout a part of the country that was largely shaped by tobacco. A dinner was had with a former Reynolds VP, who provided unique insights into the company’s manufacturing, R&D, and M&A history. A meeting was held at Reynolds American’s HQ to discuss the company’s past, present, and future. We also met with Gene’s lifelong friend, George Wilson, quoted in Gene’s book, who asserts, “There are people happily and well retired today who would still be drawing water with a well rope, if they hadn’t gotten a job at Reynolds Tobacco.”
The detailed stories, following roundtable discussions, and walks through the surrounding areas fully pieced together the achievements of prior generations. Before the rise of RJR, paved roads, running water, and the telephone were practically non-existent in the Winston-Salem area. Who could tire of hearing more about the unique RJR “A” shares, exclusively available to employees, which provided special dividends in addition to regular dividends? After RJR was freed from the ATC, R. J. Reynolds incentivized employees to purchase these shares at deeply attractive rates and even gave away shares to some workers for zero cost, effectively recapitalizing the company, creating convincing profit-sharing and alignment, and allowing countless common workers to become truly wealthy. Bowman Gray Sr. provided the funds that established Wake Forest’s Bowman Gray School of Medicine. Reynolda and Graylyn were donated and are now owned and maintained by Wake Forest University. Funds originating from both families continue to provide countless grants and contributions, allowing continued advancement for the community.
Having studied the tobacco industry for over a decade, I can confidently say I have only taken my first few baby steps down Tobacco Road. Where does it lead? Everywhere. Whether it is the obvious Northwest North Carolina, the unexpected Southern Wisconsin, or elsewhere, the road stretches everywhere because tobacco has touched everything. Who I cross paths with remains unknown, but you reading this marks one more intersection I am thankful for. I am overjoyed to share my learnings with you as I continue my stroll.
Happy Thanksgiving.
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Ownership Disclaimer
I own positions in tobacco companies such as Altria, Philip Morris International, British American Tobacco, Scandinavian Tobacco Group, and Imperial Brands. I also own positions in Haypp Group, a major online retailer of reduced-risk nicotine products.
Disclaimer
This publication’s content is for entertainment and educational purposes only. I am not a licensed investment professional. Nothing produced under the Invariant brand should be thought of as investment advice. Do your own research. All content is subject to interpretation.
Very cool. I have stayed at Greyln. Beautiful property. Also spen time at the old rai hq building which is a replica of the empire testate building. Actually the empire state building is a replica of the rjr building.
It was a truly great experience, many thanks to Gene for bringing us together.