How The World’s Tobacco Giants Are Preparing For Fewer Smokers

The tobacco industry has always been remarkably good at reinventing itself.

It survived decades of litigation, advertising bans, tax increases and ever-tightening regulation while remaining one of the world's most profitable consumer industries. Now it is facing another challenge: what comes after cigarettes?

The latest annual reports from the world's four largest listed tobacco companies – Philip Morris International (PMI), British American Tobacco (BAT), Altria and Imperial Brands – suggest there is no single answer.

Each company believes nicotine will remain a global business. But each is betting on a different route to get there, with BAT predicting that there will be 20 million less adult smokers by 2028.

PMI: Betting on a smoke-free future

If one company appears furthest through the transition, it is PMI.

Smoke-free products accounted for 41.5% of the group's net revenues in 2025, driven by its IQOS heated tobacco devices, ZYN nicotine pouches and VEEV vaping products. Rather than presenting these as side businesses, PMI now treats them as core growth engines alongside its traditional cigarette portfolio.

Smoke-free products were available in 106 markets by year-end and were used by an estimated 43.5 million adult consumers as cigarette volumes fell 1.1% in 2025.

The company continues to describe its long-term ambition as becoming a predominantly smoke-free business, while acknowledging that conventional cigarettes remain an important part of its operations.

BAT: Building a multi-category business

British American Tobacco is taking a broader approach.

Alongside its established cigarette brands, the company continues investing in Vuse vaping products, glo heated tobacco devices and Velo nicotine pouches. Its strategy is built around becoming a "multi-category" nicotine business, with smokeless products expected to account for an increasing share of revenue over time.

“We will deploy our global multi-category portfolio to actively encourage adult smokers – who would otherwise continue to smoke – to Switch to Better nicotine products, and continue to seek long-term opportunities Beyond Nicotine in Wellbeing and Stimulation, realising the multistakeholder benefits of A Better Tomorrow,” it says in its 2025 annual report.

(Better Tomorrow is trademarked.)

BAT also noted that its “commitment is demonstrated by our ambition to become a predominantly smokeless business, with over 50% of our revenue from Smokeless products by 2035”.

Combustible cigarettes, however, remain the group's largest business and continue to generate the cash needed to support investment in newer categories. The illegal cigarette trade locally has forced the closure of its Heidelberg operation, with 35,000 direct and indirect jobs lost.

Altria: Reinvention at home

Unlike its global rivals, Altria is almost entirely focused on the United States.

Its Marlboro cigarette business continues to dominate earnings, but the company has repositioned itself around a strategy it calls "Moving Beyond Smoking". Moving Beyond Smoking is trademarked.

“We have a leading portfolio of tobacco products for U.S. tobacco consumers age 21+. We are Moving Beyond Smoking, by responsibly transitioning adult smokers to a smoke-free future, competing vigorously for existing smoke-free adult nicotine consumers and exploring new growth opportunities - beyond the United States and beyond nicotine,” it said in is annual report of its vision.

Investments in NJOY electronic vapour products and on! nicotine pouches reflect its view that adult nicotine consumers are increasingly looking beyond traditional cigarettes.

The transition, however, remains at an earlier stage than that of PMI.

Imperial: One strategy

Imperial Brands, which sees itself as a challenger brand, has perhaps the clearest description of where it believes the industry is heading.

Its 2030 strategy rests on two pillars: continue generating sustainable value from combustible tobacco while building scale in next-generation products.

Rather than positioning newer products as replacements for cigarettes, Imperial presents them as a second engine for future growth while continuing to maximise returns from its traditional tobacco portfolio.

“Our strategy is built around the simple idea that, as the smallest of the global tobacco and nicotine businesses, we are at our best when we behave as a challenger,” its 2025 annual report said.

Investors still pay attention

Despite declining smoking rates in many developed countries, tobacco companies remain favourites among many long-term investors.

In an earlier investment note titled Peering Through the Smoke, Allan Gray argued the industry's economics have historically been unusually resilient. Strong brands, significant pricing power and high barriers to entry have enabled major tobacco companies to continue growing profits even as cigarette volumes declined.

“Of the companies we research, the tobacco industry has some of the best structural fundamentals. Tobacco consumption is relatively price-inelastic, which means that price increases can make up for falls in sales volumes,” its note said.

Strict regulation has also made it difficult for new competitors to enter the market, reinforcing the dominance of established global players. Those characteristics continue to shape today's transition.

While the four companies differ in strategy, none suggests traditional cigarettes will disappear overnight. Instead, combustible tobacco remains the financial foundation from which each is investing in newer nicotine products.

The threat

While the global tobacco industry is focused on transformation, South Africa presents a different challenge. The local market has become one of the world's most prominent examples of how illicit trade can reshape an industry.

An IOL investigation last year found that illegal cigarettes have become a multi-billion-rand business, depriving the fiscus of billions in tax revenue, fuelling organised crime and exploiting weaknesses in regulation and enforcement.

According to a parliamentary reply by Finance Minister Enoch Godongwana, as many as 70% of cigarettes sold in South Africa may now be illicit, resulting in annual tax losses exceeding R27 billion.

The investigation also highlighted how the illicit cigarette trade has evolved beyond tax evasion. Researchers from the Institute for Security Studies said revenues from the trade have been linked to organised crime, corruption and other illicit activities.

The other side

The commercial story exists alongside a very different public health one.

According to the World Health Organization, tobacco kills more than seven million people every year, with more than 1.6 million deaths linked to exposure to second-hand smoke. The organisation estimates there are about 1.2 billion tobacco users worldwide, most of them living in low- and middle-income countries.

WHO maintains that all forms of tobacco use are harmful and continues to advocate measures aimed at reducing tobacco consumption globally.

“All forms of tobacco use are harmful, and there is no safe level of exposure to tobacco. Cigarette smoking is the most common form of tobacco use worldwide. Other tobacco products include waterpipe tobacco, cigars, cigarillos, heated tobacco, roll-your-own tobacco, pipe tobacco, bidis and kreteks, and smokeless tobacco products,” it said.

The organisation added that “early nicotine use can increase the likelihood of long-term dependence and future use of other nicotine and tobacco products. Nicotine use also increases cardiovascular risk.”

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