Chapter 26, Part 2

By Frank Tursi, Susan E. White and Steve McQuilkin
JOURNAL REPORTERS
© 1999 Winston-Salem Journal

The scientists in the Research and Development Department at RJR were given a new assignment in 1982: re-create the cigarette.

The R.J. Reynolds Tobacco Co. was once the largest cigarette company in the United States with a powerhouse of best-selling brands: Winston, Salem and Camel. But times changed, and as the case against smoking became more pronounced in the 1960s, RJR failed to adapt to the marketplace. Its rivals would eventually rush past it, and RJR's efforts to catch up would have a profound impact on the company and the cigarette industry.

J. Tylee Wilson, the president of R.J. Reynolds Industries, told his team that he wanted a breakthrough technology and advised them to go slow. A revolutionary concept, he said, had only one shot at success. ''One of the rules we had was you can't afford to go through any yellow lights,'' Wilson said in 1989. (Wall Street Journal footnote, Wilson quote.)

The new product, said Jerry Long, the president of Reynolds Tobacco for most of this time, would have to produce almost no tar and secondhand smoke, little nicotine and a fraction of the toxic compounds found in regular cigarette smoke, yet look, feel and light like a regular cigarette. ''It had to have all the imagery and perceptions of a cigarette,'' he said.

It was a tall order that couldn't be filled by the standard methods that cigarette companies had perfected over the years to lower the tar and nicotine yield of an average cigarette. Cigarette designers had taken those technologies -- expanded tobacco, reconstituted tobacco, porous paper and the like -- as far as they could without drastically changing the taste of their cigarettes.

Producing just another low-tar cigarette wasn't going to solve any of RJR's problems anyway. Vantage, the company's first cigarette in that category, did well after its debut in 1970 and led that segment of the domestic cigarette market for seven years. But it had been overtaken by Philip Morris' Merit in 1979. RJR's ultra low-tar cigarette, Now, hadn't gone anywhere since its rollout in 1975.

Project Spa was meant to develop something far different -- a truly safer cigarette, regardless of whether the marketing boys could call it that. It turned out to be a no-tar cigarette because nobody knew what else to do. The scientists working on the project, explained Sam Simmons, didn't know how many of the thousands of chemicals found in cigarette smoke needed to be removed in order to make their new cigarette less hazardous. ''In the case of Premier (the name chosen for the new brand), we just took tar to the floor,'' said Simmons, RJR's director of smoking and health. ''Without a target, you just take everything down. Everybody in this building who was working on this project was frustrated by the lack of a scientific objective, an objective measure that could show or prove unequivocally that we had produced a safer cigarette,'' he said.

Neither did Premier follow the normal one-step-at-a-time R&D procedure. Usually, lab scientists would perfect a cigarette design before manufacturing trials began. Once that step is completed, the cigarette would be tested by consumers. Premier, though, had a big budget and would eventually keep more than 300 people busy working on several steps simultaneously. While the cigarette design was proceeding, for instance, engineers in manufacturing were trying to come up with the machines to make it without knowing all the details.

All this activity was kept very quiet, said Ed Horrigan, to ensure that RJR's competitors didn't get wind of the project. ''We were not doing anything that was incorrect. But it was such an earth-shattering development, that product concept then, that you had to keep a very tight lid on it,'' said Horrigan, the chairman and CEO of Reynolds Tobacco at the time. ''It was like D-Day in World War II. So the secrecy surrounding D-Day was the secrecy surrounding Premier.''

This veil was also thrown over the company's board of directors, which Wilson purposely kept in the dark because he couldn't be sure that a director wouldn't slip up at a cocktail party or make a call to The Wall Street Journal.

Later, in forcing Wilson out as chief executive of RJR Nabisco, board members cited his lack of trust in them and his failure to tell them about the project's development costs, particularly the money Wilson spent to build a pilot plant on Shorefair Drive. ''The money spent developing Premier was not a big expense for Reynolds,'' Wilson maintained. ''It was nothing. The pilot plant cost $7.8 million. What's the big deal?''

It cost Wilson his job, though, and paved the way for F. Ross Johnson, who wasn't known for his deliberate, cautious approach. After being filled in on Premier, Johnson immediately saw its potential as savior, as the company's ticket to the top again. Long said: ''I heard him say that if you develop an Oreo that looked like an Oreo, tasted like an Oreo but didn't have any calories. . .. You could imagine.''

Such a breakthrough, Johnson said, would do wonders for the company's stock, which seemed locked in neutral at around $50 a share when Johnson took over as CEO of RJR Nabisco i 1986. The stock, he told everyone, would go no higher unless the company did something exceptional. Premier was it. Though the price of RJR stock would increase to $64 a share during Johnson's first year at the helm, the new boss had set his own personal target of $100 a share.

Premier obviously couldn't perform such wonders locked in company labs. It had to be on the street where smokers and Wall Street analysts could marvel at it.

Long and others involved with the cigarette's development started throwing up those yellow lights that Wilson had talked about. Some flaws, such as the taste and smell of the smoke, seemed fatal. The cigarette tasted especially bad if lit with matches or regular lighters. The impurities created by anything but a high-quality butane lighter settled as black specks on the filter and affected the taste. The smell when a Premier was first lit could be overpowering. A cigar smoker, Johnson thought the cigarette tasted fine, but even he recognized a foul odor when he smelled one. He once indelicately described the smoke from a Premier as smelling like ''a fart.''

Then there was what was known in-house as ''the hernia effect.'' Lighting a Premier quickly didn't always ignite the full quarter inch of paper surrounding the carbon tip. Although it appeared lit, the cigarette actually was suffocating itself. The smoker could suck like crazy but get only a small amount of smoke.

Another major problem: No one knew quite how to make them in a factory. The company had only produced small quantities of Premiers for research. Normal cigarettes are assembled in two parts, but Premier required simultaneous assemblage of four parts, and the carbon tips had the unnerving habit of falling off.

''I will tell you right now on a stack of Bibles (that) never, never at the earliest in the minds of anybody who had anything to do with that project -- in R&D, in engineering, in manufacturing and in marketing -- was that project to go out into the marketplace before 1995 or 1996,'' Long said.

Even Wilson, as a parting piece of advice, cautioned Johnson to go slow. ''Please listen to Jerry,'' Wilson said ''He knows what he's talking about.''

Johnson wouldn't hear of it. He was a Ferrari zooming through a parking lot of Chevrolets and considered yellow lights as mere ornaments and red lights nothing more than suggestions. He took Premier out of Long's hands and entrusted it solely to Horrigan, another hard-charging go-getter. ''The fact is that we never, never could reach that taste, and consequently Ross shoved the project down Ed Horrigan's throat and said, `You're going to market,' '' Long said.

Johnson's market date of June 1988 passed as company scientists worked feverishly to solve Premier's many problems. He gave them four more months to iron things out.

• Coming Saturday: Firing Blanks