The use of tobacco has been traded to the peoples of North America, who were growing and using tobacco by the time Europeans had begun exploring the continent in the sixteenth century. By the 1800s the United States had become the heaviest per capita growers and users of tobacco. Although tobacco is a big trading product most Americans who used it smoked it in a pipe or chewed it. A domestic commercial industry had not developed yet and brand name goods had not been created.
In 1996 the U.S tobacco industry was an approximately 46 billion-dollar industry. Cigarettes accounted for nearly 95% of total sales that year; the remaining 5 percent were for cigars, moist smokeless tobacco, chewing tobacco, and snuff. It is estimated that U.S cigarette consumption declined by about 2 percent in 1997, falling to aproximately23.8 billion packs. Higher selling prices and growing restrictions on where people can smoke have dampened consumption. These factors also have reduced the demand for smoking tobacco used in pipes and roll-your-own cigarettes in recent years. Although consumption on a pound basis has declined steadily for all tobacco products over the past decade, there nevertheless have been areas of growth in this highly mature industry.
Of all the major tobacco product categories, cigars have experienced the fastest unit growth in recent years. Attributable in part by an upturn in luxury goods in general, total U.S consumption of cigars is estimated by the U.S Department of Agriculture has risen by 12 percent in 1997, to 5.1 billion units. Cigar consumption has risen at an annual rate of nearly 11 percent since 1994.
Snuff is the only other product category within the U.S tobacco industry to experience unit growth in 1997; its output expected to increase for the ninth straight year. Production in 1997 is projected by the USDA to be nearly 64 million pounds. Of this total, about 6 percent are considered dry snuff, with the remainder moist snuff. Although dry snuff use continues to decline, consumption of moist snuff continues to grow, perhaps helped by the increased restrictions on smoking.
Swisher was founded in Newark, Ohio, in 1861. It acquired one of its most famous brands, King Edward, in 1918, and in 1924 moved its main production facilities to Jacksonville, Florida, where it remains today. It created its signature Swisher Sweets in 1958, and was aired by American Maize-Products Company in 1966. In recent years Swisher completed three major cost saving initiatives. In 1992, the company closed its dry and moist snuff plant in Helmetta, New Jersey, and moved its operations to its Weeling, West Virginia facility. Effective June 30, 1994, Helme Tobacco Company, Swisher’s wholly owned smokeless tobacco subsidiary, was merged into Swisher. Helme’s executive office in Stamford, Connecticut was closed and the Helme and Swisher management and sales forces were consolidated. As a result of the merger, Swisher realized significant reductions in selling, general, and administrative expenses. In 1994, the company closed its Waycross, Georgia, cigar plant and consolidated its entire cigar manufacturing in its Jacksonville facility. As a result of these consolidations, Swisher incurred pretax restructuring charges totaling $14.2 million dollars, and realized significant cost savings in its base manufacturing and selling cost, as well as its general and administrative expenses.
On December 18, 1996, Swisher International Group, Inc. completed an initial public offering of 6 million shares of Class A Common Stock at $17 each. The Class A shares carry one vote each. Hay Islands owns 28.1 million shares of Class B stock, which carry 10 votes each, Hay Island owns 97.7 percent of the vote, and thus control anything that comes to the board for vote.
Swisher International Group, Inc. is profiting from the cigar boom. Swisher sells more cigars than any other company in the world (Swisher sweets) and is the most diversified company, with revenues spread evenly over all cigar categories, rather than on premium cigars as its competitors are. Swisher also is diversified outside the cigar business, with 28 percent of its revenues coming from smokeless tobacco, an even faster growing market segment than cigars.
Swisher had 10 percent share of the premium cigar market in 1996, but the company is better known for its cheaper, machine made, mass market large cigars. It leads in mass-market large cigars with a 41 percent share, and dry snuff with a 30 percent share, and has a 5 percent share in moist smokeless tobacco. Swisher’s revenues and net income increased nicely in 1997 to $276 million and $39 million respectively. Since 1993 there has been an ongoing increase in cigar sales in all categories, mass market large, mass market little, and premium. Retail sales broke the billion-dollar barrier for the first time in 1995 and in 1997.
Swisher International Group, Inc. started as an American company in Newark, Ohio. It has quickly grown to become an international company with sales in over 70 countries. Swisher has a very diversified product line. Swisher sells mass market large cigars, mass market little cigars, premium cigars, moist and dry snuff, and loose-leaf chewing tobacco. All of there mass-market cigars are machine made and have a retail; price one $1 dollar or less. Moist and dry snuff is made from fermented tobacco and requires more working capital. Its brand names include Swisher Sweets, King Edward, Landwood, and Creek.
Swisher uses outside suppliers for its tobacco as well as cigars. Swisher gets its tobacco from local suppliers and process it in its plant. It imports its premium cigars from contractors in Nicaragua, Honduras, and the Dominican Republic. It even at one time imported little cigars.
Low cost production with high quality products makes Swisher the leading cigar seller. Swisher has a very efficient production plant, where they produce cigars at a very low cost which intern means more profit in the long run. Swisher has the most automated cigar manufacturing facility in the United States. This allows them to produce such high quality products at very low cost. Swisher is very diversified with their products. Swisher has a product in every cigar category as well as smokeless tobacco, and moist and dry snuff.
Swisher focuses too much on its cigars and neglects the possibilities of the smokeless tobacco, and moist and dry snuff category. Swisher tends to market their cigars more than the other products as a result they are lagging behind in sales and market shares in those categories. Swisher has the capability to have more sales but too much research and development and marketing dollars are going to the product that already has its niche in the market. Swisher’s leading export is also cigars.
Swisher has the opportunity to expand their trade products. Their sales representatives should push the exporting of its loose leaf chewing tobacco and its moist and dry snuff. Swisher can create a marketing campaign to change the stereotypes of the common smoker. They should concentrate on women, and young males (18 and over). Swisher should also think about tapping other markets such as lighters or gas grills.
Competition is one of swisher’s biggest threats. Three of its main competitors are Consolidated Cigar Holdings, Inc.,General Cigar Holdings, Inc., and Havatampa / Phillies Cigar. Most of its competitors just sell cigars, so Swisher is competing with companies who specialize in one product, which make it harder for Swisher. There has been an anti smoking lobby going on with television ads, magazine adds and billboards ads. These ads hurt the tobacco industry as a whole. There has been numerous recent health related litigation against tobacco companies. These litigation really take a chunk of money from the companies. Higher taxes on tobacco products might slow down sales a little.
Swisher’s marketing strategy is geared toward its cigar line and very little on its other products. Swisher’s brand name, Swisher Sweets and King Edward, are established in the market. Swisher should spend a little more research and development and marketing on their chewing tobacco and less on the cigars to gain sales in the area they didn’t explore. Swisher’s leading export is cigars. The sales representatives of Swisher should push the sale of it smokeless products. Swisher should also market to younger people and women to try to generate more sales.
Swisher today is second in sales of cigars and almost last on market share in the smokeless category.
Swisher International Group, Inc 25%
Swisher International Group, Inc 24.5%
Facilitate growth in the smokeless market by pushing the exporting of the smokeless products. Also spend more research and development time on developing successful smokeless products. Swisher needs to market the smokeless products in its retail establishment with special promotions and deals.