Over the past few years, the global tobacco industry has seen a massive shift. The old-school tobacco market—dominated by traditional cigarettes—has been challenged by the rapid rise of alternative products like Heat-Not-Burn (HNB) devices and vapes, quickly becoming the go-to choice for many smokers. These new products are shaking up the competition in the tobacco world, reshaping both the industry’s structure and the way profits are distributed across the chain.
The traditional tobacco industry has its roots firmly planted, with massive tobacco companies running the show. From the farming and cultivation of tobacco leaves to the manufacturing of cigarettes and their eventual distribution via retail networks, the structure of this market has remained largely unchanged for decades. But with the evolution of consumer preferences, there has been a shift toward these modern alternatives.
New-age tobacco products, like HNB and vape, have emerged as modern, potentially safer alternatives. They’re taking over more and more shelf space, creating new market dynamics and, perhaps more importantly, new ways of distributing profits across an evolving value chain.
HNB Industry Chain: A Closer Look at the New Wave of Tobacco Products
The HNB market is currently split into two clear territories: overseas and domestic markets. Overseas, the focus has been on brands like IQOS, whereas domestically, regulations have meant that production and sales are tightly controlled.
The Global HNB Industry Chain: IQOS Leading the Way
IQOS, developed by Philip Morris International, is the dominant player on the global stage. It’s a key example of how the HNB business operates and provides insights into the industry’s structure.
1) Raw Materials and Components
IQOS products require several key materials, including tobacco, heating sticks, electronics, and battery systems. The tobacco sticks, commonly referred to as HEETS or Marlboro (yep, the same brand you’d find in cigarettes), are made by Philip Morris International themselves. The batteries and electronics, which are essential for the device’s operation, are typically produced by partners like Panasonic.
2) Manufacturing and Assembly
The manufacturing process is split into design and production. The device itself is developed and produced by Philip Morris, while companies like Venture and Flex serve as original design manufacturers (ODMs), helping to produce parts for the heating sticks. Some secondary manufacturers like Yingqu Technology specialize in making plastic components, including heating rods and charging shells.
3) Marketing and Distribution
After production, distribution kicks off. In many countries, Philip Morris collaborates with local distributors to bring IQOS to market, ensuring a smooth introduction into the target region. In some countries, the distribution is managed by subsidiaries or licensed partners.
The Domestic HNB Landscape
Unlike the overseas market, where companies like Philip Morris dominate, the domestic HNB market is highly regulated. The main tobacco company controls most of the market share, making it tough for new players to break in. For instance, leading tobacco producers are responsible for both sourcing tobacco leaves and manufacturing heating sticks.
However, the industry has started to open up in certain areas, with some parts of the manufacturing process being outsourced to companies capable of developing devices, while others focus on creating flavors for the tobacco sticks.
Currently, HNB products are banned from retail sales, though some non-tobacco versions are allowed to be sold. These restrictions prevent most companies from capitalizing on the burgeoning domestic market. On the bright side, exports are still possible through specialized platforms, offering a glimpse of potential growth in the future.
Vape Industry Chain: A Rapidly Expanding Market
On the other hand, the vape market is perhaps even more dynamic. Fueled by innovations like nicotine salts, which make vaping more satisfying and accessible, the vape industry is quickly growing in popularity, especially among younger audiences.
The Global Vape Industry: From JUUL to Relx
JUUL, a pioneer in the industry, revolutionized the vape market with its nicotine salt technology, taking it from a niche product to one that now competes directly with traditional tobacco. JUUL’s success isn’t just about innovation in technology—it’s about making vaping a mainstream product.
1) Materials and Components
Vape products are made from several key components, including batteries, atomizers, and flavored e-liquids. A company like EVE Energy plays a key role as one of the global suppliers of lithium-ion batteries for e-cigarettes. Meanwhile, companies like McWell are crucial players in the atomizer and ceramic coil market.
For the e-liquids, companies like Huabao and Borton supply the essential flavorings and nicotine solutions. These brands ensure that e-liquids come in a variety of flavors, from fruity options like mango and berry to more traditional tobacco-like blends.
2) Manufacturing and Design
Much like HNB devices, vaping products are produced via OEM and ODM models. While some vape brands like JUUL, RELX, and Smok handle product design, others rely on manufacturers to bring their concepts to life. Ivieplus and AIVIP are major manufacturers, with some focusing on developing smarter devices that feature apps and even temperature control to enhance the user experience.
3) Distribution and Sales Channels
The vape industry is largely dependent on online sales, but physical retail is a growing segment. Brands have started creating dedicated stores, where consumers can experience the products firsthand before making a purchase. Online platforms also play a huge role in helping expand their reach.
Vape products are marketed heavily on social media, with brands targeting younger audiences through platforms like Instagram, TikTok, and YouTube. The accessibility and ease of use make these devices even more attractive to younger smokers looking to switch from traditional cigarettes to a less harmful alternative.
The Fast-Growing Global Vape Supply Chain
As the vaping industry continues to expand, the manufacturing hubs are mostly concentrated in places like Europe, which is home to hundreds of vape production factories. These factories produce everything from basic starter kits to high-end devices, offering a wide range of choices for consumers.
Despite the abundance of production facilities, competition is stiff. The market is now dominated by a handful of brands that have established themselves as industry leaders. However, there is still room for innovation and disruption, especially when it comes to new flavors, improved nicotine delivery systems, and smarter technology.
The Impact of Vape and HNB on the Global Tobacco Market
Both HNB and vape are causing traditional tobacco companies to rethink their strategies. With public health concerns and smoking bans becoming more stringent worldwide, many smokers are looking for alternative options that are less harmful. HNB devices and vape products, as “safer” alternatives, have quickly gained traction.
Countries like Japan are leading the charge. With smoking rates falling dramatically and consumer preferences shifting toward reduced-risk products, Japan is a prime example of how HNB and vape are being accepted on a large scale. In Japan, sales of HNB products like IQOS have grown steadily, contributing to a significant portion of tobacco sales in the region.
However, these markets still face challenges. Strict regulations and taxes are just one of the hurdles these products need to overcome. For instance, in some regions, there are high excise taxes on HNB products, while vape liquids are subject to flavor bans and usage restrictions in other countries.
What’s Next for the HNB and Vape Markets?
Looking ahead, the future of HNB and vape products seems bright but not without its hurdles. As regulations become clearer and markets become more saturated, companies will need to focus on product innovation, such as new flavors and technology, to maintain consumer interest.
The potential for a shake-up in the global tobacco market is enormous, especially as more smokers explore alternatives like HNB and vape. For companies in this space, focusing on quality, safety, and appealing to new consumers will be key to maintaining growth in a competitive market.
As this shift continues to unfold, the rivalry between traditional tobacco giants and these innovative newcomers will only intensify. Whether it’s new technology or better flavors, there’s no doubt the battle for the future of tobacco is only just beginning.
