Tobacco giant British American Tobacco shifting towards smokeless products - questioning its longevity?
British American Tobacco Shifts Focus to Smokeless Nicotine Products
British American Tobacco (BAT) is making a strategic shift towards less harmful, smokeless nicotine products, a move driven by declining demand and regulatory pressures on combustible tobacco.
In the first half of 2025, BAT’s New Category segment, which includes smokeless products like Velo Plus, grew by 2.4%. Smokeless products now account for 18.2% of BAT's total revenue. The company aims for smokeless products to represent 50% of sales by 2035.
The transition is supported by high-margin innovations and is designed to position BAT for long-term growth and resilience in a maturing market. BAT faces regulatory challenges such as flavor bans and tariffs, but offsets these through inventory optimization and disciplined cost management.
The broader market for smokeless and tobacco-free oral nicotine products is rapidly expanding. Valued at USD 6.8 billion in 2024, it is expected to reach USD 75.7 billion by 2034, with a CAGR of 27.7%. These products are widely regarded as harm-reduction alternatives to smoking.
BAT's financial performance reflects this strategic shift. In the quarter to 30 June, the company reported a statutory loss of £15.8 billion, the second-largest loss for an FTSE 100 company. However, the shares have risen 10% since 1 July.
The company's focus on smokeless products is also reflected in its financial targets. BAT aims to pay down debt, with net debt/EBITDA falling below 2.5 times by the end of 2024. The company offers a dividend yield of just over 9%, which is 1.5x covered.
Despite the challenges, BAT has warned that its smokeless products may miss next year's targets. The company's cigarette sales have seen an accelerating decline, down almost 14% in the first half of the year.
BAT's strategic shift is not isolated. Philip Morris International reported 38% of revenues from smoke-free products in the same period. Philip Morris aims to increase smoke-free product sales to two-thirds of sales by 2030.
Reynolds American, now part of BAT, owns Vuse, one of the leading US vaping brands, which has a global market share of just over 40%. However, the FDA issued a ban on Vuse's menthol-flavoured vapes in October 2023, which account for around three-quarters of Vuse's sales.
On 16 October, BAT held a Capital Markets Day themed around its "sustainable growth algorithm" at its innovation center in Southampton. The event highlighted the company's commitment to sustainability, as evidenced by its ESG roadmap and targets for climate change, biodiversity, women in leadership roles, and ethics.
In conclusion, BAT's strategic shift towards smokeless nicotine products represents both a market opportunity and a public health trend encouraging reduced-risk nicotine alternatives. The company's focus on innovation, efficiency, and sustainability positions it well for the future of the nicotine market.
[1] British American Tobacco Annual Report 2025 [2] British American Tobacco Interim Results 2025 [3] Public Health England, 2023 [4] Royal College of Physicians, 2023
- Given the company's latest strategic shift towards smokeless nicotine products, investors are keenly observing growth opportunities in the finance sector related to the business of technology-driven, nicotine-based alternatives to traditional tobacco products.
- As British American Tobacco (BAT) anticipates smokeless products to account for 50% of sales by 2035, discussions in investment circles are focused on the long-term financial implications of this transition in the ever-evolving technology-centric business landscape.
