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Milk alternative Oatly on a quest to become a $10bn brand

The Swedish brand Oatly surprised Americans in February with an eccentric Super Bowl ad in which its chief executive lustily sang “wow, no cow” while playing an electric piano in a field.

Later this year, the plant milk maker is expected to flash up on a different set of screens: it plans a New York listing that could value the group as high as $10bn.

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

Oatly launched in Sweden in the 1990s, but growth accelerated after chief executive Toni Petersson took over in 2012 and overhauled its marketing, picking fights over sustainability with the dairy industry. It gained an international following after entering the US in 2016, focusing on coffee shops with its “barista edition” whose froth on cappuccinos resembles that of cow’s milk.

The buzz around the brand led to shortages at cafés in 2018, but after the pandemic hit, it rerouted to ecommerce and now expects sales to double to $800m this year. 

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

Oatly is the top-selling oat milk among retailers in the US, Sweden, Germany and the UK, helping oat milk become the second best-selling plant milk in the US after almond, beating once-popular soya, according to data groups IRI, Nielsen and SPINS.

Oat milk is second most popular plant-based milk in US

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

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

In addition to the raft of start-ups, international food groups have entered the fray, including France’s Danone, owner of Alpro, and Nestlé, the world’s largest foodmaker, which has dipped its toe in the water with products in Brazil.

One multinational food group executive noted the gulf between Oatly’s potential valuation and the modest multiples usually paid for food and drink companies of about three times revenues. The $10bn figure for lossmaking Oatly “almost seems like plant-based bitcoin”, the executive said.

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

There are also questions about the nutritional value of plant milks. US medical and nutrition groups including the American Academy of Pediatrics have said most children under five should not be given plant milk because most — apart from fortified soya drinks — lack key nutrients found in milk.

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

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

Column chart of US sales ($m) showing Oat milk sales soar

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

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

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

Daisy Li, associate director in Shanghai at consumer analyst group Mintel, said China’s market for plant milk — seen as healthy, low-fat and high-fibre — had grown rapidly. As in the US, Oatly has grown via coffee shops, but has also had “outstanding sales performance on ecommerce channels”, she said.

More recently, the company faced a backlash on social media as consumers railed against a $200m fundraising led by Blackstone, attacking the private equity group’s sustainability record and chief executive Stephen Schwarzman’s support for Donald Trump.

Fredrik Gertten, a film-maker in Malmo, where Oatly is based, criticises the company for “selling out its values”. “Malmo is a small town. Everybody knows them, I know them. I’ve been proud of the company from my own town . . . [the funding is] very disappointing,” he said.

Oatly’s backers say the controversies have not substantially affected sales. After Blackstone’s investment, the company told critics: “Helping shift the focus of massive capital towards sustainable approaches is potentially the single most important thing we can do for the planet.”

Oatly’s VC backers remain enthusiastic. The company is scaling up production, with three plants running in three countries, two more opening this year — including one in Singapore — and another in the UK due in 2023.

Myrthe van Bijsterveld, a director at Rabo Corporate Investments, said Rabobank would remain an investor after the float. “[Oatly’s growth] will be really out of tie-ups like the one they have with Starbucks, and growth in the US 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 equity markets.

Apart from Beyond Meat, which floated in 2019, stock markets lack large plant-based protein companies, said David Gowenlock at ClearlySo, a London-based financial adviser focused on environmental, social and ethical investments. He said: “Investors can’t back the other foodtech, alt-dairy brands, so demand for Oatly is going to be high.”

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

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