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The Spoon

Daily news and analysis about the food tech revolution

oat milk

Oat Milk Pioneer Oatly Raises $200 Million on $2 Billion Valuation

Oatly, the Swedish company that pioneered the oat milk category back in the 90s and reinvented itself as a global plant-based food brand in 2013, announced today it has received $200 million in funding on a $2 billion valuation led by the Blackstone Group.

The deal is further validation that venture investments in plant-based alternatives is red-hot despite the pandemic. Alt-dairy is especially hot, as Oatly’s funding comes after a $225 series D in Califia Farms, a maker of a variety of alt-milks, back in January.

The company plans to invest the funding in expanding its production capacity and personnel in North America, Europe and Asia. From the release:

The injection of capital will fund the company’s overall growth plans, which include expansion in current markets and new production plants and related jobs in Europe, the United States and Asia. By bringing facilities closer to consumers, the company will make the Oatly product range more readily available to the growing community of health and environmentally conscious consumers worldwide.

Investment in additional production capacity comes on the heels of the launch of the company’s first production plant last year in Millville, New Jersey. That plant, which cost $15 million to build, produces roughly 750 thousand gallons of oat milk base per month which is, apparently, not enough.

The rapid growth in demand for Oatly shouldn’t be surprising. Prior to the addition of the production plant last year, you could find speculators trying to sell 12 packs of Oatly barista edition online in the US for $200. Add in oat milk’s eye-popping growth in 2019 and you can see why investors have put such a high valuation on a company with an almost cult-like following.

In addition to the Blackstone Group, other investors on the round include high profile individual investors like Oprah Winfrey, Natalie Portman, and Howard Schultz as well as Orkila Capital and Rabo Corporate Investments (the investment arm of Rabobank).

The Blackstone Group investment in Oatly is led by Blackstone Growth, an investment vehicle within the private equity group. Blackstone itself is one of the largest private equity firms in the world, owning a diverse array of companies ranging from dating app company Bumble to hotel chains (they own both the Bellagio Resort and Motel 6 budget motel chain) to drug companies like Ferring.

Blackstone’s investment in a sustainable brand like Oatly is a new turn for a company that saw some controversy in 2019 after one of the firm’s investment holdings, a Brazilian logistics operator named Hidrovias do Brasil, was accused of deforesting the Amazon to help make way for a highway into the jungle to access one of the company’s terminals.

Quaker Discontinues Oat Beverage Line in Cautionary Tale for Big Food

Less than a year after launch, Quaker has discontinued its Oat Beverage product line. According to FoodNavigator, the product was made with oat bran concentrate and contained more fiber, less sugar, and fewer calories than competing oat milk brands.

We don’t know all of Quaker’s motivations for dropping their Oat Beverage line. Maybe the oat milk market was already too saturated. Maybe it was a miscalculation for Quaker to emphasize heart health, not taste — the number one purchasing motivator for younger consumers. Maybe consumers were already brand loyal to smaller companies like Oatly, which brought the oat milk craze to America.

Quaker is owned by PepsiCo, so it’s also possible that purchasers, especially younger demographics who are leading the plant-based dining movement, wanted to support smaller brands with stronger emphasis on the environment (like Oatly) instead of a gigantic food corporation. We’ve written about this conundrum — whether or not consumers will buy disruptive products from Big Food corporations — in terms of the plant-based meat space. But the issue is just as relevant for other animal alternatives like dairy.

There’s also a simpler explanation: maybe Quaker’s oat milk just didn’t taste that good. The Spoon’s Managing Editor Chris Albrecht tried the Quaker Oat Beverage earlier this year and said that the consistency was “super thin” and not as creamy as its competitor Oatly. At SKS 2019 (on a panel with Oatly’s Bjorn Oste!), Dr. P.K. Newby noted that taste is the “primary driver” for the success of a plant-based product, followed by brand authenticity.

Most likely, Quaker Oat Beverage’s fail was a result of all of the above. It goes to show that if Big Food creates fast-follower products to tap into disruptive trends, like plant-based dining, it’s got to be very strategic. It can’t just churn out a copycat product and call it a day. Consumers aren’t dumb and most of them will happily pay a few extra bucks or go out of their way to find their favorite brands if the ones from major CPG companies come up short in terms of taste.

If Big Food wants to attract buyers away from Oatly — or Beyond and Impossible, for that matter — they might consider putting more emphasis on sustainability, or just all-out purchasing smaller disrupter startups. Above all, they have to ensure that their offerings taste amazing. Otherwise there will be a lot more Big Food products joining Quaker Oat Beverage in the graveyard of plant-based fails.

I Tried Oatly’s New Oat Milk Ice Cream, Headed to Your Freezer Aisle This Fall

As someone who is lactose intolerant I try to limit my dairy intake, but the absolute hardest thing for me to say “no” to is real ice cream. Especially since most plant-based options out there aren’t great.

But this week I was able to give a new milk-free ‘scream a try when Oatly sent me a shipment of its new plant-based ice cream made from its signature oat milk.

For those who aren’t familiar with Oatly, check your hippest neighborhood coffee shop — odds are they’ll have a pint of the stuff next to the espresso machine. Swedish company Oatly helped to catalyze America’s oat milk obsession when it came stateside in 2016.

Now, oat milk is one of the most popular alternative milks out there, attracting droves of fans with its creamy texture and neutral flavor. In fact, Oatly is so popular in the U.S. that recently it has been hard to keep in stock. To combat production issues the company just opened a new production facility in New Jersey and already has plans for another one to open next year in Utah.

In the U.K. and Europe, Oatly is already capitalizing off its popularity to create new products — such as savory spreads, yogurt, and ice cream — featuring its oat milk. Now it’s slowly releasing those products in the U.S., starting with ice cream.

Oatly gave American consumers a first taste of its dairy-free ‘scream earlier this summer with a roaming ice cream truck in Southern California. According to an email from Oatly, their ice cream is now available at small bodegas, Wegmans stores, and through FreshDirect in NYC. It will start rolling out to Whole Foods nationwide this fall. A pint will put you back $5.99, which isn’t especially cheap but is certainly in line with other non-dairy options from Ben & Jerry’s, Haagen-Dazs, and more (though more expensive than most regular ice cream).

Photo: Catherine Lamb

So how did Oatly ice cream taste? Creamy, smooth and rich — though it wouldn’t fool me into thinking it’s real ice cream. The texture is thick and scoopable, and significantly better than other alternative milk ice creams I’ve tried, even other oat-based ones. But the flavor is a bit off.

First of all, it was a lot less sweet than most ice creams I’m used to, which might be a pro for some people but didn’t quite hit the mark for me (I added chocolate sauce to hit my sugar high). In fact, Oatly ice cream has 18 grams of sugar per 2/3 cup serving, which is significantly below the sugar in an equivalent amount of Haagen Dazs (29 grams) or Ben & Jerry’s (31 grams), my typical ice cream picks. It’s also significantly lower in calories and protein.

Unsurprisingly, Oatly’s ice cream also carries the distinct taste of oat. That’s probably why my favorite flavor of the bunch was the Oat one, which leaned into that oatiness instead of trying to cover it up like the mint or strawberry flavors do, with varied success.

Photo: Catherine Lamb

My other qualm was a slightly off-putting thickness to the ice cream that left my tongue feeling coated after I ate it. That’s likely due to the coconut oil and rapeseed oil added to the oat milk to give the ice cream a creamy texture. Oatly also uses several types of gum to stabilize and thicken the product — which actually make the product scoop and melt very similarly to real ice cream. Bonus: One time I accidentally left a pint of Oatly out on my counter for a few hours and stuck it back in the freezer, after which the texture was largely unaffected.

Photo: Oatly.

It’s an opportune time for Oatly to expand the footprint of its plant-based ice cream. People are screaming for dairy-free ice cream: According to Future Market Insights, the alternative ice cream market is projected to reach more than $620 million by 2027. And while it seems like there are new plant-based pints every time I walk by the freezer aisle, the brand recognition Oatly has built up through milk sales will help it stand out from the competition.

Overall, I would definitely buy Oatly ice cream at the grocery store, especially if I was planning to dress it up with toppings or use it to melt on top of a pie or fruit crisp.

However, once Perfect Day brings its flora-based ice cream (lactose-free!) to market, all bets are off. I know it’s not really fair: Perfect Day’s ice cream is made with real dairy proteins so it tastes exactly like the real thing, whereas Oatly has the heavy lift of transforming oats into a totally new product. Perfect Day’s ‘scream is also significantly more expensive than Oatly right now — almost four times as much — so that could deter curious consumers until it gets its cost down.

But when it comes to ice cream, the heart — er, stomach — wants what it wants. And mine isn’t quite satisfied by Oatly. But that won’t stop me from gladly polishing off the pints in my freezer.

Oatly Brought the Oat Milk Craze to America. Now They’re Hustling Not to Lose Their Grip

Chances are if you’re going to a fancy coffee shop, you’ll have the option to swap the cow’s milk in your latte for almond, soy, or oat milk.

If you haven’t heard of the last option, you’re kind of behind the times (don’t worry, that was me until recently). Oat milk is on a path to soon usurp almond milk as the top alterna-milk in coffee shops around the U.S. According to Nielsen, oat milk sales grew by 50 percent from 2017 to 2018, while almond milk sales grew only 11 percent.

Oat milk lovers can thank one company in particular for kickstarting the oat milk craze to the U.S. Ironically, they’re from Sweden.

Founded in 1994 in Malmo, Oatly was developed by brothers Bjorn and Rickard Oste, who were looking for a sustainable alternative to dairy milk. They began experimenting with oats and later patented their oat milk production process. In 2001 they launched a consumer-facing brand.

Oatly may have been around quite a while, but recently it has been experiencing meteoric growth. When I spoke to Bjorn Oste on the phone (who’s now on the board of Oatly’s parent company), he told me it took the company 18 years to reach a billion kronor (~$104 million) in sales. In the past year, they’ve doubled that number.

Oatly’s sales really started to climb when they made their way into the U.S. in 2016. They originally started out in coffee shops, but now their business is split 50/50 between cafés and retail. Oatly products are now in over U.S. 1,500 grocery stores including Whole Foods and Target. It’s also in over 2,500 coffee shops.

Unsurprisingly, Oatly’s explosive uptick in sales has brought its fair share of problems. The company is currently struggling with product shortages. To address this demand, Oatly — which is so secretive about its technology it doesn’t like to outsource production to copackers — recently cut the ribbon on a plant in New Jersey: its first in the U.S. They’re already building another plant in Utah set to open early next year.

“When we launched [in the U.S.] it was very hard to predict growth,” said Oste. “It’s been a shocking reception.” In fact, Oste told me that the non-dairy market is actually bigger here than in Oatly’s native Europe.

Photo: Oatly.

Oatly’s entrance into the U.S. was also strategically timed to take advantage of the growing alternative protein market. “We’re seeing a paradigm shift towards plant-based consumption,” Mike Messersmith, General Manager of Oatly, told me over the phone. He explained that Oatly waited to enter the U.S. until they thought that the market was strong enough to support their product.

And strong it is. Nielsen data indicates that sales of plant-based milk beverages rose 9 percent in 2017-18 and took in $1.6 billion. This growth is driven by flexitarians who are eschewing dairy milk for health or environmental reasons. Oatly is lactose-free and also friendly for those with nut allergies. It’s also markedly more sustainable than dairy from a cow and also takes much less water than almond milk, which attracts ethically-motivated Gen Z and millennial consumers.

As always in the alternative protein space, taste is king. A product can be sustainable as all get out, but if it doesn’t taste delicious in your coffee or poured over your cereal, it’s not going to make it. “Customers want to choose plant-based options without feeling like they’re compromising,” Messersmith said. With its creamy, latté art-friendly milk, Oatly seems to have nailed the taste and texture aspects.

Other companies are quickly trying to cash in on oat milk’s popularity. PepsiCo launched its own line of the beverage through Quaker Oats, and major brands like Califia Farms are also selling the oaty drink.

I haven’t taste tested every oat milk out there, but judging purely from what I’ve seen Oatly truly does seem to have at least the coffee shop market cornered (when it’s in stock). According to Oste, they have an advantage because unlike other companies, they have complete control of the entire production system. They even have founded a company which creates new non-GMO oat varieties that have higher protein and fat contents.

Oatly doesn’t seem to have any interest in making an “Almondly” or “Soyly,” either. Oste told me that over the years retailers had asked them to expand their repertoire and branch out into other milk alternatives, but he wasn’t tempted. “Pretty much anyone can make soy or almond milk,” he said. But when it comes to oat milk, “[we] own the space.”

For now, that might be true. Now Oatly has to ramp up production to maintain customer loyalty. With their first U.S. factory newly up and running and their second underway, it seems like they’ll be able to.

Next up, Oste hinted that the company might bring some of their other oat-filled products — like ice cream, savory spreads, and heavy cream — to the U.S. With the dairy-free ice cream market alone projected to hit $1 billion by 2024, I’d say that’s a pretty smart move.