Building sale, jobs in Reynolds transformation

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by Jordan Green

Reynolds American announced the sale of its headquarters in downtown Winston-Salem and plans to produce e-cigarettes in Tobaccoville back to back last week.

Reynolds American’s back-to-back announcements last week — that it is unloading its historic 1929 headquarters building while adding jobs in Tobaccoville to produce e-cigarettes — marks another step in its transformation from a company fused into the identity of Winston-Salem to a suburban manufacturing concern.

The company has already donated 28 acres and several buildings to the Wake Forest Innovation Quarter, a biotech research complex on the eastern flank of downtown that provides the city with an essential part of its new identity, both as a producer of knowledge-based jobs and a catalyst for redevelopment. That includes the Bailey Power plant, which is envisioned as a mixed-use complex for office, retail and dining.

With the exception of the company’s headquarters up the block on North Main Street, the sale of the historic Reynolds Building completes the company’s withdrawal from downtown Winston-Salem.

The 22-story art deco building was completed in 1929 and served as a model for the larger Empire State Building in New York City. On May 22, Reynolds American announced an agreement to sell the building to PMC Property Group and Kimpton Hotel & Restaurants for $7.8 million for conversion into a boutique hotel with a restaurant and luxury apartments.

The next day, with Gov. Pat McCrory at her side, Reynolds American CEO Susan Cameron announced the company’s decision to invest millions of dollars in the suburban Tobaccoville facility and hire an additional 200 workers to produce the new Vuse electronic cigarette. Most of the jobs will be manufacturing positions at an average salary of $40,000, Cameron said, and the company plans to start hiring in the next few weeks.

“In all honesty we did look at other locations when we were considering where to expand our operations,” Cameron said. “But when it came right down to it we believed that the skilled manufacturing workforce right here in North Carolina and the business climate that our state works hard to support, that there was no choice, the choice was very clear.”

Reynolds American’s RJR Vapor division piloted sales of the Vuse digital vapor cigarette in retail outlets in Colorado in 2013 and then expanded into Utah in the first quarter of 2014. Based on the strength of sales in Colorado and Utah, the company plans to roll out distribution across the nation in the middle of the year.

The success of Vuse is crucial to Reynolds American’s long-term sustainability, and the timing is critical.

“If the national launch of Vuse (which has been in limited distribution to date) is not successful, or is significantly delayed, RJR’s Vapor e-cigarette business could be at a significant disadvantage to other e-cigarette manufacturers, making it difficult for RAI to capitalize upon this potentially expanding category of alternative products, which could have an adverse effect on” operations, cash flows and the financial position of the company and its subsidiaries, the company wrote in its most recent annual report submitted to the Securities and Exchange Commission.

The annual report continued, “If RJR Tobacco’s cigarette market share continues to decline, and if RJR Tobacco and RAI’s other operating companies are not able to develop, market or produce new market products to replace past and any future loss of the cigarette market share and declining cigarette sales, then there could be an adverse effect” on the company’s bottom line.”

Cameron said Vuse is the bestselling brand of e-cigarette in Colorado and Utah, by a significant stretch.

“Clearly, smokers are trying and sticking with Vuse in a way that no other Vapor product has been successful in doing,” she said. “And you might say, why is that? And that is because Vuse is a superior product that can deliver against adult smokers’ expectations. Vuse delivers the perfect puff from the first time through to the last time, every time.”

Cameron added, “And if the response form the adult smokers in the other 48 states is anything like what we’ve seen in Colorado and Utah, we have got a big winner on our hands.”

Reynolds American spokesman David Howard said he didn’t know when the company last used any of the downtown production facilities that are now being repurposed by the Wake Forest Innovation Quarter. But the company phased out production at the Whitaker Park facility on the north side of Winston-Salem from 2010 through 2011, according to a company filing.

“That just goes along with what you’ve seen with a decline in adult smokers that’s been going on for more than 20 years,” Howard said. “With that decline you don’t need as much production. When you reach that point where we were able to meet those volume needs it made sense to consolidate a handful of years ago at Tobaccoville.”

Howard said all of Reynolds American subsidiary RJR Tobacco Co.’s cigarette products are made at Tobaccoville, a 2 million-square-feet facility that turns out 80 billion smokes per year. The American Spirit brand, made by Reynolds American subsidiary Santa Fe Natural Tobacco Co., is produced in Oxford, NC.

Baker said the vast majority of e-cigarettes made by Reynolds American’s competitors are produced in China.

“We have a state-of-the-art manufacturing facility in Tobaccoville,” he said. “We have the capability to meet consumer demand, and our business decision is to use the facilities we have right here.”

Cameron hammered at the company’s recent mantra — “transforming tobacco” — at the press conference announcing the new job.

“Today is a day about transformation — transformation of an industry, transformation of a manufacturing facility, transformation of our community and state and, potentially, transformation of lives,” she said.

While there might be a degree of hyperbole in Cameron’s statement, Reynolds American’s two moves last week delivered dividends to multiple constituencies.

The sale of the Reynolds Building promises to continue the economic revitalization of downtown Winston-Salem, a priority for the Democrat-controlled city council.

“Just yesterday we announced the transformation of our old headquarters building into a new luxury hotel and apartment building,” Cameron said, “a transformation that will also bring jobs to this community.”

The suburban Tobaccoville facility is located in legislative districts represented by state Sen. Joyce Krawiec and state Rep. Debra Conrad — both Republican lawmakers.

Despite the declining demand for tobacco products, Reynolds American remains integrally entwined in the identity of Winston-Salem, and even North Carolina. For Gov. McCrory, the addition of 200 new jobs helps make the case for his “Carolina comeback,” and he took advantage of the announcement to tout his philosophy of “customer service” to the state’s corporate citizens. “What we promised when we came into office more than a year ago, not only were we going to recruit new companies to North Carolina, but we thought the biggest payback was expanding existing companies who have already invested in North Carolina,” he said. “You often get a bigger bang for your dollar in working with your current customers and getting them to expand.

“They’ve made this decision with no incentives,” the governor added. “And that’s a real tribute to this area, to the labor market, to the economic conditions of North Carolina and to the management team making an economic decision that’ll be valuable both to RJR and also very valuable to the state of North Carolina and to the people of North Carolina.”