April 2026: New Zealand Cigarette Market Under Pressure as Illicit Trade and Vaping Weigh on Industry Performance
British American Tobacco (BAT) and Imperial Brands have reported weaker financial results, highlighting mounting structural pressures on New Zealand’s legal tobacco market, including a rapidly expanding illicit trade, high excise taxes, and accelerating consumer shifts toward alternative nicotine products. BAT New Zealand indicated that profits roughly halved between 2024 and 2025, with revenue declining nearly 29% year-on-year from NZ$254 million to NZ$180.7 million. Similarly, Imperial Tobacco New Zealand reported declines in both revenue and profit, reinforcing the industry-wide nature of the slowdown. The weakening financials for legal tobacco companies occur even though smoking rates themselves have reached a floor. According to recent data, the proportion of the population identifying as daily smokers has stabilized, plateauing at 6.8% over the past three years.
BAT, Imperial Brands and Philip Morris International (PMI) have linked this deterioration in performance to the escalating presence of illicit tobacco. A new study conducted by FTI Consulting, and commissioned by the three tobacco majors, found that the illicit market is growing aggressively. In 2025, 33.5% of all tobacco consumed in New Zealand was estimated to be illicit, meaning one in every three cigarettes is now illegal. This marks a sharp upward trajectory from 27.2% in 2024 and 23.6% in 2023. Notably, illicit Chinese brands alone are estimated to account for 16% of all cigarettes consumed in the country. While New Zealand Customs managed to intercept 7.7 tonnes of illicit tobacco across 1701 separate seizures, the sheer volume of the underground market is severely impacting the Governments books.
Illicit tobacco market is estimated to cost the government NZ$817 million in lost excise and goods and services tax revenue last year. This fiscal strain was clearly reflected in the recent Budget. Despite average consumption remaining relatively stable, actual excise receipts up to March 31, 2026, were NZ$210 million, or 17.1%, below the same period from the previous year. The shift is striking when looking at how legal volumes are being displaced. Total consumption of legal and illicit tobacco fell by 9.3% between 2024 and 2025, dropping from 1377 tonnes down to 1249 tonnes. However, within that total, legal tobacco consumption plummeted by 17.2%, while illicit tobacco consumption grew by 11.7%, capturing more than a third of the remaining market.
The New Zealand Initiative argued that high excise duties, amounting to NZ$26.2 per pack, remain the primary driver pushing consumers away from legal retail and into the illicit market. In response, the tobacco industry continues to emphasize the need for stronger enforcement, including a dedicated illicit tobacco taskforce, tougher penalties, retail licensing, and stricter action against non-compliant outlets.
