Nobody’s Alternative: Plant-Based Dairy Brands Push Their Platform

Greg Steltenpohl doesn’t see plant-based milks as “dairy alternatives.”

It sounds like an odd stance for the founder and CEO of Califia Farms, whose extensive and innovative almond milk products have made the company a category leader in the fast-growing dairy alternative space. But speaking to BevNET, Steltenpohl explained that while Califia may be focused on almond drinks, the directive isn’t replacing dairy — it’s providing “a nourishing beverage.” And it’s from that angle that Califia derives its whole identity: its approach to innovation, its approach to the market, and its platform center around the theme of nourishment.

“Right away we defined ourselves not as an almond milk company, or even a plant milk company, or any of that,” he said. “And because we defined ourselves that way from the beginning we didn’t have to work our way out of a category definition.”

As dairy alternatives continue to rise — with more than $2.11 billion in sales last year according to Mintel — new brands are rapidly entering the space, bringing with them disruptive innovations and unique platform propositions. But an influx also means brands have to work harder to differentiate and protect their corner of the grocery shelf, especially when the category still only makes up roughly 5 percent of the dairy space. So the question becomes: how do you build the platform? Do you stick to a single ingredient and grab some ownership over a small part of the category as Good Karma (flax), Oatly (oat), and Forager Project (cashew) strive to do? Do you rapidly build out your portfolio by embracing variety, as dairy-turned-alternative brand Elmhurst Milked has done with its plant milk (made from everything from almonds to walnuts to rice to peanuts)? Or is there another way?

Purpose Before Product

“We don’t think about how this was a category already and how do we take market share from that category,” Steltenpohl said. “We think about what’s going to bring interest and diversity and excitement into the way people consume beverages or use a fluid product.”

While Steltenpohl may see his almond milks more as nourishing beverages than as dairy alternatives, the distinction for him is significant in designing Califia’s brand platform. The company, which also operates a significant coffee business, positioned itself from the beginning to be versatile in its innovation while also creating a distinctive look and brand promise for consumers. Its distinctive fat-belly bottle design helped draw in consumers, while its premium segmentation in the natural channel allowed Califia to stand out from mainstream competitors like Almond Breeze without getting into the price wars.

“We designed a brand that was made to have wings,” he said. “So if you look at things like hierarchy of the brand in terms of design, and where the brand can be there as the endorser of the concept. Things like label layout, architecture, brand style and features which allow you to constantly bring not just new SKUs but whole new concepts and it all feels consistent to the brand.”

Steltenpohl one mistake he sees many brands make is when startups that begin in the natural and specialty channels reach a certain size, they’re often too eager to make the leap into conventional. While Califia Farms is now in a variety of conventional grocers, convenience stores, and drug stores, the brand has remained “eternally faithful” to natural. Citing retailer loyalty data, Califia consumers have among the highest brand loyalty in the dairy alternative space, he said, and the brand’s wide portfolio of flavors gives shoppers options if the variety they’re looking for is out of stock.

The company has also used its nourishment-focused platform and consumer trust to innovate within other categories. Earlier this year, Califia announced a line of plant-based drinkable yogurts which are now available in more than 7,500 retailers nationwide.

“We kind of look for a triumvirate or a confluence of factors that help us bring something strong to retailers to help us create a category,” he said. “‘Two years ago drinkable yogurts just weren’t that hot of a category. When we got into cold brew coffee that wasn’t a hot category either. You have to look at how you make these things accessible and bring them to a broader range of people. So we always look for that kind of breakout design, breakout concept, breakout positioning that allows the consumer to have a new understanding of the category.”

Casting a Wider Net

While Califia has a wide product portfolio, Steltenpohl notes that the company is only able to maintain that breadth thanks to a strong internal support structure, detailed sales management, and strategic distribution.

For younger brands, however, a variety platform can help get a foot in the door. Elmhurst Milked, which pivoted from dairy milk to plant-based products last year, has used a proprietary processing technique to develop a line of milk alternatives derived from numerous sources. The brand currently offers more than a dozen SKUs, including sweetened, unsweetened, and barista blends with ingredients including almond, brown rice, cashew, hazelnut, oat, peanut, and walnut.

Speaking with BevNET, Elmhurst VP of marketing Pete Truby admitted the diversity play has resulted in “a lot of good, and a lot of confusion.”

“Some people really think it’s great and get on board and love to try all the different ones,” Truby said. “But we get a lot of confusion. ‘What’s peanut milk?’ And maybe if you understood what it is, what do you do with it?”

Although Elmhurst is small, it has invested heavily in consumer education efforts and in-store sampling. While “unique flavors” is a driver for the company, Truby noted the brand also wants to emphasize nutrition. Its cold milling processing technique preserves much of the nutrition of the source ingredient; the peanut milk is high in protein, the walnut milk is high in omegas, and Elmhurst is focused on making sure consumers know there is a health benefit to drinking their products over other milk alternatives.

According to Truby, the diversity push has more often than not opened the doors of retailers. Many buyers are intrigued by the unique proposition of walnut milk and hazelnut milk, he said, which gives the brand an edge when most retailers already have several almond milks on the shelf.

“We really do think the diversity of SKUs is good for our company,” he said. “Not everybody would believe that. A lot of people would think you have to focus on one thing and be good at that but one thing we focus on is diversity. So for us it’s key. We could be a walnut milk company and just try to make a go at that and try to make walnut milk a thing, like Oatly has tried to do with oat. Like I get that strategy and that’s fine, I’m not knocking that, it’s just that we have a different strategy where we emphasize diversity and variety and so we’re going to continue to push that.”

Supporting that model is a bit trickier. Elmhurst’s almond and oat varieties remain entry points for consumers who want to stick with what they’re familiar with, and the brand is still working to develop the loyalty that can help push those shoppers to its more adventurous offerings. But according to Truby the brand has no plans of slowing its innovation push, it just needs its message to reach shoppers.

“It goes back to education,” he said. “Even though it’s on the shelf, you still have to tell people why they should buy it, offer them recipes, you don’t want it to just sit there and have people be confused. You need to get them to try it.”

Taking Ownership

A quick search on Instagram for Swedish import brand Oatly turns up more than 88,000 hashtagged posts. “Oat milk” turns up another 100,000 posts, many of them pictures featuring the brand’s distinctive carton packaging or lattes brewed with the grain-based drink. Since launching in the U.S. last year, the company has struggled to keep up with demand — causing frequent outages in on premise accounts where it is making deep traction. The company recently moved into a new 19,000 square foot facility, which will allow the brand to vastly expand its North American sales.

“We have never chased trends or fads and the process by which we’ve made our products has fundamentally stayed the same for over 25 years,” said Mike Messersmith, U.S. general manager for Oatly. “I think for us the approach was always let’s make a great product and try to keep it really simple, and not sit in focus groups and labs and try to tap into a Whole30 diet or keto or any crazy diet trends.”

Despite having more than 80 products in Sweden, where it is a household name, Oatly has taken a careful and limited approach with its U.S. launch. With only four products on the shelf — original and chocolate flavors of its oatmilks in multi-serve packs, and barista blend varieties of each — the brand has driven growth through trial in the on-premise and hospitality channels. According to Messersmith, the company chose to focus for its first year on a single item in the food service space before exploring retail. While others in the dairy alternative space are building platforms and spreading within grocery stores, he said Oatly is “maniacally focused” on executing and crafting the brand with its core products.

The brand reached such levels of popularity, Messersmith said, coffee shops were beginning to sell containers under the counter, a development that finally prompted Oatly to launch in retail.

“There is a lot of power in focus and simplicity, and I think that within the natural food space there’s a lot of pressure sometimes to expand into 50 different flavors and all these sizes,” he said. “The complexities of that can get staggering and I think trying to let the market need show you when you’re ready to expand rather than forcing it on your side is a great litmus test for when you’re ready.”

Taking ownership over oat, Oatly has sought to form “a movement” behind its brand and product, Messersmith said. In addition to promoting oat milk as a more sustainable product than almonds — the crop consumes considerably less water — Messersmith believes consumers have taken to the brand for the mission as well as taste. The enthusiasm among the brand’s fans has coalesced into a cult with the company seeing consumers online in October posting Halloween costumes based on the brand’s cartons.

“It’s very hard for brands to make that happen,” he said. “There’s no amount of agency dollars or media spend that can engineer that kind of enthusiasm. I think it comes from being authentic, we’re pretty open about what we believe and the why behind stuff and it gets back to our purpose. And second, our approach to social has been to be a very voice led and opinion led brand. We don’t try to use social to sell to anyone, we really just try to talk about what we believe in. And I think people respond to that.”

Plant-Based Persists

The market for plant-based products is shifting and many of the consumers today are buying both dairy and non-dairy products. According to Steltenpohl, the health and wellness angle for plant-based drinks is creating more “switchers.” With plant-based dairy up about 10 percent in sales this year, he said, the low sugar and low calorie content of Califia Farms’ almond milk has appealed the brand to a wider breadth of shoppers.

Janica Lane, managing director of consumer investment banking at Piper Jaffray & Co, told BevNET that advances in flavor and marketing have boosted the category, giving brands the ability to craft unique platforms and approaches — whether it’s companies like Milkadamia building around macadamia nut milk or Nutpods with its better-for-you dairy-free creamer approach.

“I think what’s made the category so mainstream now is so many of these brands have really upped their game on the product side and the products have interesting ingredient profiles that continue to advance them,” Lane said.

As brands continue to expand and potentially eat more into the dairy set, unique platforms are helping to drive that growth. But the space still has a lot of runway in front of it.

“We want to see the plant-based segment in the United States continue to expand, but Oatly can’t do that on our own,” Messersmith said. “We need big multinationals to commit to expanding their presence in plant-based. We need innovative companies like Oatly and Elmhurst to succeed so their segment can grow and their share of the shelf and the store and the consumer’s wallet continues to expand.”