This is an English adaptation of a FoodBud historical article originally published on October 18, 2021.
Oatly’s share price had been falling, but at the time of the article it still carried a market capitalization of $8.6 billion. For China’s oat-milk and plant-based beverage players, that valuation remained a powerful signal: even after a decline from a peak market value of $12.5 billion, the category still looked large enough to attract aggressive local competition.
Oat milk was becoming one of China’s most watched beverage categories. Magic Mirror market intelligence data showed that in March 2021, oat milk grew 369.47% year on year. Nielsen data also indicated that in the seven months after the pandemic outbreak, oat milk grew 212%, ranking first among all food and beverage categories.
Oat milk is made by using bio-enzymatic technology to turn oats into a beverage with a milk-like texture. Oatly’s patented enzyme technology is often described as the product’s core, suggesting that the category is not technically trivial. But once the market opens, it rarely stays limited to one company.
Global food and beverage groups including Danone, Coca-Cola and Nestlé had already been investing in plant-based milk. China’s emerging brands were also moving quickly, including local contenders such as Oat Planet, Wheat Oye, Plantag, oatoat and Daily Box. Heytea also entered the field through an investment in YePlant.
The barriers to entry in China did not appear especially high. YePlant, despite being founded only recently, had already claimed to be the No. 2 oat-milk supplier for business customers.
After listing, Oatly’s public-market narrative relied heavily on sustainability and on growth in Asia, especially China.
But the share price was under pressure. Since peaking in June 2021, Oatly had been sliding gradually. After a brief rebound in mid-to-late August, the stock closed at $18.81 on August 30 and then fell by about 27%.
Oatly released its first earnings report after listing on August 16, covering second-quarter revenue and earnings. On the same day as reports of a global oat-milk shortage, the company also announced plans to increase production.
In July 2021, Spruce Point said in a report that Oatly had omitted or altered key facts in its prospectus and in a June investor presentation, misleading investors. Spruce Point also argued that the company would never become profitable. The stock then began falling sharply.
Despite the decline, Oatly’s $8.6 billion market value still made the category highly attractive to Chinese players.
Oatly, headquartered in Malmö, Sweden, was founded in the 1990s by brothers Rickard Öste and Bjorn Öste. Its products were sold in more than 20 countries, making it the world’s largest oat-drink company. The company uses technology based on research from Lund University in Sweden to produce oat-based plant-protein products.
Beyond oat drinks, Oatly had also launched oat-based cream, yogurt and ice cream.
As a brand founded by scientists, Oatly’s “secret weapon” was its proprietary enzymatic technology. The process helps oat drinks retain natural soluble dietary fiber from oats, beta-glucan, while maintaining texture without adding emulsifiers, stabilizers or edible gums.
Oat drinks accounted for more than 70% of plant-based beverages in Sweden, 14% in the United States, and only 2% to 3% in China.
In 2020, Oatly generated revenue of $421 million, about RMB 2.711 billion, up 106.5% year on year. Gross profit was $129 million, about RMB 831 million, up 94.1%. Net loss attributable to parent-company shareholders was $57.95 million, about RMB 373 million, up 68.6%.
Oatly entered China successfully in 2018 through specialty coffee and tea shops. By the end of 2020, it covered more than 8,000 terminal outlets. Partners included Starbucks, Manner, Tim Hortons, Peet’s, Costa and Heytea.
In 2020, Oatly’s China revenue grew more than fourfold year on year to $47.452 million, about RMB 306 million. E-commerce accounted for 21% of China revenue, far above Oatly’s global e-commerce share of 4%.
Asia, especially China, was one of Oatly’s three core global markets. Oatly planned to build two factories in mainland China. The first, in Ma’anshan, was expected to begin operation in the fourth quarter of 2021. The second was expected to begin operation in 2023.
Local manufacturing mattered for two reasons. First, it could help Oatly expand into more categories in China, such as oat-based yogurt, cream and ice cream, reducing future dependence on oat drinks. Second, local production could improve cost management and make pricing more competitive.
Oatly also planned broader omnichannel expansion in China. At the time, it had already built channels across foodservice, e-commerce and retail.
China Resources became involved with Oatly in 2016, when the company received investment from China Resources Verlinvest Health Investment, a joint venture between China Resources and Belgian investment firm Verlinvest. According to an April 2021 Financial Times report, China Resources held a 30% stake in Oatly.
Many investors were optimistic about oat milk because Oatly’s China business was largely business-to-business and priced relatively high. The standard local challenger playbook would be to run a price war, improve operating efficiency, reduce cost, and take share from Oatly’s B2B accounts. On the surface, this logic was plausible.
According to Oatly’s second-quarter report, its sales channels were still mainly offline retail and foodservice. Other channels, including e-commerce, accounted for a smaller share. In other words, the business was indeed heavily exposed to commercial customers.
If oat milk proved profitable enough, a domestic Chinese brand could use lower prices to squeeze Oatly’s market share. A similar pattern was already visible in coffee, where Luckin and Manner used lower-price strategies to pressure Starbucks in office-area stores.
The real question was how much capital would be willing to fund that battle. Private companies can have certain advantages when fighting listed companies. If a listed company continues losing money while failing to maintain high growth, public markets will not be patient.
It was reasonable to believe that if investors were willing to put significant capital behind a Chinese challenger, that brand could have a chance to become No. 1 in China. In many categories, local Chinese brands were already trying to take over market share from international brands. The question was often the length of the time horizon.
Oatly’s channel and supply-chain barriers might not look high at first. With enough capital, they may appear solvable. But B2B market development is different from consumer-brand growth.
Consumer brands can use heavy advertising to build awareness, drive fast volume growth, and maintain momentum for some time even after ad spend slows. B2B customer acquisition requires account-by-account negotiations and channel entry.
Oatly also operated in more than 20 countries. According to its prospectus, in 2019 it had one customer accounting for more than 10% of sales: Nordic supermarket chain ICA, at about 10%. In 2020, no single customer accounted for more than 10% of sales.
Even if Oatly lost China, or sold into China’s largest local player, it would still have other global markets. Chinese challengers’ international expansion capability remained much weaker than Oatly’s.
For comparison, Vita Coco, which was preparing to list at the time, was mainly concentrated in the U.S. market and had high customer concentration. Keurig Dr Pepper and Costco together accounted for 54% of sales. But Vita Coco had built some supply-chain advantages, including coconut-farmer cultivation and exclusive factory agreements across Brazil and Southeast Asia.
Oatly also had supply-chain barriers. Building global factories to support regional markets is a heavy-asset strategy. Even with major capital investment, those assets take time to build.
Oatly’s growth strategy centered on four priorities.
First, it aimed to expand the consumer base by increasing awareness and growing the plant-based dairy category. The category was still early. Euromonitor data showed that even in the most mature market and category, U.S. dairy alternatives, penetration versus dairy was only 6% as of 2020. That implied significant room for oat milk growth.
Consumer insight cited by the company indicated that 35% to 40% of adults were buying dairy alternatives, suggesting meaningful category familiarity. Growth could come from higher frequency and usage. Nearly 70% of dairy-alternative buyers had started buying the product within the previous two years, showing accelerated adoption and further penetration potential.
Oatly also expected its environmental narrative to help interest consumers in plant-based dairy. Its brand identity emphasized authenticity, transparency and sustainability, which in turn supported performance across markets.
Second, Oatly planned to increase distribution and velocity in new and existing markets, using strong demand to expand placement and shelf presence.
Third, it planned to add new products and expand SKUs, using prior product success and repeat purchase to support a broader portfolio.
Fourth, it continued to build around sustainability. Oatly’s environmental story appeared throughout media coverage and in its prospectus. When the founder was asked in an interview about carbon emissions from logistics between factories and sales channels, the response was to build local factories for the China market and invest in new-energy electric vehicles.
Oatly’s storytelling capability was clearly strong, extending even to product packaging. The open question was whether the company could keep that story coherent as competition intensified.
Note: IPO, valuation, ownership, factory timing and forward-looking figures in this article are historical, based on information available around October 18, 2021.