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Oatly’s Path to Alt‑Milk World Domination Starts in New Jersey

Deena Shanker and Niclas Rolander | Bloomberg

The spring of 2018 was a bad time for baristas across the U.S. The year’s great oat milk shortage had hit its peak, sending caffeine addicts out the door of their favorite cafes in search of any place that could satisfy their fix.

The diehards “are very particular,” says Naomi Morales, the manager of the Upper East Side location of New York City chain Jack’s Stir Brew. They like the creaminess of oat milk—made by blending oats with water, adding enzymes, cooking the mix, then removing the fibers—and claim it has a similar mouthfeel to cow’s milk, but without all the animal welfare and environmental concerns. Almond milk wouldn’t cut it. Soy milk is passé.

Fifteen months later, the dark days have brightened—for baristas, coffee lovers, and especially Oatly AB. In April, the Swedish company widely credited with creating the oat milk category opened a $15 million U.S. processing plant in Millville, N.J.—the first outside Europe. The factory produces about 750,000 gallons of oat base—a thick, lightly sweet liquid that’s the main ingredient in all Oatly products—on a monthly basis, according to the company (it won’t disclose total volume).

Since the factory’s opening, stories of $200 12-packs selling on Amazon have subsided. Many Americans can now pick up a half-gallon at the corner grocery store. And although Oatly encouraged coffee shops to stock rival brands during the shortage—better to keep training customers to order oat milk, it smartly figured—it’s now available in about 7,000 coffee shops and grocery stores nationally.

U.S. retail sales of oat milk have risen to $29 million, up from $4.4 million in 2017. Several companies are going after a piece of the market. PepsiCo Inc.’s Quaker Oats launched an oat drink in January, and plant-based beverage maker Califia Farms introduced a variety in February. Even so, Oatly is the brand sought out by hipsters and coffee snobs from coast to coast. “We knew that we would do well,” says Chief Executive Officer Toni Petersson of Oatly’s move into the U.S. market in 2017. “But we weren’t quite prepared for this level.”

Its popularity echoes other plant-based products’ move into the mainstream, with diners, even meat-eating ones, increasingly asking for Beyond Meat or Impossible Foods patties by name. Spikes in demand has forced these companies to quickly figure out how to mass-manufacture complex products made with ingredients that often aren’t widely available.

Oatly employs the same proprietary, “very hard to copy” process in the 25,000-square-foot New Jersey factory as it does in Landskrona, Sweden. It can’t divulge many details, since it’s proprietary. “The process is very sensitive,” says Anca Gavris, the Millville plant manager and its first employee. “Everything needs to be to perfection.”

The oats used to make the milks—there are full-fat, low-fat, and chocolate versions as well as a barista variant—are sourced from farms in Canada. (Oatly has launched a pilot to encourage Midwest American farmers to add oats to their standard corn-soy crop rotation.) Once they arrive in New Jersey, they’re stored in four 59-foot silos before they’re funneled into a small room on the production floor. The grains are then measured, milled, stirred with warm water, and ground again before undergoing an enzyme and temperature treatment to create the thick liquid oat base. That’s all Oatly makes in Millville; the company partners with other facilities to turn the liquid into various products.

Temperature is an important factor in perfecting the taste—not cloyingly sweet, the way almond and soy milk can be—and achieving just the right thickness.

The company has announced it will open another U.S. facility in Ogden, Utah, to serve customers on the West Coast, in the first quarter of 2020. It will have three times the capacity of Millville, Petersson says. “Will that be enough to meet demand?” he asks. “No.”

Oatly’s sales were about $110 million in 2018, up from $68 million a year earlier, Petersson says. He expects double that, about $230 million, for 2019. The company’s success is closely tied to its marketing. Petersson embarkedon a rebranding campaign soon after he joined the company in 2012. At the time, Oatly wasn’t attracting mainstream attention. The products were relegated to shelves filled with foods for people with allergies. It had no presence at all in the U.S. That changed when Petersson hired a friend, John Schoolcraft, as creative director, to help with the campaign. Schoolcraft had worked with other iconic Scandinavian companies, including Ikea and Carlsberg.

A series of ads were launched in Sweden, poking fun at the dairy industry with slogans like “Wow no cow” and “Like milk, but made for humans.” The effort definitely helped to attract new customers. But it also got the attention of the Swedish dairy industry, which sued Oatly for suggesting that cow’s milk wasn’t made for humans. In November 2015, a Market Court in Stockholm issued a verdict, prohibiting Oatly from suggesting outright or even implying that dairy milk is harmful in any way, and limiting what the company could call its own products. In Sweden, Oatly can’t call the beverage milk.

The company recently rolled out a new product to NYC bodegas, as well as Wegmans stores and FreshDirect—an “ice cr… nondairy frozen dessert,” Oatly U.S. general manager Mike Messersmith says, quickly correcting himself.

A U.S. ad campaign includes plastering posters onto high-traffic, low-cost surfaces—like the fronts and backs of New York City buses, transit stops, and train platforms—with self-deprecating slogans, like “You actually read this? Total success.”

Messersmith says the “irreverent introduction” was timed to coincide with the company’s increased production capacity, as a way to increase brand awareness without proselytizing. “We wanted people to notice and be like, ‘Huh.’”

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