The amazing international growth of Oatly
The amazing international growth of Oatly – now a hyper growth lifestyle brand
The Oatly brand growth story is an amazing one. After 20 years of relatively low and stable revenues to 2014, a sleepy Swedish oat milk has transformed itself into a hyper-growth, lifestyle brand (see below). The company’s IPO in May 2021 valued the brand at an eye-popping $10billion: 24 times revenues (a PE ratio is impossible as Oatly is loss-making). For perspective, Danone’s $46billion
Initially, Oatly focused on the cholesterol-lowering health benefit of oat milk versus other dairy alternatives like soya. The problem with this approach was that “Oatly would dig itself deeper into a small functional niche where the focus would be the infighting between plant-based alternatives.
However, a change of leadership in 2012 led to a change of strategy and a market definition including non-dairy and dairy drinks. This opened up huge growth opportunities for Oatly, as milk is still a much, much bigger market. In the US, for example, Oatly has driven the rapid growth of oat milk to c.$250million and has a 40% share.
But this is only 13% of the dairy alternatives market, which
Under the leadership of Toni Petersen, Oatly clarified, crystallised and visualised their positioning.
In contrast to the scientific approach focused on health benefits used before, Oatly positioned itself as an ‘activist brand’ on a mission to take on the big dairy players head-on.
The core target was people for whom a plant-based diet was a lifestyle choice based on a belief in sustainability, not a rational habit-based purely on health benefits.
Driving distribution supported by core range extension
The first and most fundamental way Oatly has used distribution to drive growth is geographic expansion.
For the first 20 years of the brand’s history, sales were mainly in the home market of Sweden. In 2013, the brand expanded into the UK and also Germany. This expansion drove EMEA sales from $103m in 2018 to $268m in 2020, accounting for almost 2/3 of the brand’s revenue.
The US followed in 2016, with limited distribution growing to 7,000 shops and 5,000 grocery stores in 2019. the US is growing fast, more than doubling in 2020, to now account for 24% of sales (below). The most recent expansion is into China, with Asian sales growing 5x in 2020 and presenting a huge growth opportunity.
Oatly’s global expansion will be helped by now having a proven market entry model. The brand can show how it has successfully led growth of the oat milk category, especially in the UK and Germany. In these markets, Oatly has driven oat milk growth significantly ahead of other dairy alternatives like soy and almond. Impressively, oat milk has now overtaken soy and almond in both these to now be the leading form of dairy alternative.
What is then impressive is how Oatly have driven this distinctive visual identity consistently through every single channel to create impact. Whether it be outdoor posters, social media or events, the Oatly brand imprint is immediately obvious.
Rather than go all guns blazing in mass retail from the start, Oatly initially focused distribution in coffee shops. This move included cool, trendy independent coffee shops. But the brand also signed a distribution deal in the US with Starbucks. This drive in coffee shops had a couple of benefits.
First, this created an ‘immersive trial’, where people try the product for the first time in an aspirational, emotionally appealing setting.
“If you were able to take the recommendation of your local barista and try an expertly prepared latte, that would be a really amazing way to be introduced to Oatly,” explains General Manager Mike Messersmith.
The second benefit was that Oatly was “fishing where the fish are”. Lots of younger people interested in plant-based food and drink hang out in coffee shops, so this was an ideal channel for driving trials.
Second, the Barista version was a key enabler of the coffee shop distribution drive discussed earlier. Baristas loved the texture and taste of the Oatly product, which felt designed for them. Demand was so strong that it outstripped supply, creating what one barista called “The great Oatly shortage of 2019”.
Cases of Oatly, normally costing $50, were sold on Amazon for $200+ creating more buzz and word-of-mouth.
In April 2020, Starbucks announced the introduction of Oatly in all stores in mainland China. From January to April 2020, Oatly sales on Tmall and Taobao grew 115% and 2,306% year-on-year, respectively. At present, China’s plant-based drinks are the fastest-growing beverage category, with a compound growth rate of 24.5% during the period from 2007 to 2016. The total size of the industry was $40 billion in 2020.
After their entry into China, Oatly offers their products in more than 10,000 coffee shops in mainland China. That includes Starbucks, which is the world’s largest coffee chain, Pacific Coffee and several boutique coffees shops in first-tier cities.
The coffee shop strategy has been an important strategy of Oatly, from Sweden to Europe, the United States and China. They first used coffee shop channels to enter the markets and build brand and reputation, and then took advantage of that to open the markets and explore opportunities to enter other channels.
When Oatly entered the Chinese market, their main focuses were targeting the young consumer segment. Most of these young people are people with overseas study and living experience. This group is not only highly professional and self-cultivated, but also interested in healthy life, environmental protection and other fields. Using social media to communicate with the target group, Oatly could reach the young consumers and share their values with them.
Oatly’s CEO, Toni Petersson stated that he believed that China would be Oatly’s biggest and most important market in the next three to five years.
He also switched the packaging copy from Swedish to English so no matter where it was sold, many people could read it.
This allowed Oatly to reach not only the U.S., but a global audience.
Oatly products can be now found in about 8,500 retail shops and some 10,000 coffee shops in the United States.