August 27, 2003
Bans on Smoking in
Big Tobacco Courted Inmates for Decades, Yielding Reliable Funds for Many States
RIKERS ISLAND, N.Y. -- For years, inmates trekked to the commissary, off a dingy hallway here in this huge New York City jail complex, to buy cigarettes. Tobacco companies also furnished them with free T-shirts and socks emblazoned with the Kool and Newport logos. Cigarette makers gave the jail sports equipment, board games and, for a time, cash awards that funded antiviolence videos and inmate holiday parties.
Then, in April, New York City banned smoking behind bars. Alvin Mack, a commissary manager at Rikers, says he hasn't yet figured out how to replace thousands of dollars a day in lost cigarette sales. He recently added portable radios to his inventory, but no one needs a new radio every day.
Across the nation, restrictions on smoking in prisons are writing a new chapter in the long, lucrative history of the cigarette industry and one of its most devoted markets. About two million people are now incarcerated in U.S. prisons and jails, and an estimated 70% to 80% of them are smokers, according to studies by health officials of inmates in Illinois, Texas and New Mexico. That compares with 23% of the adult U.S. population at large. A store in a large prison can gross $500,000 a year in tobacco sales, double the average of a typical Wal-Mart.
In-house stores at Vermont's eight state prisons grossed about $3.4 million in tobacco sales in the year ended June 25, the state says. About a third of that, or $1.1 million, was the prison system's markup, or profit. That's money the state will lose when a prison tobacco ban takes effect in Vermont in January.
"Once you give up the cigarettes, a lot of money goes out the door," says Lawrence McLiverty, director of security for Vermont's Department of Corrections. He says cigarette profits have been used in his state to pay for recreation equipment, crafts instruction and assistance to prisoners' relatives who travel long distances for visits. The programs will probably be cut back, he says. Vermont's total prison budget is $95 million.
Concerns about the health dangers of second-hand smoke have prompted 17 states to ban cigarettes in their prisons since the early 1990s, according to the American Correctional Association, a trade group. Beyond the bans, many additional states curtail smoking by inmates, often allowing them to smoke only when they are in the prison yards. In addition, a nationwide settlement of state lawsuits banned cigarette makers, beginning in July 1999, from using clothing and sporting goods to promote their brands. Although the ban doesn't explicitly apply to prisons, the industry has followed it in that setting, too.
Smoking has long played a central role in prison culture -- a fact that didn't escape the notice of tobacco companies. The manufacturers of Newport, Kool, Camel and other brands deployed their full arsenal of marketing tools to secure space on prison-commissary shelves: free promotional clothing and sports gear; 2-for-1 deals; and, in some cases, cash "donations" to corrections departments.
Today low-end brands are making inroads into the prison market, especially those selling roll-your-own tobacco with brand names such as 4 Aces and North. Just as these cheap knock-offs are gaining market share in the free world, they are carving out a niche in the 31 states that still allow smoking behind bars, as well as in the federal system's 103 prisons.
From the turn of the century through the 1980s, wardens in many prisons gave inmates free cigarettes. Facilities in Florida, Michigan and elsewhere became cigarette producers themselves. Inmates at Menard Correctional Center in Illinois made cigarettes from the 1940s through the late 1990s. The state sold inmates its house brands, Pyramid and Southern Lights, for only 35 cents a pack, generating profits of $47,000 in 1997. The money was used to support prison work programs and other operations.
Illinois legislators ended the manufacturing program in response to the wave of lawsuits filed against the major tobacco companies in the mid-1990s by all 50 states. Illinois worried that its own cigarette operation could be seen as similar to that of the commercial manufacturers being sued. "The liability was too great," says Brian Fairchild, an Illinois corrections spokesman. "Times change."
Internal industry memos and marketing plans that surfaced as a result of the landmark state suits against the tobacco companies show that in the early 1980s, the companies began focusing more intensely on what some industry executives referred to as the "institutional market."
Four times a year during the early 1980s, Brown & Williamson Tobacco Corp., today the No. 3 U.S. cigarette maker, sponsored a "Captive Audience Prison Program" for its Viceroy brand. The company provided a five-cent discount to smokers in 12 prisons in unspecified states. An internal company document described the program as "immediately profitable" in 1983. "Test results show 450% sales increase during the promotion month and 250% increase in sustaining two months," the internal memo said.
"It doesn't take a rocket scientist to figure out that when smokers are either bored or under stress they might use more tobacco," Mark Smith, a spokesman for B&W, a unit of British American Tobacco PLC, says today.
Anthony Lindsay, a 24-year-old inmate serving 18 months for bank fraud in the federal prison in Otisville, N.Y., agrees: "These dudes don't care about pollution from smoke and butts. They care about getting by, day by day. They smoke to stay calm and avoid fights."
For much of the 1980s and 1990s, Lorillard Tobacco Co. came up with inventive ways to boost sales behind bars, according to internal company documents. The Loews Corp. unit's "Play Ball With Newport" program encouraged inmates to pass along empty Newport packs to prison officials, who bundled them together and traded them in to Lorillard for weightlifting equipment, basketballs and board games. Prisons and jails in New York, Illinois, Texas, Missouri, Georgia, Kansas and South Carolina participated, according to company documents.
In the "Great Newport Sneaker Deal," a similar program that ran from 1990 through 1997, Lorillard provided a pair of running shoes or high-tops for each batch of 300 to 400 empty packs. "It's very common to have a loyalty program based on what the retailers want," says Steven C. Watson, vice president of external affairs at Lorillard, Greensboro, N.C. "In this case, the prisons would say, 'Why don't you buy us sneakers?' "
Lorillard spent a total of about $1.4 million from 1990 through 1997 on the "Play Ball" and sneaker programs, according to a 1997 internal company document. By that year, the company's cigarettes were sold in more than 575 prisons and jails, commanding a 14.5% share of the nationwide inmate-tobacco market, the document estimated.
Manufacturers also targeted inmates with advertising. From 1994 to 1996, Lorillard spent an estimated $24,000 annually for a series of Newport ads on back covers of Prison Life, a now-defunct magazine for inmates. One Newport ad featured an African-American couple hula-hooping. An internal company media plan from that period noted that Prison Life reached a "high composition of smokers" and a "heavy ethnic" audience.
For much of the 1990s, Philip Morris USA, now a unit of Altria Group Inc., and R.J. Reynolds Tobacco Holdings Inc., the Nos. 1 and 2 U.S. manufacturers, respectively, offered price breaks on some of their brands to inmates held at Rikers Island, among many other institutions. Philip Morris, for example, provided Virginia Slims playing cards and 2-for-1 deals on its Benson & Hedges cigarettes. "History tells us that once we land business in the prison store, it's ours to keep," a 1994 internal Philip Morris memo said.
A November 1995 internal Rikers document noted that the then-18,000-inmate jail rang up annual tobacco sales of $5 million, including a 30% markup by the institution's commissary. Manufacturers offered an impressive tally of inducements to ensure their brands remained in stock. Through the "Play Ball" program, Lorillard annually gave Rikers basketballs, ping-pong paddles and other sporting goods valued at about $25,000. The company and its rivals each year donated logo-emblazoned shirts and socks valued at $20,000, according to the Rikers document.
The bequests included 500 domino sets, 500 chess and checkers games, 500 Scrabble boards, 615 footballs, 1,000 basketballs and 30 basketball nets -- all during one three-month period. Rikers also got Uno games, volleyball nets and pole sets, weightlifting equipment, gym mats and softball gear.
"Tobacco companies have viewed prisoners as a strategic market for cigarettes because inmates are an entree to a big cultural market," says Martin Horn, the former chief of Pennsylvania's prison system and since January the head of New York City's jail system, including Rikers. "Prison styles often filter out into the broader world, and to the extent that smoking is cool in prison, it will be cool on the street."
In the late 1990s, Lorillard sent company representatives to meet personally with jail-approved inmate-council leaders to discuss what free merchandise they would prefer, the company's Mr. Watson says. The meetings were set up with the assistance of jail officials, he says, but haven't occurred lately.
The Rikers document from 1995 also said that the jail was receiving $200,000 in annual cash donations to inmate programs from Lorillard and B&W. During the late 1990s, Rikers officials asked the pair of tobacco companies to shift their promotional largesse from free merchandise to cash -- sometimes referred to as "rebates" -- that flowed to the institution's coffers.
Such rebates are common among marketers trying to boost sales of their brands through retailers both inside and outside prison walls. Lorillard and B&W paid a total of more than $800,000 to Rikers during the late 1990s, according to Rikers officials. The money was used to pay for inmate-orientation videos, refreshments for law-enforcement personnel and inmate holiday parties, Rikers officials say.
City officials and tobacco-company spokesmen say the cash rebates to Rikers ended in 2001, in part because of concerns within city government about how to account for the money.
In the past two years, the major industry players have ended most of their special inmate-marketing programs. In an era of ferocious price competition in the larger cigarette market, offering special deals in prisons came to be seen as too costly, and the related paperwork too cumbersome, company officials say. "At this point in time, we don't have a prison program," says Stephen Kottak, a spokesman for B&W.
With major-brand cigarettes now costing anywhere from $3 to $8 a pack in prisons, depending on location, there is an opening for bargain-priced brands. The hottest smoking trend in many prisons is inexpensive roll-your-own tobacco, which appeals to cash-strapped inmates.
Nationwide Tobacco Inc., a closely held company in Blaine, Wash., that imports tobacco from the Philippines, touts itself as "Your Only Prison Choice!" in mailings and handouts to prison-commissary managers. Three-quarters of an ounce of Nationwide's Sixty 1 Menthol brand leaf -- enough for 20 smokes, or one pack -- sells for only 85 cents at the Mississippi State Penitentiary in Parchman. In a marketing gambit others are trying as well, the company sells its tobacco in clear plastic bags created specifically for the inmate market, so that contraband can't be hidden within.
Nationwide's sales at Parchman totaled $44,600 in 2002, its first year on that facility's commissary shelves. That was about 8% of the prison's total tobacco sales of $530,068 last year. Nationwide also sells tobacco to state prisons in Mississippi, Iowa, California and Louisiana. "We're pursuing prison sales like crazy," says national sales manager Ken Davidson. "Inmates don't complain, they don't send the tobacco back, as you'll find from retail customers." Nationwide's newest line of products includes a 8½-inch-high resealable plastic tub filled with six ounces of "extra menthol" loose tobacco.
Chewing tobacco isn't carried in all prisons stores, because guards often fear inmates may use the wet tobacco to jam locks and create other security hazards. When available, snuff and chewing tobacco are often a popular low-cost alternative to smokes. They accounted for nearly 11% of sales at the Parchman prison last year.
Barry Greenspan, president of Newark Tobacco and Candy, a wholesale supplier that buys from manufacturers and resells to state prisons in northern New Jersey, says that sales of roll-your-own have grown steadily in his region and now constitute about 35% of prison-cigarette sales. Overall tobacco demand in his region has remained constant, he says, while "a lot of inmates are switching to roll-your-own." The wholesaler adds: "Most people have other things to do. I guess the prisoners have time to roll them."
The big manufacturers have noticed what is going on. Lane Ltd., a sister unit of B&W within British American Tobacco, sells loose tobacco under the Midnight Special brand. Jim Burns, Lane's director of corporate and regulatory affairs, says that with expensive regular cigarette brands now out of the reach of some inmates, "The institutional market is big business for us."
Write to Vanessa O'Connell at firstname.lastname@example.org
Updated August 27, 2003
Dow Jones & Company, Inc. All Rights Reserved|
Printing, distribution, and use of this material is governed by your Subscription agreement and Copyright laws.
For information about subscribing go to http://www.wsj.com