Swisher International Group Inc.

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Swisher International Group Inc.

459 East 16th Street
Jacksonville, Florida 32206
U.S.A.
(904) 353-4311
Fax: (904) 397-9899

Public Company
Incorporated: 1913 as Jno. H. Swisher & Son, Inc.
Employees: 1,210
Sales: $275.6 million (1997)
Stock Exchanges: New York
SICs: 2121 Cigars; 2131 Chewing and Smoking Tobacco

The largest manufacturer and marketer of cigars in the world, Swisher International Group Inc. produces premium and mass market cigars, little cigars, and various smokeless tobacco products under numerous brand names, including the company’s two most famous brand names, King Edward and Swisher Sweets. In the late 1990s Swisher controlled eight percent of the worldwide market for cigars and 31 percent of the U.S. market and ranked as the leading exporter of American-made cigars. The majority of the company’s tobacco products were sold to tobacco distributors and grocery wholesalers, with the balance principally sold to food and drug chains. Domestically, Swisher manufactured its cigars in Jacksonville, Florida, and its smokeless tobacco products in Wheeling, West Virginia.

Mid-19th Century Origins

When the Swisher family entered the cigar business in the mid-1800s, they were decidedly nonplussed. Although the production and sale of cigars would enrich generations of Swishers and define the family for more than a century, they had other, more important business ventures to oversee when the patriarch of the family, David Swisher, received a small cigar business in 1861 as settlement for a debt. At the time, David Swisher was a merchant, not a manufacturer. He resided in Newark, Ohio, but was frequently on the road, where he made his living by selling merchandise from wagons that traveled across the Midwest. Swisher’s rolling stores sold a variety of dry goods, notions, and wares, to which cigars were added. But the hand-rolled tobacco products was just one of many items Swisher sold. It would take nearly 30 years before the Swisher family began treating the little cigar production facility in Ohio more seriously, and another generation before the link connecting the Swisher name to cigars began to strengthen. When that juncture arrived, the process of building the cigar business began in earnest.

Of David Swisher’s four sons, John H. Swisher took the greatest interest in the family-owned cigar business. He convinced his brother Harry to join him in taking what for decades had been treated as a sidelight business and developing it into a much larger enterprise. The pair purchased the cigar business from their father in 1888, christening their business Swisher Brothers, and immediately began directing their energies toward building a name for themselves as cigar makers. The two brothers quickly made their presence felt, taking what had been a one-room operation capable of making a few hundred cigars each day and turning it into one of Ohio’s fastest growing business. By 1895 the vestiges of the cigar company’s modest past were gone, replaced by three factories that employed more than 1,000 workers who hand-rolled as many as 300,000 cigars each day.

John and Harry Swisher continued with their joint management of Swisher Brothers for nearly 20 years after having transformed the company into a sizable producer of cigars. Their partnership ended in 1913 when John purchased Harry’s interest in the company and brought in his son Carl. The combination of father and son gave birth to a new name for the company, Jno. H. Swisher & Son, which would endure as the corporate title for much of the 20th century. Five years later the company introduced its King Edward Cigar, one of the chief revenue-generating products that would propel the company in the decades ahead. The business continued to prosper under the partnership of John and Carl, with the next milestone in the company’s history occurring ten years after the younger Swisher joined the family business. In 1923, after searching for a suitable location to establish new corporate headquarters, John and Carl settled on Jacksonville, Florida, a community close to tobacco fields and shipping facilities, where the company would be headquartered throughout the 20th century.

Along with the move to Jacksonville came a significant, forward-looking improvement in the production process for cigars. At the new manufacturing facility established in Jacksonville, the Swishers installed machinery that radically shortened production time, becoming the first cigar operators to order rolling machines. The Swishers placed their order in 1923 and in mid-1924 the “fresh work” machines were turned on for the first time. Production totals leaped upward, as mechanization ushered in the age of mass production, enabling the Swishers to produce 100 million cigars a year by the end of the 1920s. Other innovative improvements followed that again cast the company in the role of industry pioneer. Jno. H Swisher & Son became the first company to wrap individual cigars in cellophane and the first to devise a simple method for removing the wrapping by pulling the cigar band.

The Great Depression

With the addition of the rolling machines, the Jacksonville plant quickly became the flagship production facility within the Swisher enterprise, proving to be an invaluable asset in the bleak decade ahead. By 1927, as the Great Depression approached, the company’s nearly 70-year presence in Ohio had ended. The Ohio facilities established by John and Harry Swisher during the early 1890s were closed and all production was consolidated into the company’s Florida, operations. Soon afterward, the nation’s economy collapsed, sending repercussive shock waves into virtually every niche and segment of the marketplace. Businesses of every type, from retail to industrial to manufacturing, were hobbled by the devastating effects of a moribund economy. But Swisher not only demonstrated remarkable resiliency by staying in business as competitors foundered, it also recorded meaningful growth.

As companies fought to stay alive, Swisher was hiring new employees by the hundreds, yet still could not keep pace with the surging demand for its cigars. Throughout the decade-long depression, Swisher exuded a vibrancy that belied the harsh, deleterious economic times, growing vigorously while achieving important strides in advancing cigar production technology. Thanks to the company’s early move into mechanization, money-saving efficiencies enabled the company to reduce the price of its cigars, which heightened popularity of its products and bolstered Swisher’s share of the market. The King Edward Cigar, which had debuted in 1918 as a ten-cent cigar, sold for five cents each following the introduction of rolling machines and was down to two cigars for five cents by the end of the 1930s. Aided in part by these price reductions, the popularity of King Edwards soared during the 1930s. By 1940 King Edwards were the greatest selling cigars in the world and the site where they were produced in Jacksonville ranked as the largest cigar factory under one roof in the world, complete with the country’s first industrial nursery, established in 1939.

1958 Debut of Swisher Sweets

Remarkably, the Great Depression proved to be S wisher’s shining hour of achievement. A company on the rise during the 1920s exited the 1930s stronger than it ever had been before, holding sway as one of the premier manufacturers of its kind in the world. S wisher’s enviable market position at the beginning of the 1940s left it poised to reap the financial rewards of the economically thriving postwar era, when the company introduced a brand that would rival the popularity of its King Edward cigars. In 1958 Swisher shipped the first shipments of Swisher Sweets, a brand name that generations of Americans would associate with the company. Although King Edwards had served as the single most important brand for the company during the first half of the 20th century and would continue to contribute significantly to the company’s bottom line during the latter half of the century, Swisher Sweets added another powerful revenue-generating engine to fuel the company’s success, as the brand developed into the greatest selling brand of cigars in the world.

As the Swisher Sweet brand steadily won over consumers during the 1960s, the company came under the control of new owners when American Maize-Products Company acquired Swisher in 1966. A leading producer of corn wet milling products, American Maize was a publicly traded company controlled by William Ziegler III, who would control Swisher for the remainder of the century. Not long after Ziegler and American Maize took over, the cigar market in the United States reached its peak and from there began a long, downward spiral that endured for roughly two decades. Accordingly, the 1970s and 1980s were difficult years for cigar producers, an era during which a premium was placed on aggressive marketing and production efficiency. With demand slipping discernibly each year, cigar producers could not hope, realistically, to record great financial or market share gains. Instead, they fought to retain their respective shares of a dwindling market, which Swisher did well. Millions of dollars were invested in keeping production equipment on the leading edge of technology and considerable attention was paid to marketing the company’s line of cigars, including new King Edward and Swisher Sweets products introduced during the period. By the mid-1980s, after the cigar market had been contracting for more than a decade, Swisher stood on solid footing, marketing its products in more than 70 countries. Moreover, the company was financially strong enough to embark on an acquisition campaign that would diversify its tobacco business and broaden the line of cigars in its stable.

Company Perspectives:

Much of the credit for our growth goes to our sales and marketing organization, which is the best in the business. Nationwide, we have a team of 250 sales and marketing professionals —the largest in the cigar industry —that allows us to maintain our leadership position. Another advantage of being the leader is the clout we have when it comes to introducing new products. The fact that more than a quarter of our net sales are from products introduced over the past decade is a strong measure of our ability to identify and fill market needs with new products —and to get those products well positioned.

Mid-1980s Acquisitions and 1990s Growth

Swisher’s acquisition spree of the mid-1980s got off to its start in 1985 when the company acquired Tampa, Florida-based Corral Wodiska y Ca., which produced Bering Premium cigars. Early in 1986 the company completed its next acquisition, purchasing the cigar manufacturing assets of the Universal Cigar Company. With the Universal Cigar acquisition, Swisher gained a production plant in Clearwater, Florida, and well-known cigar brands Optimo, La Primadora, Santa Fe, and El Trelles. Its portfolio of cigar brands strengthened, Swisher next made a move toward diversification, acquiring the Helme Tobacco Company several months after the Universal Cigar acquisition. From Helme Tobacco, Swisher obtained the company’s smokeless tobacco products, such as Silver Creek and Redwood Moist Snuff; Lancaster, Chattanooga Chew, Mail Pouch Chewing Tobacco; and Navy, Lorillard, and Railroad Mills Dry Snuff. These products were manufactured at Helme’s two production plants in Helmetta, New Jersey and Wheeling, West Virginia, which also became part of the rapidly expanding Swisher enterprise. As these acquisitions were being completed, Swisher made another diversifying move, entering the little cigar market in late 1985 with its Swisher Sweets Little Cigars. By 1990 Swisher’s little cigar brand had become the leading seller in its market.

In the wake of the mid-1980s acquisition campaign, Swisher consolidated some of it manufacturing operations, something the company would do again during the early and mid-1990s. The production of Bering cigars was moved from Tampa to Honduras, where it became a 100 percent handmade product, and the production facility in Clearwater that was acquired in the Universal Cigar deal was moved into Swisher’s Waycross, Georgia, plant.

The 1990s brought a considerable surge of business for Swisher and its competitors, as the cigar market began to grow after decades of consistent decline. In 1973, when 11.2 billion cigars were sold in the United States, the demand for cigars began to wane, touching off a two-decade-long period of market contraction. By 1993, after perennial decreases in demand, the number of cigars sold had plummeted significantly, falling to 3.4 billion cigars sold for the year. By the end of 1993, however, the tide began to turn, as sales perked upward, invigorated by an aging baby boomer population entering their 40s and 50s. Cigar smoking quickly became a fashionable trend, particularly higher-priced, premium cigars, and demand increased significantly. Between 1993 and 1997 the cigar market grew at a compounded annual rate of nine percent, while the sale of premium cigars shot up 36 percent, lifting total cigar sales in the United States to 4.4 billion.

While the cigar market expanded, Swisher concentrated on streamlining its manufacturing operations to achieve maximum production efficiency during the cigar industry’s resurgence. In 1994 the company closed its Waycross, Georgia, plant and consolidated its operations into the flagship Jacksonville facility. Concurrently, the company’s smokeless tobacco production facility in Helmetta, New Jersey was closed and consolidated into the smokeless tobacco production facility in Wheeling, West Virginia. One year later, in December 1995, Swisher’s parent company, American Maize, was sold and, as part of the deal, Swisher was sold to Ziegler, who after 30 years of controlling Swisher was enjoying the first boom years of the cigar market since his company had acquired the cigar manufacturer in 1966.

With the cigar market continuing to expand meaningfully, Ziegler prepared for the late 1990s and the further expected growth of S wisher’s industry. In December 1996 he took the company public, raising roughly $100 million in Swisher’s initial public offering, which gave him the financial resources to strengthen the company’s already stalwart position in the cigar market. In 1997 Ziegler announced plans for a $6.5 million expansion project at Swisher’s Jacksonville plant, and late in the year he signed an agreement to purchase a 50 percent interest in SP Holding Inc., the owner of Puros de Villa Gonzales, a major producer of premium, hand-rolled cigars in Santiago, Dominican Republic. In addition, a new production facility in Honduras was opened in October 1997 to make premium hand-rolled cigars, including Swisher’s Bering brand. As Ziegler prepared for the beginning of the 21st century, further growth of the cigar market was expected, as a large percentage of the U.S. population aged and entered the most common age bracket of cigar smokers. In 1993, when cigar sales began to climb, people in their 40s and 50s composed 39 percent of the population. By 2,000 this group was expected to compose 43 percent of the population, auguring profitable years ahead for the world’s largest cigar producer.