April 3, 2023
There are many reasons people have switched from cow’s milk to non-dairy substitutes. Some might be allergic to dairy or lactose intolerant. Others might avoid it because they are vegetarian or vegan or perhaps they don’t like the taste or texture of cow’s milk. Many environmentalists pick non-dairy beverages for sustainability reasons.
So it is no surprise that brands like Oatly (Tii:OTLY) are on the rise. Oatly, which originated about 25 years ago in Malmo, Sweden, is one of a growing number of brands in the non-dairy beverage movement. What makes Oatly unique is its main ingredient – oats. While other non-dairy milk companies have focused on soy, almonds, coconuts or cashews, Oatly Founder Rickard Öste invented a patented process of making liquid oats at Lund University.
The company grew slowly at first, but steadily gained an international following. The company entered the U.S. market in 2016 and on May 20, 2021, it went public with its high-quality, gluten-free beverage.
Its success is no surprise given the global growth in dairy alternatives. The global market in dairy alternatives is projected to grow from $25.19 billion in 2022 to $61.43 billion by 2029, at a compound annual growth rate of 13.58%.
The dairy-alternative market has grown along with the popularity of vegan, vegetarian and flexitarian diets, led mostly by young women. Beyond that, it is estimated that about half of the population are cutting down on meat consumption for health reasons. The U.S. nondairy milk market which includes, cheese, creamer, butter, yogurt and ice cream represents approximately 15% of the overall dairy market.
Dairy alternative milk is just one area of growth. The dairy-free cheese market increased 43%, non-dairy yogurt is up 55% and non-dairy creamers increased by 131% in the last few years.
Oatly has made some smart business moves. The brand skipped the supermarkets and instead focused on building its name and introducing many to the product through coffee shops and their baristas. It began with an exclusive agreement with Intelligentsia and expanded to other major coffee chains. Two years after its 2016 U.S. launch, Oatly was so popular that there were shortages of the product and it had to build a 20,000 square foot oat milk factory in New Jersey just to keep up.
Oatly now has a deal with Starbucks (Tii:SBUX), which offers the non-dairy beverage as part of its core U.S. menu and available year around. Starbucks first started offering non-dairy milk at its stores in the U.S. in 1997 with the addition of soy milk, followed by coconut milk in 2015 and almond milk in 2016. And just this month, Oatly announced a deal with McDonald‘s (Tii:MCD) Austria to bring Oatly Barista Edition to all McDonald’s McCafé locations there.
“We know from experience that we’re in the midst of a plant-based revolution,” said Oatly CEO Toni Petersson when the Starbuck’s partnership was announced in 2021. “People everywhere are looking for ways to eat and drink that are better for them and for the planet they live on. Oatly exists to make it easy for people to make those choices every day, with every cup of coffee.”
Oatly was born when Öste and researchers in Sweden figured out how to keep the oat milk’s beta-glucans (soluble fiber) intact, which gives Oatly oat milk its creamy consistency, just one of the reasons Oatly regularly lands on the top or near the top of most lists of best-tasting dairy free beverages.
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