Tobacco in Malaysia

Tobacco in 2024: The big picture

In 2024, tobacco in Malaysia was heavily influenced by the unstable local economic outlook, which saw consumers prioritising affordability in the face of increased cost-of-living and rising inflationary pressures. This economic environment led to a significant trend of trading down, with many consumers shifting from mid-price to economy cigarettes. The volume sales of premium products, such as cigars and cigarillos, contracted as these items became less attractive due to their higher price points. In response, heated tobacco incumbent Philip Morris introduced the new Iqos Iluma range, which featured more distinct price tiers to appeal to a broader spectrum of consumers. To further incentivise the adoption of these new devices, trade-in cashback was offered at select chained convenience stores, helping to subsidise the transition from older to newer Iqos models. These strategies were crucial in maintaining consumer interest and loyalty, especially as the economic pressures continued to mount.

2024 key trends

Retail volume sales of cigarettes returned to 2022 levels at the end of the review period, following a marginal contraction in 2023. However, growth was modest due to heightened competition from smoking alternatives such as heated tobacco and e-vapour products. The share of illicit tobacco trade marginally fell, due to strict compliance control and vigorous enforcement actions by the Royal Malaysia Police and the Royal Malaysian Customs Department. Beyond the cost-of-living pressures that drove local consumers to prioritise affordability, the developing economy created a growing demand for migrant labourers, who, due to their lower purchasing power, were more likely to purchase economy cigarettes. This demographic shift significantly contributed to the growth of economy cigarettes in 2024, as the population of migrant labourers expanded. These trends were important because they highlighted the dynamic interplay between economic conditions, regulatory enforcement, and demographic changes, all of which influenced consumer behaviour and market performance, necessitating strategic adaptations by tobacco companies to remain competitive.

Competitive landscape

The competitive landscape of tobacco in Malaysia continued to be characterised by the strong presence of established players and the strategic moves of emerging brands. British American Tobacco (Malaysia) Berhad retained its strong leadership of cigarettes, maintaining a robust presence across all price points, from premium to economy. However, JT International Tobacco (M) Sdn Bhd continued to challenge this stronghold, particularly in the economy segment, where it gained significant share through its LD brand. This shift was important as it highlighted the increasing importance of economy cigarettes in a market where affordability remained a key concern for local consumers. Meanwhile, Philip Morris (Malaysia) Sdn Bhd, the dominant player in tobacco heating products, expanded its cross-category presence by launching VEEV NOW, a single use e-vapour product, and VEEV ONE, a cartridge-based system, at its Iqos specialist stores. These new products will likely help Philip Morris gain share in the growing e-vapour space, demonstrating the company's commitment to diversification and innovation to meet evolving consumer preferences.

Retail developments

In 2024, the retail landscape of tobacco in Malaysia was marked by the leadership of convenience stores for cigarette sales, driven by the channel’s widespread availability across urban and suburban areas. These stores enhance accessibility through long operating hours and strategic locations near residential areas, transport hubs, and workplaces, which are integral to the daily routines of mobile residents. For e-vapour products, vape specialist stores remained the primary channel, although convenience stores saw some gains as major tobacco companies leveraged their existing distribution networks to increase reach to mass consumers. Brands such as RELX and other incumbents also expanded their presence in convenience stores, reflecting the growing importance of these outlets for this category.

What next for tobacco?

Over the forecast period, the tobacco industry in Malaysia will face significant regulatory changes that will reshape market dynamics and consumer preferences. With the recent enforcement of Act 852, manufacturers of e-vapour products will be compelled to restructure and reformulate their product offerings. Closed vaping systems will be restricted to a maximum of 3ml of nicotine liquid, while open vaping systems will not exceed 15ml. These limitations aim to curb the appeal of vaping to younger demographics, as the Ministry of Health plans to impose further flavour restrictions under the Control of Smoking Products for Public Health Act 2024. These measures will likely reduce the variety and accessibility of flavours, which have historically been a key driver for attracting new users, particularly non-vapers and minors. Consequently, demand for e-vapour products may decline as the product range becomes more limited and less appealing to a broader audience.