Already a Bloomberg.com user?
Sign in with the same account.
FROM CHUCK WAGON TO TRAIL BOSS OF MARLBORO COUNTRY
His mother wanted him to study law, but Michael A. Miles was set on being an ad man. That's how Vernon Fryburger, the retired head of the advertising department at Northwestern University, remembers the phone call from Mike Miles's mother 30 years ago. Miles was one of Fryburger's students at Northwestern's Medill School of Journalism. Says Fryburger: "She was just worried sick that Mike was going to waste his life in a field that didn't have any class."
The late Mrs. Miles surely would be happy with Mike's career choice now. On Mar. 27, the former advertising executive was chosen to succeed Hamish Maxwell as chairman and chief executive of giant Philip Morris Cos. It's an astounding victory for Miles. As head of Kraft General Foods Inc., he has been with the company only since 1989, when Philip Morris bought Kraft. And he had to beat out William Murray, a 21-year veteran of the tobacco operations, to get the top spot. As the first CEO in Philip Morris' 144-year history who didn't rise through the tobacco ranks, Miles, who favors Italian loafers over cowboy boots, isn't your typical Marlboro Man.
But then, Philip Morris isn't just a cigarette maker anymore. With acquisitions funded by its phenomenal tobacco profits, retiring chairman Maxwell has created a powerhouse hawking everything from Miller beer to Kraft cheese to Maxwell House coffee. In 1991, food will kick in 52% of $58 billion in total revenues and more than 30% of $9.6 billion in operating income, estimates Jeanie Tebault, a research analyst for IDS Financial Corp., which owns 6.2 million Philip Morris shares. Philip Morris' stock market capitalization has risen from $17 billion at the end of 1986 to $63 billion today, just behind Exxon Corp. and IBM.
'ALL HYPE'? It's up to Miles, 51, to keep the empire expanding. Many executives who know him describe Miles as a brilliant manager who can sweat the details without losing his sense of grand strategy. Others say his all-business approach makes him seem cold and distant. Worse, some wonder if Miles's specialty--wringing new growth from old brands, instead of starting new ones--will ultimately hurt Philip Morris. Says Al Ries, chairman of the marketing consulting firm of Trout & Ries, "It's all hype. Miles gets credit for line extensions, which in the end are damaging" to brands. Ries argues that too many line extensions ultimately draw customers away from core brands.
Hamish Maxwell and his board don't share those qualms. With Miles's appointment, they are signaling to Wall Street that Philip Morris will "continue to diversify and make acquisitions," says William Goldsborough, vice-president of Lincoln Capital Management, a Philip Morris investor. Aided by Philip Morris' free cash flow, which should total $18 billion through 1995 even after capital investments, Miles can easily make more acquisitions and borrow as well. Over the next five years, says Kurt Feuerman, an analyst at Morgan Stanley & Co.: "Philip Morris could raise up to $70 billion and still be investment grade."
There are problems, though. The U. S. tobacco industry is in a slow decline as activist and legislative pressures mount. Many of the brands at Kraft General Foods are mature. And Miles, who quit smoking years ago, has a lot to learn about the tobacco business while maintaining Maxwell's enviable management record. Filling Maxwell's shoes, Miles said in an interview after winning the chairman's title, will be like "succeeding Ara Parseghian at Notre Dame." Unlike Miles, Maxwell spent almost his entire career as a tobacco man.
A NATURAL. Miles may not know much about tobacco, but he has made a lifelong study of the art of running a consumer-products company. "He'd quiz me from time to time, asking what it's like to be CEO," recalls Hicks Waldron,Miles's old boss at Heublein Inc. "Mike always gravitated to the leadership position," says Huntley Baldwin, an old friend and executive vice-president of Leo Burnett Co., a Philip Morris ad agency (page 66). Baldwin recalls a mock advertising campaign he and Miles produced with other Medill students and says it seemed only natural that Miles would be the account manager.
Miles and Baldwin both went on to Leo Burnett. There, Miles distinguished himself with such accounts as Procter & Gamble Co.'s Secret deodorant. After 10 years, he moved to Heublein. Waldron, Heublein's chairman, later picked Miles to handle the crisis at the company's struggling Kentucky Fried Chicken chain. To teach his headquarters staff the rigors of running a chicken restaurant, Miles had them don aprons and work in their restaurants' kitchens for a week. Miles won over irritated franchisees to a new quality-control program of cleanliness and service after dropping a requirement that they buy costly equipment and supplies from Heublein. The franchisees still remember Miles. Pete Harman, an operator of 245 Kentucky Fried Chicken outlets, says he bought Philip Morris stock the day he learned Miles was named CEO.
FIX-IT MAN. When RJR Nabisco Inc. bought Heublein in 1982, Miles, by then a senior vice-president, jumped to Dart & Kraft Inc. as president. Together with Chairman John Richman, Miles unloaded the nonfood businesses. By adding aggressive marketing, a new-product push, and vigorous cost-cutting, the pair revived the sluggish Kraft. With the stodgy Cheez Whiz, for example, Miles had managers modernize the brand in 1986 by promoting it as a microwaveable hot sauce. Unit sales jumped 35%. Meanwhile, Miles kept his eye for detail: Former Kraft public relations manager Ella Strubel recalls Miles rewriting many of her press releases.
By 1988, Kraft--and Miles's reputation as a fix-it man--caught the attention of Hamish Maxwell, who needed someone to revitalize General Foods, a Philip Morris business since 1985. Philip Morris snapped up Kraft for $12.9 billion, and Miles jumped into handling the biggest food-company merger ever. By consolidating such functions as media buying and some purchasing, he cut out $200 million in costs.
He also attacked such problems as General Foods' Maxwell House coffee, which lost $50 million in 1989. Using better coffee beans, adding new flavors, and promoting a new premium image, Miles halted Maxwell House's slide in a declining market. Says Prudential Securities Inc. food analyst John McMillin: "Miles is great at taking perceived commodity businesses and putting some value into them."
Kraft General Foods is also well on its way to building its fat-free versions of Kraft cheese slices, Sealtest ice cream, Entenmann's cookies, and Miracle Whip dressing into a billion-dollar business by 1994. Since the merger, operating profit in the food business has risen 30% on a 16% increase in sales.
Miles's success with Kraft General Foods gave him the edge in the race to the chairman's office. Even though his company was the one acquired, "Mike was 100% with Philip Morris from day one," says board member Jane Evans. That devotion was all the more remarkable considering that corporate headhunters say Miles was often wooed for other top jobs, including the chief executive spot at RJR Nabisco. Board members and headhunters figure Miles stayed on because of the enormous challenge of merging Kraft and General Foods.
Now that he does have the top job, Miles has an ambitious goal of increasing earnings 15% to 20% a year. Some of that growth will come from Kraft General Foods. "They still have a number of underleveraged brands," says Donald Casey, president of the marketing consulting firm Landor Associates. Such older brands as Post cereal and Oscar Mayer are still being revamped. There's also room for more cooperation between Kraft and General Foods. Last fall, for example, the company ran a special promotion featuring recipes and coupons for 34 of its Kraft and General Foods brands.
UP IN SMOKE. In the U. S. tobacco market, Philip Morris has entered the low-price category with a new brand, Bucks. More important is tobacco's growth overseas. With such coups as a contract to ship to the Soviet Union, Philip Morris International Inc. is showing 15% gains in unit sales. Philip Morris has about 11% of the Japanese cigarette market and is Hong Kong's largest advertiser.
Miles says he wants the same sort of international success in foods, a goal of Hamish Maxwell's as well. "It clearly would be nice to have the equivalent of a few Marlboros in the food business," says Maxwell. That's tough to do: Tastes in food brands are notoriously regional. But Kraft General Foods has made some steady progress already, creating a European market, for example, for Philadelphia Brand cream cheese. To infuse the food executives with the tobacco managers' "aggressiveness about being a multinational company," says Miles, he is combining the international operations for food and tobacco under one executive, Geoffrey Bible. Bible, 53, won high marks for his management of the tobacco unit's overseas expansion.
More acquisitions are clearly an option. Last fall, Miles spearheaded the $4.1 billion purchase of Swiss coffee and confectionery maker Jacobs Suchard. The purchase makes Philip Morris a leading coffee marketer in Europe. Miles won't say if he is considering another acquisition soon, but analysts still speculate on other possible candidates, among them New Jersey's CPC International Inc., which has a number of overseas brands already, and Britain's Cadbury Schweppes, which is strong in confectionery products.
All of these plans will leave Miles little room for outside activities. But that's the way he likes it. Aside from reading books on business, politics, and philosophy, an occasional game of tennis, or an evening at Chicago's Lyric Opera, he spends most of his free time with his wife and two sons. Otherwise, says one friend, newly named Chairman Bruce W. Mason of agency Foote, Cone & Belding, "His mission is to grow the business, period." The pursuit of that goal has made Miles the top marketing man in the world. Sometimes mother doesn't know best.Lois Therrien in Chicago and Bruce Hager in New York, with Laura Zinn and Mark Landler in New York and bureau reports