Factory shows that Richmond is still a tobacco town

Published September 27, 2013 by Robert Powell, III

A lot has changed since 1973 when Philip Morris USA opened its 1.6 million-square-foot manufacturing center in South Richmond, a factory that makes half of the cigarettes sold in the U.S.
At the time the manufacturing center was built:

• Thirty-seven percent of American adults smoked.
• Marlboro had just become the world’s top tobacco brand, and a ban on cigarette TV commercials had recently taken effect.
• A college student named David Beran was working on one of the factory‘s construction teams.

Today, the percentage of U.S. adults who smoke has fallen to about 19 percent, according to the Centers for Disease Control and Prevention.

Marlboro currently accounts for nearly 44 percent of cigarette sales in the U.S.

U.S. tobacco companies now are regulated by the Food and Drug Administration. Big companies including Altria Group Inc. (Philip Morris USA’s parent company) also pay about $10 billion total annually to 46 states as part of a massive 1998 lawsuit settlement.

Beran today is president and chief operating officer of Altria, which is now based in Richmond along with Philip Morris USA.

The South Richmond manufacturing center that Beran helped build now is Philip Morris USA’s sole cigarette factory. The company has spent more than $200 million in recent years buying equipment and upgrading the facility, which sprawls over 43 acres.

Production has soared from 200 million cigarettes four decades ago to 600 million a day. In a media tour of the facility in August, company officials showed off machines that can make 20,000 cigarettes a minute and an automated  storage and retrieval system for materials. Some of the facility’s equipment was transferred from a newer factory, built in 1982 in North Carolina, when the company consolidated all of its cigarette manufacturing in Richmond.

In addition to revamping the South Richmond factory and moving its headquarters from New York to the former home of Reynolds Metals Co. in Henrico County,  Altria in 2007 also opened a 450,000-square-foot, $350 million research and technology center in the Virginia BioTechnology Research Park in downtown Richmond.

All told, the company has six facilities in the Richmond area employing about 4,000 people, half of them working at the manufacturing center.

The consolidation of so many Altria operations in Richmond in recent years has reasserted the city’s longtime identity as a tobacco center.

Tobacco has been a part of the area’s economy since a hybrid plant developed by John Rolfe became the Virginia colony’s cash crop. Philip Morris began making cigarettes in Richmond in 1929.

In the early 1990s, Philip Morris was the area’s largest private employer, with more than 10,000 workers, but it eventually was passed by Capital One Financial Corp.

In the mid-1990s, the Richmond area appeared ready to take on a new identity as a high-tech center. Motorola and a joint venture that eventually became Germany-based Qimonda announced plans to build semiconductor factories in Goochland and Henrico counties, respectively.  Those announcements coupled with another chip factory planned in Manassas started talk of the Old Dominion becoming the “Silicon Dominion.”

That label, however, proved to be premature. The Motorola chip plant was never built. The other two were constructed, but the Qimonda plant shut down in 2009.

When Philip Morris USA announced plans to move its headquarters to Richmond in 2003, the news was welcomed by city leaders and a headline in the Richmond Times-Dispatch proclaimed “Tobacco Town USA.”

Today Philip Morris USA is in a slowly declining but still highly profitable business. U.S. cigarette sales are dropping 2 to 3 percent a year. (Philip Morris International, which produces cigarettes for foreign markets, was spun off by Altria in 2008.) Nonetheless, cigarette and cigar sales still account for 75 percent of Altria’s annual profit, which totaled $4.2 billion last year.

Philip Morris USA officials, however, know that many smokers want to escape a habit that is blamed for more than 400,000 deaths each year. “When we talk to cigarette consumers, we know that 40 to 50 percent want some kind of an alternative to conventional cigarettes,” says Billy Gifford, the president and CEO of Philip Morris USA.

That is why one of Philip Morris USA’s sister companies, NuMark, has begun a test market for Verve, a chewable polymer disk containing nicotine. It is being sold in convenience stores in an area stretching from Richmond to Hampton Roads.

More promising for Philip Morris USA may be an electronic cigarette, MarkTen, that NuMark has begun testing in Indiana.

The Wall Street Journal reports that sales of e-cigarettes, which turn nicotine-infused liquids into vapor, could reach $1.7 billion this year. That’s still a drop in the bucket in the $100 billion tobacco industry, but one major company, Lorillard, paid $135 million last year for Blu, a leading e-cigarette brand.

Wells Fargo Securities expects e-cigarette revenue at Reynolds American, the parent company of R.J. Reynolds Tobacco Co., to reach $4 billion by 2021, according to the Winston-Salem Journal.

The FDA plans to propose regulation of e-cigarettes possibly as soon as October, the Wall Street Journal says.

Gifford says the sales of MarkTen in Indiana will help Philip Morris USA “to understand what consumers want out of an e-cigarette. We certainly see it as small right now, but we also see it as an opportunity.”