Growth by Vertical Integration: Food and Tobacco

The companies listed in Appendix A provide an objective and com- prehensive sample of big business in America. They are the corporate leaders in American industry in 1917 . By that time those enterprises were already producing over a quarter of the net manufacturing output in the United States.3 Their collective history reveals much about the growth of modern business enterprise and about the evolving structure of the indus- tries in which they operated.

This review first describes the patterns of change between 1900 and 1917 and then analyzes them. The following sections describe develop- ments by industrial areas in which enterprises capitalized at $20 million or over clustered. They focus on the six industrial (two-digit SIC) groups — food, oil, chemicals, primary metals, machinery, transportation equip- ment—in which 17 r of the 236 operated, and on the four-digit industries in the two-digit tobacco, rubber, stone-glass-clay, paper, fabricated metals, and electric machinery groups in which 42 such firms were listed. The only industrial areas not considered in this description are those groups in which only 23 of 236 of the firms in Appendix A operated. These last were the groups in which a great majority of manufacturers remained small, single-unit enterprises that continued to rely on existing marketers to sell and distribute their products.

Food and tobacco. Food and tobacco provide a good starting point. In these groups (20 and 21 in Appendix A), along with the machinery group, the modern industrial enterprise had its beginning. In 1917 there were 35 food enterprises with assets of $20 million or over. Only primary metals, with 39, had more. The pioneering enterprises in the food indus- tries were still strong and flourishing. In fact, most of the 35 firms had been formed before 1900 and a sizable number before 1890.

Among the largest in the group were the early processors of perishable products—meat packers (Armour, Swift, Wilson, Morris, and Cudahay), and brewers (Anheuser Busch and Schlitz). By 1917 , United Fruit (listed under agriculture), American Ice, and Booth Fisheries operated comparable distributing networks with refrigerated facilities. However, the production processes at American Ice and Booth Fisheries were not of sufficient volume to give them an advantage over smaller local competitors. Both quickly lost their place among the nation’s largest industrials. In fact, Booth Fisheries, according to Livermore, failed financially.

The pioneering producers of low-priced packaged goods manufactured by means of continuous-process machinery were still the leaders in their industries. Quaker Oats, Washburn-Crosby (flour), Heinz, Borden’s, Libby, and Coca-Cola all continued to prosper. Indeed the only new firm of this type to be formed after 1900 was California Packing (Del Monte), a 1916 merger of local canning companies that built a nationwide marketing organization and an extensive—if more regional—purchasing network.4

The early mergers were also much in evidence. American Cotton Oil and its competitor, Southern Cotton Oil, still dominated their industries. Distillers-Securities remained the country’s leading firm in its industry. By 1917 American Sugar Refining was competing with the 5 other large and integrated sugar companies on the list. By then, too, such turn-of-the- century mergers as Royal Baking Powder and United States Milling (later Standard Milling) had followed National Biscuit and Corn Products in transforming themselves from federations of single-function, family firms to centrally administered, integrated business empires. In chewing gum, American Chicle became Wrigley’s major competitor, but only after it had put together its worldwide marketing and buying organization. Indeed, both American Chicle and Wrigley’s became multinational in the sense of owning and operating facilities overseas.5 For example, American Chicle held 3 million acres in Mexico where it produced raw materials, and operated factories in Great Britain and Canada.

Well before 1917 , nearly all the large food companies in the United States had concentrated production in a few large plants and had their own extensive buying and marketing departments. Nearly all had an overseas sales network and several had built plants abroad. If they did not buy their raw materials from American farmers, they usually came to control part of their own sources of supply. Many, including the meatpacking, brewing, cotton oil, and sugar companies, owned their own ships, fleets of railway cars, and other transportation equipment. And in nearly all of their specific industries these leaders competed with each other in an oligopolistic manner—by advertising, branding, and assuring prompt and regular service rather than by price. In all these concentrated food industries the pioneers remained the leading firms.

In tobacco, the American Tobacco Company remained all-powerful until 1911 , when it was broken up by a Supreme Court decision. Then the three new companies—Reynolds, Liggett & Meyers, and P. Lorillard— quickly built their own marketing and purchasing organizations. The four integrated firms continued to dominate the cigarette industry. In 1925 they accounted for 91 . 3 percent of the cigarettes produced in the United States, and they continued to increase their share of the market as the century passed.6 Two other enterprises that were founded at the same time and for much the same reasons—Diamond Match and Eastman Kodak— continued to handle their giant’s share of the industry’s trade until long after 1917 . (They are listed in groups 38 and 39 in Appendix A.)

Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.

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