The ripple effect spreading from the continuing onslaught against the tobacco industry probably won’t crest into a tidal wave, say industry watchers, but it’s definitely beginning to resemble a seiche.
Although the $50 billion domestic tobacco industry insists that it will be business as usual even if tobacco becomes regulated as a drug under the Food and Drug Administration, the proposed FDA regulations would be one more blow to an industry already besieged by huge lawsuits, whistle-blowers handing over internal company papers and a growing attitudinal change among Americans toward smoking.
President Clinton is expected to approve final FDA regulations on Friday. They are expected to ban all vending machine cigarette sales; restrict illustrated tobacco ads in youth-oriented magazines; ban brand-name tobacco sponsorship of sporting events; prohibit billboard advertising within 1,000 feet of schools and playgrounds; and require tobacco companies to fund a $150 million-a-year antismoking educational program geared toward teens.
The erosion of tobacco’s popularity is reflected by Minnesota Mining & Manufacturing Co.’s decision earlier this year that its Media Networks Inc. subsidiary will stop accepting all billboard advertising contracts for tobacco products in 1997, as well as the gradual demise of the cigarette vending machine industry.
The recent jury award in Florida of $750,000 to an ex-smoker with lung cancer stunned the industry, and attention is now riveted on a similar case in Indiana.
Just this week, Kansas, Arizona, Oklahoma and Michigan joined the ranks of 10 other states that have each filed multimillion-dollar suits against tobacco companies, seeking to recover what they spent through public health and welfare programs treating smoking-related illnesses.
Although financial analysts, such as Roy D. Burry of Oppenheimer & Co., on Thursday reiterated a “Buy” rating on Philip Morris Cos., the long-term impact on the industry and the pension and mutual funds that hold tobacco stocks could be substantial.
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Since Aug. 8, the day before the Florida jury decision was announced, Philip Morris stock has tumbled from $105.50 a share to $86.75 Thursday, a 17.7 percent drop. Stock of RJR Nabisco, the nation’s second-largest tobacco company, has dropped even more sharply on a percentage basis, 22 percent, from $32.25 to $25.12 Thursday.
As expected, North Carolina’s Sen. Jesse Helms has lashed out at any FDA jurisdiction, claiming that President Clinton is declaring war on people with tobacco-related jobs.
According to a 1995 Price Waterhouse survey prepared last year for the industry-funded Tobacco Institute, some 468,000 people depended on the industry as suppliers, wholesalers and retailers in 1990, in addition to the 200,000 tobacco-growing and manufacturing jobs in 1990.
“Cigarettes was one of the main reasons people like my father got into the (vending machine) supplier business, probably 35 percent of his business came from cigarette machines,” says Vince Gumma, vice president of Elk Grove Village-based American Vending Sales, a vending supplier for Illinois and parts of Indiana and Iowa.
Today, Gumma says, less than 1 percent of his business is in cigarette machines. “The only ones left are in lounges and taverns. Commercial locations don’t want them anymore.”
Just getting a new vending machine would be a problem today. Most manufacturers have stopped making cigarette machines in favor of snack foods and drink dispensers.
“We saw the downward trend, and discontinued making cigarette machines altogether in the early 1990s,” said James Radant, marketing manager for Automatic Products, St. Paul.
While the gradual shutdown of vending business is symptomatic of what’s happening domestically to tobacco, it’s also a factor cited by analysts and tobacco proponents as to why FDA regulations will have little real effect. The FDA is expected to ban all vending machine cigarette sales.
“The FDA is making a big deal about vending machines, but only 1 percent of the entire United States market comes from vending machines,” said analyst John Maxwell of Wheat First Butcher Singer in Richmond, Va.
“If the FDA were to ban smoking, that would be one thing. But I can’t get too excited about this,” he said.
Jesse Helms may lament the possible loss of tobacco-related jobs, but the current smoking climate is certainly increasing work for lawyers.
Last August, after the FDA recommendations were released, the major tobacco companies filed suit claiming the FDA has no legal basis for regulating tobacco. It’s expected that once the regulations are issued, manufacturers will immediately seek an injunction.
Six groups representing the advertising industry under the Freedom to Advertise Coalition also filed suit in North Carolina federal court last August, seeking to block the FDA regulations.
Attorney John Fithian, representing the coalition, said amended complaints would be filed when final FDA regulations are approved. Some $500 million is spent on tobacco advertising a year, according to Hal Shoup, executive vice president of the American Association of Advertising Agencies.
Although the recent drop in tobacco stock prices could have an immediate adverse effect on the big holders of the stock, it could also prove a powerful lure for bargain hunters given the fact that, regardless of litigation or regulation, millions of people here and abroad will continue to buy cigarettes.