How the world’s tobacco giants are preparing for fewer smokers

The tobacco industry has consistently proven its ability to adapt and thrive amidst adversity. Despite decades of litigation, advertising restrictions, tax hikes, and increasingly stringent regulations, the sector has remained highly profitable. As the world looks toward the future, the four largest listed tobacco companies – Philip Morris International (PMI), British American Tobacco (BAT), Altria, and Imperial Brands – are each exploring distinct paths to navigate the changing landscape.

While all four firms acknowledge that nicotine will continue to be a global business, their strategies vary. PMI stands out as the most advanced in its transition to smoke-free products. By 2025, smoke-free offerings accounted for 41.5% of the company's net revenue, driven by heated tobacco devices (IQOS), nicotine pouches (ZYN), and vaping products (VEEV).

With these products available in 106 markets and used by an estimated 43.5 million adult consumers, PMI is positioning itself as a predominantly smoke-free business while maintaining its traditional cigarette portfolio.

British American Tobacco (BAT) adopts a broader approach, investing in multiple nicotine categories such as vaping products (Vuse), heated tobacco devices (glo), and nicotine pouches (Velo). The company aims to become a multi-category nicotine business, with smokeless products expected to contribute an increasing share of revenue over time.

BAT has set an ambitious goal of becoming a predominantly smokeless business, with over 50% of revenue coming from smokeless products by 2035. However, combustible cigarettes remain the largest business segment and continue to generate the necessary cash flow to support investments in newer categories.

Altria, unlike its global competitors, focuses almost exclusively on the United States market. Its Marlboro cigarette business continues to dominate earnings, but the company has shifted its strategy towards a "Moving Beyond Smoking" approach. This strategy aims to transition adult smokers to a smoke-free future while competing for existing smoke-free adult nicotine consumers and exploring new growth opportunities beyond the United States and nicotine.

Imperial Brands presents perhaps the clearest vision of the industry's future direction. Its 2030 strategy emphasizes generating sustainable value from combustible tobacco while simultaneously building scale in next-generation products. Rather than viewing newer products as replacements for cigarettes, Imperial sees them as a second engine for future growth, complementing its traditional tobacco portfolio. The company describes its strategy as acting as a challenger brand in the market.

Despite declining smoking rates in many developed countries, tobacco companies remain attractive long-term investments for many. The industry's economics have historically proven resilient due to strong brands, significant pricing power, and high barriers to entry. Tobacco consumption is relatively price-inelastic, meaning that price increases can compensate for falls in sales volumes.

Strict regulation has also made it difficult for new competitors to enter the market, further solidifying the dominance of established global players.

While the four companies differ in their strategies, none predicts the immediate disappearance of traditional cigarettes. Instead, combustible tobacco remains the financial foundation from which each company is investing in newer nicotine products. As the global tobacco industry undergoes transformation, South Africa presents a unique challenge. The country has become a prominent example of how illicit cigarette trade can disrupt an industry, causing significant tax losses.