Spotlight on Big Tobacco’s Smoke-Free Shift
Almost ten years after the first tobacco company committed to becoming smoke-free, how close are leading players to achieving their goals of at least partially replacing combustible cigarette sales with novel nicotine products? In this two-part series, we examine the leading players’ strategies, the key drivers of success, as well as the future challenges and opportunities across the categories of e-cigarette products, heated tobacco products (HTPs) and modern oral nicotine.
Roughly two decades after Chinese entrepreneur Hon Lik introduced the first e-cigarette, the global market for novel nicotine products is projected to reach nearly $77bn in 2025, according to ECigIntelligence estimates. While still significantly smaller than the global combustible cigarette market – valued at approximately $872.8bn by Statista in 2025 and steadily declining since the early 2010s – novel nicotine categories have demonstrated consistent growth in both value and volume.
This trend is expected to persist. Since 2020, when the market stood at $30.29bn, the global new nicotine segment has achieved a compound annual growth rate (CAGR) of approximately 20% across all three categories. Among these, nicotine pouches (in the modern oral category) have shown the strongest growth, with a projected CAGR of 56% between 2020 and 2025, followed by vape products at 20% and heated tobacco products (HTPs) at 17%. ECigIntelligence projects that by the end of 2025 there will be 135m users of novel nicotine products globally.
Vaping is expected to be the most valuable next-generation product (NGP) category in 2025, with an estimated global market value of $36.52bn, followed by HTPs at $34.62bn and nicotine pouches at $7.52bn. Importantly, no single category holds dominance worldwide. Instead, category performance varies significantly by market, driven by a mix of cultural preferences, public health policies, regulatory environments and tax frameworks.
NGPs: mostly a high-income-countries phenomenon
To date, NGPs remain largely concentrated in highly developed economies, although tobacco manufacturers seek to expand market share with more affordable NGPs developed for low- and middle-income countries (LMICs), where about 80% of the world’s currently around 1.1bn smokers live. These countries continue to be dominated by traditional combustible tobacco, with alternative nicotine products such as e-cigarettes, HTPs and nicotine pouches only gradually gaining a foothold.
The expansion of these categories across LMICs shows considerable regional variation, shaped by a complex interplay of factors, including economic conditions, cultural norms, and laws and regulations around tobacco products. Consumer awareness, product accessibility, affordability and strategic investment by multinational tobacco companies also play major roles.
Regulatory frameworks are a decisive influence on NGP market development. As of April 2025, nearly 30 LMICs, including major markets like Brazil, India and Argentina, had implemented bans on reduced-risk products.
According to the 2024 Global State of Tobacco Harm Reduction report, around 54% of the world’s adult population live in jurisdictions where nicotine vaping products are legally available, while 36% reside in countries where they are prohibited. HTPs are legally accessible to 36% of the global adult population, whereas 50% live in countries where they are banned. The legal status of nicotine pouches follows a similar pattern, with 35% of adults living in countries permitting their sale and 50% in countries where they are prohibited.
Many of the countries that restrict or ban the sale of NGPs fall into the LMIC category and are signatories to the World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC). Owing to limited financial and technical resources for conducting independent evaluations of reduced-risk products, LMICs often rely heavily on WHO guidance, which has consistently advocated against tobacco harm reduction approaches. In this context, banning NGPs rather than implementing regulatory frameworks frequently emerges as the most straightforward path to FCTC compliance.
Varying progress on smoke-free paths
The four leading international tobacco companies – Philip Morris International (PMI), British American Tobacco (BAT), Japan Tobacco International (JTI) and Imperial Brands – have been instrumental in accelerating NGP adoption through substantial investments in research, development and marketing. Each has adopted a multi-category approach to varying degrees, reflecting a strategic pivot away from combustibles in response to evolving consumer preferences.
They are also actively working to introduce NGPs in LMICs, adapting their strategies to navigate complex regulatory landscapes and meet diverse local consumer needs. PMI, for instance, has expanded the availability of its smoke-free products to more than 90 markets in all, with a substantial minority of them being in LMICs, and BAT has introduced nicotine pouches in LMICs such as Kenya and Pakistan.
In their efforts to future-proof their business models by building portfolios of potentially less harmful products, tobacco companies have achieved different levels of progress. It is worth noting that only two of the four – PMI and BAT – have set specific targets for phasing out combustibles.
PMI, which in 2016 became the first major tobacco company to declare its ambition to become a smoke-free business, appears to be on track. In the company’s full-year 2024 financial results, novel nicotine products accounted for approximately 38% – or nearly $15bn – of PMI’s total net revenues, climbing to 40% in the fourth quarter alone. CEO Jacek Olczak reported during an earnings call that in PMI’s top five markets by operating income, around 60% of net revenues were smoke-free. The company estimated that by year-end 2024, 38.6m adults were using its smoke-free products worldwide.
However, whether PMI will meet its target of becoming a majority smoke-free company by the end of 2025 – or reach two-thirds smoke-free status by 2030 – is uncertain. Morningstar analysts have described the latter goal as “lofty”, projecting that novel nicotine revenues will approach the 50% threshold by 2028.
BAT, meanwhile, has set a target to become predominantly smoke-free by 2035, aiming for smokeless products to account for more than 50% of total revenue. The company also seeks to reach 50m consumers by 2030. In its full-year 2024 results, BAT reported that NGP revenue totalled £3.43bn ($4.56bn), representing 17.5% of total revenue – up one percentage point from 2023. However, BAT includes sales of traditional oral tobacco products, mainly moist smokeless tobacco, in its calculation; adjusted, the company’s NGP revenue stands at 13.3%.
Some analysts have suggested that BAT would be better off setting a more realistic and meaningful target – for example, 40% of revenue from NGPs by 2033 – and said that setting the right objective could be “the very first step for BAT to restore the investor confidence in its ability to succeed in transformation to NGPs”.
BAT said it had gained 3.6m new users in 2024, bringing its total NGP consumer base to 29.1m adults.
Neither JTI nor Imperial Brands has explicitly committed to a smoke-free future, yet both have publicly supported and invested in alternatives to combustible products. JTI, aiming to become a global leader in reduced-risk products, reported revenue of JPY299.6bn ($18bn) from such offerings in fiscal 2024, accounting for 9.5% of its total revenue. The company noted that NGP sales grew more than 20% year-on-year.
Imperial Brands generated £335m ($445.71m) from NGPs in 2024, equating to 4.1% of its total net revenue. During the company’s Capital Markets Day on 26th March 2025, chief strategy and development officer Murray McGowan reiterated that combustible products are expected to remain dominant in the industry. According to the company’s projections, combustibles will still account for 75% of total industry net revenues by 2030 – and continue to serve as its primary revenue driver.
Seeking opportunities in a volatile landscape
As the tobacco industry’s pivot towards NGPs gains momentum, one central question looms large: can these alternatives truly offset the decline in combustibles sales – and if so, for whom and under what conditions? While progress is undeniable, it is far from uniform. Market dynamics, consumer acceptance and regulatory clarity are still deeply fragmented across geographies and product categories.
Crucially, looming policy shifts are poised to redraw the map. With the European Union preparing its next Tobacco Products Directive (TPD3), companies face increasing scrutiny over flavours, marketing practices and product innovation. At the same time, many LMICs are aligning with the WHO’s hardline stance against tobacco harm reduction, raising the stakes for global expansion strategies.
In this volatile landscape, tobacco companies are under pressure not only to accelerate innovation but also to navigate an increasingly complex and restrictive regulatory environment. The next part of this series will examine how leading players are advancing their positions in the vaping market – and what these moves reveal about the future of the industry.
