The Oatly Milk Alternative Strives to Become a $ 10 Billion Brand

Swedish brand Oatly surprised Americans in February with an eccentric Super Bowl ad in which its CEO sang vigorously “Wow, no cow” while playing an electric piano in a field.

Later this year, the plant-based milk maker is expected to appear on another set of screens: It planning an enrollment in New York which could value the group up to $ 10 billion.

The once niche brand’s ambition has raised eyebrows in the food industry, with one executive calling it “plant-based bitcoin.” But the group’s supporters signal a shift towards environmentally friendly products among consumers, boosting sales at Oatly, which is trying to conquer the Chinese and American markets.

Oatly was launched in Sweden in the 1990s, but growth accelerated after managing director Toni Petersson took over in 2012 and overhauled its marketing, fighting for sustainability with the dairy industry. It gained international popularity after entering the United States in 2016, focusing on coffees with its “barista edition” whose foam on cappuccinos resembles that of cow’s milk.

The buzz around the brand led to coffee shortages in 2018, but after the outbreak of the pandemic, it redirected to e-commerce and now expects its sales to double to $ 800 million this year.

Petersson described the oat milk boom as “the very beginning of the curve,” telling the Financial Times last year that its Gen Z base and millennial consumer base would have even more purchasing power in five. years.

Oatly is the best-selling oat milk among retailers in the United States, Sweden, Germany and the United Kingdom, helping oat milk to become the second-best-selling vegetable milk in the United States after the almond, beating the once popular soybean, according to the IRI, Nielsen and SPINS data groups.

Oat milk is the second most popular vegetable milk in the United States

But as demand has increased, competition has increased, leading some executives and analysts to question whether Oatly can maintain its momentum.

There are now “hundreds of brands” stacking up, said Camilla Barnard, co-founder of London-based plant-based milk maker Rude Health. “The [market] gets really crowded – there seems to be a new brand of oat milk every day. “

In addition to the multitude of start-ups, international food groups have entered the fray, including Frenchman Danone, owner of Alpro, and Nestlé, the world’s largest food manufacturer, which has plunged its foot into the fray. water with products in Brazil.

An executive of a multinational food group noted the gap between Oatly’s potential valuation and the modest multiples usually paid for agribusiness companies of about three times revenues. The figure of $ 10 billion for Oatly at a loss “almost looks like plant-based bitcoin,” the executive said.

Plant-based milk will also face competition from new technologies: entrepreneurs produce animal-free synthetic milk and dairy products using modified copies of cow DNA.

There are also questions about the nutritional value of plant milks. American medical and nutrition groups, including the American Academy of Pediatrics, have said most children under five should not be given plant-based milk because most – except fortified soy drinks – are lacking. of key nutrients found in milk.

David Julian McClements, professor of food science at the University of Massachusetts, said dairy milk had “a very good nutritional profile. Plant-based milks try to simulate the look, texture and mouth feel of real milk, but they often lack nutritional properties. “

As technology improves, plant milks will incorporate more nutrients, but they currently lack essential amino acids found in cow’s milk, while the sugars in plant milks often have different effects than lactose in milk. cow, he added.

U.S. Sales Column Chart (Million Dollars) Showing Soaring Oat Milk Sales

Oatly’s growth has been supported by funding deals that critics say run counter to its stated mission.

After the buyout of a majority stake by a joint venture between the public conglomerate China Resources and the Belgian family investment group Verlinvest in 2016, the Swedish media accused Oatly hypocrisy, citing China’s environmental and human rights record.

But Oatly’s backers underscore the growth opportunities that China Resources brings, given its ownership of thousands of stores and cafes. “The big push is going to be in China,” one said.

Daisy Li, Shanghai associate director of consumer analyst group Mintel, said China’s plant-based milk market – seen as healthy, low in fat and high in fiber – has grown rapidly. As in the United States, Oatly has grown through cafes, but also had “outstanding sales performance on e-commerce channels,” she said.

More recently, the company has faced a backlash on social media as consumers objected to a $ 200 million fundraiser. led by Blackstone, attacking the private equity group’s sustainability record and CEO Stephen Schwarzman’s support for Donald Trump.

Fredrik Gertten, filmmaker in Malmö, where Oatly is based, criticizes the company to “sell its values”. “Malmö is a small city. Everyone knows them, I know them. I am proud of the business in my own city. . . [the funding is] very disappointing, ”he said.

Oatly supporters say the controversies have not materially affected sales. After Blackstone’s investment, the company told critics, “Helping shift the focus from massive capital to sustainable approaches is potentially the most important thing we can do for the planet.”

Oatly’s venture capital backers remain enthusiastic. The company is ramping up production, with three factories operating in three countries, two more will open this year – including one in Singapore – and another in the UK scheduled for 2023.

Myrthe van Bijsterveld, director of Rabo Corporate Investments, said Rabobank will remain an investor after the float. “[Oatly’s growth] will really be out of ties like the one they have with Starbucks, and growth in the United States and China, ”she said.

For now, the company, which also counts Oprah Winfrey and Jay-Z’s Roc Nation as investors, may have scarcity value on its side in the stock markets.

Apart from Beyond Meat, which floated in 2019, the stock markets are lacking large plant protein companies, said David Gowenlock of ClearlySo, a London-based financial adviser specializing in environmental, social and ethical investments. He said: “Investors cannot support other brands of alternative dairy products, so demand for Oatly is going to be high.”

At the time of Blackstone’s backing, Petersson admitted that there would be “controversial things around us going forward,” but said Oatly had no desire to emulate the big food companies. He added, “We put ourselves out there, challenging the dairy industry, questioning how companies should think, without being a perfect company. . . [but] these are the real values ​​that we have. “

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