Oatly's rich and frothy alterna-milk began pouring into the U.S. in 2016 and quickly made oat the most delicious and in-demand non-milk on the market. Its sweet taste is one of many factors that shaped the Swedish company’s trajectory, from foreign health food fad to Oatly’s Starbucks deal and $10 billion IPO.
Riding the plant-based wave into America
The “plant-based” diet has come into vogue over the last few years, partially due to the rise of the ethical consumer and brands like Impossible Foods amplifying the harmful effects of animal agriculture, which contributes around 15% of all carbon emissions. As Refinery29 writes, “plant-based” is now a shorthand for “caring about the earth.” The plant-based food market at large — over a third of which accounts for non-dairy milk products — grew 27% in 2020.
Oatly was created in Sweden in 1994 by Rickard Öste, a food scientist who’d been researching lactose intolerance and milk substitutes. It’s been on shelves in Europe for decades, but the company saw its moment to enter the U.S. just as news broke that almonds (still the source of the most popular alternative milk) make for an unsustainable, water-wasting beverage.
Technically, oat milk has been available in the U.S. since 1996 under organic brand Pacific Foods. But it was just another niche health food until it made a splash with new whimsical packaging and cheeky slogans. It's these bubbly font subway ads and Instagram graphics, declaring “It’s like milk, but made for humans," that made it a coastal millennial staple.
The demand for alterna-milk is still growing. From 2012 to 2018, non-dairy milk sales grew over 60%. The category has also rapidly diversified. Alongside oat, obscure options like macadamia, pea, coconut, pecan, quinoa, hazelnut, cashew flax, and hemp have appeared up on cafe chalkboards and grocery stores shelves. But no other alterna-milk has captured consumers like oat.
The power of product placement and hype
To reach American consumers' palates, Oatly started with the baristas. Under the direction of CEO Toni Petersson, who took over in 2012 and architected the brand’s U.S. takeover, Oatly sent cases of its barista-edition product to trendy coffee shops in major cities. Cafe and coffee brand Intelligentsia Coffee, which now has a line of packaged coffee drinks in partnership with Oatly, became Oatly’s first major launch partner. Much of Oatly’s success can be owed to its presence in barista-made foamed espresso drinks, which is how many customers first tried Oatly. Caroline Bell, a cafe-owner in NYC told TIME, “We had tried soy, almond, hemp, coconut, and nothing worked with coffee [like oat]."
Once people got hooked on the lattes, they wanted oat milk at home. In 2018, by the time Oatly was in over 1,000 coffee shops, the brand debuted in grocery stores like Wegmans, Fairway, and ShopRite, turning $110 million in sales. In 2019, Oatly was available in over 2,500 grocery stores and coffee shops.
The hype expanded with help from Oatly’s precocious advertising, new product launches (including a chocolate flavor, ice cream, “Oatgurt,” an alterna-cream cheese called “oat spread”), and social media chatter — everyone had to try it. With the “great oat milk shortage of 2018,” when demand outpaced production and cases were going for up to $200 on Amazon, Oatly’s cult following and FOMO-inducing status only intensified. By July 2019, Oatly.com's weekly web traffic reached and average of 990,000 page views, up over 500% from the previous year.
Self-aware marketing, a Starbucks deal, and the pandemic explosion
In September of 2020, after just a few years on American shelves, oat milk became the second most popular plant-based milk in the country, edging out soy, which had held first place until almond milk's big year in 2013. Oat milk sales are still small compared to almond milk, which still dominates the alterna-milk sector with 63% of the market and $1.497 billion in sales in the year ending September 16, compared to oat’s $213 million in the same period (soy fell behind with only $202 million in sales).
Oat milk exploded during the pandemic. Sales grew 300% year-over-year as of June, as people stocked up for lockdown. In March, sales rose as high as 475% year-over-year, outpacing hand sanitizer sales. Investors, who’ve been very interested in the food-tech space lately given the success of Impossible Foods, began to take notice.
Last July, Oatly picked up a $200 million investment from a Blackstone-led group that included Oprah, Jay-Z, Natalie Portman, and Starbucks founder Howard Schultz, taking a 10% stake. The deal valued Oatly at $2 billion. Oatly used some of that money (around $5.5 million) on a charmingly self-deprecating 2021 Super Bowl ad that featured the company's CEO playing piano in a field of oats, singing out of tune, “Wow! No cow.” While the ad aired, Oatly gave away T-shirts that read, “I totally hated that Oatly commercial.” This kind of self-awareness, designed to disarm people who don’t participate in food fads or plant-based lifestyles, is key to Oatly's marketing formula.
“We know how it sounds,” Oatly’s website reads. “Tall, blond, beautiful, hard to get, extremely liberal with no sense of attachment or responsibility whatsoever. Sorry to disappoint you, that’s just not us.” The ad sent Oatly’s web traffic soaring over 1,000% on the day it aired, February 8.
At the beginning of March 2021, following Oatly’s Super Bowl moment, Starbucks felt confident enough to add the still relatively niche product to its menus nationwide. Its 15,000 U.S. cafes rolled out “oat honeymilk lattes” and “iced brown sugar oat milk espressos.” Soy milk has been available at Starbucks since 1997, coconut milk was added in 2015, and almond milk joined in 2016.
Much like Starbucks in the early ‘00s, Oatly, as Bloomberg food reporter Deena Shanker recently pointed out, “has crossed the line from hip to basic.” Oatly is hoping its Starbucks deal will take the brand from a coastal elite secret to an everyday purchase for consumers across the country.
Oatly’s spot on national Starbucks menus is still new, and our retailer data shows that Oatly is currently more of a regional phenomenon. The drink's limited reach reveals itself in a ranking of the cities with the most retail locations (restaurants, cafes, grocery stores) that carry Oatly. More than twice as many retailers in New York City carry Oatly than in Los Angeles, Denver, Portland, or San Francisco. The top 10 cities are as follows:
|New York City||421|
Customers discovering oat milk at their local Starbucks could expand its reach, but for the moment, Oatly commands most attention in coastal cities with liberal reputations. It has yet to establish the same sway over mid-size cities like Phoenix, Nashville, Dallas, Boston, or Salt Lake City.
Scandals and shortages
Positioning itself as an ethical brand has been part of Oatly’s recipe for success, but convincing customers that a company can be accountable for more than profit has its challenges. Oatly found this out in September, when customers realized that the CEO of Oatly’s new stakeholders, the Blackstone Group, is none other than Stephen Schwarzman, a Trump-supporting billionaire. Both political and climate activists took Oatly off their grocery lists when news came out that Blackstone partially owns two Brazilian companies that are allegedly involved in deforestation in the Amazon.
Blackstone has denied the companies in question have interests or involvement with the accused source of deforestation, calling the claims “erroneous” and “blatantly wrong and irresponsible.” Oatly, meanwhile, acknowledged that Blackstone was an “unexpected choice” of partner, but consoled oat milk drinkers that the deal “steers capital that would’ve otherwise gone into another commercial investment into sustainability.”
The majority of customers didn’t appear to care enough to stop drinking Oatly. Sales weren’t impacted, Starbucks is still on board, and Oatly confidentially filed for a $10 billion IPO. That said, the IPO news did stir up a second minor scandal, this time about the company’s health food credentials rather than its politics. Last week, passages from an incendiary newsletter written by self-help guru Nat Eliason, titled “Oatly: The New Coke,” made the rounds online. Eliason compared Oatly’s messaging to ads from Coca Cola and the cigarette industry, which suggest that sugar and nicotine are healthy. He argued that Oatly has misled consumers by branding itself as a health food and points out that the drink’s (well-documented) formula contains canola oil and sugars with a high glycemic index that can be harder for the body to process.
It’s a testament to Oatly customers’ loyalty that the outrage-baiting article had barely been trending for a day when articles with headlines like “Please Leave Oat Milk Alone” and “Of Course There’s Sugar in Oat Milk…..” started popping up, killing the momentum of a story that could've soured its Starbucks debut and pre-IPO buzz.
Will Oatly's oat empire last?
The health panic around Oatly’s sugar was soon overshadowed by news of Oatly experiencing a second shortage, thanks to a COVID-related delay in the construction of Oatly’s new Utah factory. FreshDirect, Starbucks, and grocers in various cities have confirmed they haven’t been able to keep Oatly on shelves for weeks. So far, this story has made a bigger impact on social media than the revelation that a delicious, creamy drink contains fat and sugar.
Oatly had been working to prevent a repeat of 2018's shortage, opening two new factories since the incident including the Utah plant. The company recently announced two more factories in Singapore and England. Oatly's current shortage is inviting comparisons to Impossible Foods’ early shortages and limited production capacity, which led them to turn down a McDonalds deal that eventually went to its biggest competitor Beyond Meat. Oatly’s production issues could impact its next big deal, or the shortage could work in the brand's favor, increasing brand awareness and clout.
Oatly drinkers have shown it’ll take more than a couple weeks without their favorite cup of coffee or a minor scandal to sway them away from the brand. But while the company's oat milk market dominance is clear, more brands and alterna-milks threaten its reign. The oat milk category is predicted to hit $490 million by 2027. In 2019, soy milk stalwart Silk, greek yogurt makers Chobani, and plant-based food company Califia Farms all debuted their own oat milks. Elmhurst, a plant-based food brand, launched in 2017 with almond, cashew, hazelnut, and walnut milks. Planet Oat, which is under HP Hood, launched in 2018 and was added to the Dunkin’ Donuts menu in August.
Oatly is on the road to becoming one of the most valuable food startups in the world, but it'll have to watch out for competitors and hot new milk alternatives. (Game on, pistachios.)
About the Data:
Thinknum tracks companies using the information they post online, jobs, social and web traffic, product sales, and app ratings, and creates data sets that measure factors like hiring, revenue, and foot traffic. Data sets may not be fully comprehensive (they only account for what is available on the web), but they can be used to gauge performance factors like staffing and sales.