House of Prince A/S

House of Prince A/S

Tobaksvejen 4
Soborg,
Denmark
Telephone: +45 39 55 63 00
Fax: +45 39 55 63 03
Web site: http://www.prince.dk

Wholly Owned Subsidiary of Skandinavisk Tobakskompagni A/S
Incorporated: 1990
Employees: 1,726
Sales: DKK 12.66 billion ($2.15 billion) (2005)
NAIC: 312221 Cigarette Manufacturing

House of Prince A/S is Denmark's leading cigarette company, accounting for more than 90 percent of that country's cigarette sales. House of Prince is also the only cigarette manufacturer remaining in Denmark, with a total annual production of more than 12 billion cigarettes per year. The company markets a variety of cigarette brands, including the flagship Prince brand and variations such as Prince Rich, Prince Menthol, Prince Highland, and Prince Golden. Other brands include King's, Looks, and the low-priced brands Corner, North State and LIA, and the 'retro' brand Rockets, introduced in 2006. These brands have also helped House of Prince claim the lead in the Scandinavia, with a 34 percent market share. In addition to the Scandinavian market, House of Prince is also active in Eastern Europe, especially in Poland, but also in Hungary and the Czech Republic, and in the Baltic states, supported by sales subsidiaries in Estonia and Lithuania. Germany and Greece are also important export markets for the company. House of Prince represents the cigarette production and distribution wing of parent company Skandinavisk Tobakskompagni A/S (ST; Scandinavian Tobacco Company), which also includes cigar production units Nobel Cigars and JL Tiedemanns; pipe and rolling tobacco producer Orlik Tobacco Company; and convenience store operator Dagrofa, among others. In 2005, House of Prince posted sales of DKK 12.66 billion ($2.15 billion).

MERGING DANISH TOBACCO INTERESTS IN 1961

House of Prince represented the bringing together of most of the Danish cigarette industry into a single entity. The company dated its origins back to 1750, with the founding of the tobacco importer Christian Augustinus, in Amager. Another important component of the later House of Prince was founded toward the end of that same century, when C. W. Obel opened for business in Aalborg in 1787. The third major part of the later House of Prince was founded nearly 100 years later, with the creation of R. Faerchs Fabrikker, in Holstebro, in 1869. All three companies remained family operated until they merged to form Skandinavisk Tobakskompagni (Scandinavian Tobacco Company) in 1961.

The 19th century saw strong growth in the Danish tobacco industry. Imported tobaccos were increasingly supplemented by tobaccos grown in Denmark. The rising popularity of tobacco use in Denmark, and in Europe in general, during that century stimulated the growth of a true tobacco industry in Denmark and elsewhere. By the end of the 19th century, tobacco companies operated throughout the country. A major boost in tobacco consumption had come through the introduction of cigarettes to Europe after the Crimean War in the late 1850s. The Danish market was at first supplied by imported cigarettes, which remained hand-rolled into the second half of the decade. Cigarettes at the time came largely from Russia and Turkey. The first Danish company to begin producing its own cigarettes was Alder & Co, which set up a cigarette rolling workshop in Copenhagen in 1878.

The true boom in cigarette consumption did not occur, however, until the invention of the cigarette rolling machine in 1881. The new machinery dramatically changed the shape of the tobacco industry, shifting its focus from pipes, snuff, chewing tobacco and cigars to cigarettes. These in turn transformed the tobacco industry from a relatively marginal business to one of the world's major industries. The arrival of cigarette machinery in Denmark enabled that country's tobacconists to launch large-scale cigarette production as well. Among them, Christian Augustinus Fabrikker launched its own cigarette production in 1911.

Augustinus emerged as one of the country's leading tobacco companies over the next decades. The introduction of the filtered cigarette in the early 1950s, which followed on the first indications of the harmfulness of smoking, provided a new lift for Augustinus. The first Danish-produced filtered cigarette appeared in the market in 1953. Augustinus followed suit, launching its own filtered cigarette brands. In 1957, the company launched what was to become its best-selling cigarette brand, Prince. Featuring a so-called "American" blend of tobaccos, Prince enabled Augustinus to outpace its long-running rival, the Danish wing of the American Tobacco Company.

Despite its growing position in Denmark, Augustinus and its counterparts faced a new threat with the creation of the European Union in the late 1950s. In 1961, Augustinus, C. W. Obel and R. Faerchs Fabrikker agreed to merge into a single company, Skandinavisk Tobakskompagni (ST), in order to present a united front against the coming competition from foreign tobacco companies. The Prince brand became the new company's flagship brand as well as its spearhead for ST's international growth. In 1961, the company introduced Prince cigarettes into Sweden, where it quickly became a top-selling cigarette brand. By 1967, the company replicated its success in Norway, and quickly established Prince as the top-selling brand in the Scandinavian region.

RESTRUCTURING THE DANISH TOBACCO MARKET IN 1990

By the early 1970s, ST had beat out the American Tobacco Company, which had changed its name to Nordisk BAT in the interim. In 1972, ST took over its main rival. ST maintained Nordisk BAT's production operations until 1977, when the company merged its cigarette production into a single factory in Saborg. In the meantime, Denmark's entry into the European Common Market opened up new markets for the company, and especially Germany, where the Prince brand was introduced in 1972. By 1986, the Prince brand had established itself throughout West Germany. While the company had more limited success entering other markets in Europe, it nonetheless found success in Greece, which became one of the company's largest export markets.

Through the 1980s and into the 1990s, ST continued to add acquisitions. By the early 1990s, the company had acquired several more Danish tobacco companies, carrying out a de facto consolidation of the Danish tobacco industry. During the period, ST's acquisition included Copenhagen-based AM Hirschsprung & Sonner and P. Wulff, as well as E. Nobel Cigar & Tobaksfabrikker in Nykobing, among others. These acquisitions brought most of Denmark's oldest and most well-known brands into the ST stable.

COMPANY PERSPECTIVES

House of Prince (HoP) is ST's international cigarette company with sales in more than 40 countries. To a Dane, a Norwegian or a Swede, HoP is first and foremost associated with the cigarette Prince—so firmly rooted in Scandinavian consciousness that smokers in these three countries regard it as their nationally preferred cigarette brand. But HoP is far more than Prince. Today HoP is strongly positioned as a regional company with international ambitions by virtue of its flexibility and innovation. With the opening of Eastern and Central Europe, HoP has not only created new local brands of high quality but also brands which can succeed across borders.

During this period, ST also continued to develop the Prince brand. In 1979, the company launched its own 'light' brand, Prince Lights. That brand was subsequently rebranded as Prince Rounded Taste after the European Community banned the use of the word 'light' in cigarette naming in 2003. Other brand extensions launched by ST included Prince 100, introduced in 1985 and featuring the longer 100mm size. That product was followed by a light version in 1987. In 1990, the Prince brand family also added a menthol cigarette, as well as an 'ultra-light' that was subsequently rebranded as Prince Golden Taste.

By the early 1990s, the tobacco industry had come under intense pressure due to increasingly tighter restrictions. At the same time the European Community had begun preparations to eliminate borders among member nations. As a result, while fighting declining sales in its core Scandinavian market, ST also braced itself for a new level of competition for the European tobacco market. In 1990, ST restructured its operations. As part of the restructuring, ST placed all of its cigarette operations into a single, independently operating subsidiary, called House of Prince.

House of Prince continued introducing new variations of its flagship Prince brand. The company introduced a 100mm version of its ultra light cigarette in 1995, followed by a premium version, Prince Extra Ultra (later renamed as Prince Smooth Taste) in 1999. The latest addition to the Prince brand family came in 2006, with the launch of Prince Highland Taste. The company also headed off increasing competition from low-priced and generic brands, creating its own brands for those segments, including Corner, North State, and LIA.

The creation of House of Prince also enabled the company to focus on expanding its reach into the newly opened Eastern and Central European markets. During the 1990s, the company expanded quickly, setting up new sales subsidiaries in Estonia and Lithuania, as well as Poland, the Czech Republic and Hungary. The company also acquired control of operations in Latvia, bought from the Latvian government, in 2002. Another important growth area for the company was the duty-free market, including sales aboard cruise ships. The company's expansion enabled House of Prince's sales to grow steadily through the 2000s.

Into the mid-2000s, House of Prince remained the strongest cigarette manufacturer in the Scandinavian market, dominating its home market, and holding leading shares in Norway and Sweden. The company continued to seek new means of building its market share. In 2003, for example, the company launched a new "luxury" cigarette brand, Christian of Denmark, The company also targeted the young smoker market, launching the "retro" brand, Rockets, in 2006. Despite pressures on the tobacco industry, House of Prince appeared certain of strong sales for years to come.

PRINCIPAL SUBSIDIARIES

Scandinavian Tobacco (Estonia); UAB House of Prince Lithuania; Scandinavian Tobacco S.A. (Poland); Scandinavian Tobacco Company Hellas S.A. (Greece); Scandinavian Tobacco S.R.O. (Czech Republic); House of Prince AB (Sweden); Scandinavian Tobacco Hungary Kft.

PRINCIPAL COMPETITORS

Philip Morris International Management S.A; Altria Group Inc; Imperial Tobacco Group PLC; British American Tobacco PLC; Altadis S.A; Reynolds American Inc.; Austria Tabak GmbH and Company KG

KEY DATES

1750:

Christian Augustinus Fabrikker is founded in Amager.

1787:

C. W. Obel is founded in Aalborg.

1869:

R. Faerchs Fabrikker is founded in Holstebro.

1911:

Chr. Augustinus Fabrikker launches production of cigarettes.

1957:

Chr. Augustinus Fabrikker launches the Prince brand.

1961:

Chr. Augustinus Fabrikker, Obel, and Faerchs merge to form Skandinavisk Tobakskompagni (ST); the company begins sales of the Prince brand in Sweden.

1967:

The Prince brand is exported to Norway.

1972:

ST acquires Nordisk BAT; the company launches cigarette sales in Germany.

1977:

The company consolidates all of its cigarette production into a single factory in Soborg.

1990:

In a company restructuring, House of Prince becomes an independent cigarette production subsidiary.

2003:

House of Prince launches its "luxury" cigarette brand, Christian of Denmark.

2006:

The company introduces its "retro" brand, Rockets.

FURTHER READING

"Danish Tobacco Company to Conquer Sweden," Dagens Industri, January 26, 1999, p. 14.

"House of Prince and Cigars Drive ST Sales," Tobacco Europe, January-February 2002, p. 6.

"House of Prince Converts to Christian," Travel Retailer International, June-July 2003, p. 46.

"House of Prince Emerges Victorious with Tallink Store," Duty Free News International, March 15, 2004, p. 26.

"House of Prince Plans to Begin Production of Wet Snuff in Sweden," Nordic Business Report, January 9, 2003.

Lipsith, Gavin, "House of Prince Line Puts Duty Free First," Duty Free News International, May 15, 2003, p. 35.

―――――― "House of Prince Ready to Grasp Opportunity in Custom Concepts," Duty Free News International, June 1, 2004, p. 8.

"Norway: High Taxes and a Smoking Ban," Tobacco Europe, May-June 2002, p. 12.

"US Launch for Retro Rockets," Duty-Free News International, April 1, 2006, p. 23.