This fall, Swedish oat milk company Oatly will mark the third anniversary of its U.S. soft launch. Although well established in Europe, the brand was introduced to American audiences as a non-dairy offering for coffee drinks in Intelligentsia coffee shops. Fueled by its popularity with baristas, it swiftly built a strong on premise business in other specialty cafes before launching into retail a year later.
Part of Oatly’s success came from its deliberate approach to the U.S. market, which involved introducing only a small portion of its broad European product portfolio (original, low fat, and chocolate varieties in multiserve packs) for the retail business. At the same time, the company worked to drive growth through trial by selling its barista blends in on-premise and hospitality channels. Vibrant branding helped Oatly thrive on social media, though it says most of its fervent support among consumers (who are loyal to the point of creating Oatly Halloween costumes) is organic — a result of a strong, disruptive product playing in the fast-growing dairy alternative category.
While Oatly is currently front and center of the trend, it is facing an increased competition. At Natural Products Expo West 2019 this month, oat milk’s increased prominence in the plant-based milk space appeared to be confirmed, as brands including Quaker Oats, HP Hood, Silk, Califia Farms, Happy Planet, MALK, Elmhurst Milked, Rise Brewing Co., and Mooala all showcased their respective takes on the trend on the show floor.
But while a “rising tide lifts all ships” metaphor for building the category applies, the challenge for many of these new oat milk products is in how to differentiate and prove they’re not just chasing Oatly.
Creating the Market
Oatly’s entry into the U.S. was well timed to take advantage of the rising market for non-dairy milks, which in a category rife with innovative takes on plant milk — from almond to cashew to pea protein to flax to coconut — oat has emerged as one of the most exciting to entrepreneurs. According to Mintel, grew 61 percent between 2012 to 2017 to reach more than $2.11 billion in sales.
For some brands, Oatly’s success educating consumers about oat milk was seen as a greenlight to launch their own oat milk products.
“In my mind it’s been an opportunity for a while, so we were ready to plug it in as soon as the market, as soon as the consumer understood what it was and that there was actually a category there,” Mooala CEO Jeff Richards told BevNET. “We didn’t have the power to sell the category at our small size so once the category started to evolve we had the product ready to go.”
Like Oatly, Canada-based Happy Planet has been an established brand in its home country for more than 25 years, but only just made the leap into the U.S. market in 2017. But unlike the Swedish company, Happy Planet is better known in Canada for its dairy milks, juices, and lemonades. The oat milk line is exclusively for the U.S. market.
“Plant milk, and oat specifically, is really an attractive category because of the fact that it delivers on the things people are looking for,” Kyle Marancos, director of marketing for Happy Planet, said. “They’re looking for a great tasting product, they’re looking for something for their health, and they’re looking for something to take care of the planet.”
Speaking with BevNET, Marancos said the company has long had an interest in the emerging dairy alternative space, and that oat milk alone has been growing at more than 65 percent year-over-year. For Happy Planet, the source ingredient also fits nicely into its environmentally-conscious brand identity; oats, Marancos said, are a more sustainable crop that requires seven times less water than almonds. The company, which offers barista blends and multiserve packs, is further differentiating by launching a single-serve kids line.
Larger corporations are also paying close attention to the spike in interest for oat milk. Last year, PepsiCo-owned Quaker Oats announced it was entering the plant-based drinks space with its Oat Beverage line — one of the few brands on the market to avoid using the word “milk.” The line launched in January in 48 oz. multi serve bottles. That same month, Danone-owned Silk announced its oatmilk line, Oat Yeah, which launched with plain, vanilla, and chocolate varieties in 64 oz. cartons.
In December, Massachusetts-based dairy company HP Hood introduced Planet Oat. At Expo West, Planet Oat VP of marketing and R&D Chris Ross told BevNET the company “saw the advent of oat” about two to three years ago, but that it was the spike in sales for oat milk barista blends and coffee lattes over the past year that prompted the company to jump in.
The brand is currently in about 70 chain retailers, including Kroger, Food Lion, and Albertsons Safeway. It is also distributed through AmazonFresh, but Ross said he hopes to build an authentic image with consumers by targeting on-premise growth in independent cafes and by recruiting brand ambassadors.
For Mooala, Richards said the differentiator for his brand is having USDA Organic certification, a label which he said is underrepresented in the plant-milk space. While distribution of its core banana and almond milk lines is larger, Mooala’s oat milks are currently sold in Whole Foods, Costco, H-E-B and Central Market, Albertsons Safeway, and Fairway, along with independent accounts.
“I think there’s a general assumption in the marketplace that plant-based just equals organic and so part of our job is to dispel that myth and clarify that there is a difference,” Richards said. He noted that being organic increased production costs and forced the brand into a higher price range, but so far having the certification has paid dividends.
Califia Farms founder and CEO Greg Steltenpohl is no stranger to the plant-milk space, having first dabbled in an oat milk product in 1997 while still at the helm of juice brand Odwalla. Steltenpohl acknowledged oat milk’s potential to play a significant role in the category and said he did not want Califia Farms’ entry into the space to be just another new product, but rather a platform play.
The brand has released both a standard oat milk SKU as well as a barista blend. But Califia’s latest product, he believes, will herald in what he hopes to be the next stage in plant milk’s evolution: moving away from trying to imitate dairy and towards creating unique products with added functional and nutritional value. At Expo West, the company launched Ubermilk, a line of oat-milk-based beverages fortified with pea protein, sunflower oil, flaxseed oil, vitamins and minerals.
“There has always been this argument that ‘there’s not enough protein and milk has these other benefits,’ so we analyzed what those benefits were and thought about how we could actually make a better milk for humans, not for cows,” Steltenpohl said. “It’s not a reaction, it’s an inquiry into what’s better. And I think what was missing from the soy industry and the pea-based industry was the lack of complementary amino acid profiles. It’s not an arms race for a numerical value in front of the words ‘grams of protein.’”
Although they utilize an oat milk base, the Ubermilks don’t call out that fact on the front label. Steltenpohl said he didn’t want consumers to assume the line was just another tag along chasing a trend.
But as brands seek to take advantage of the momentum Oatly helped create, none appear to be attempting to face the company head-on by working exclusively in oat milk. Rather it has proven popular as a line extension for existing companies to experiment with, whether it is an oat-focused company like Quaker Oats making a natural step or an outside innovation, such as the case of coffee maker Rise, which last year announced a new line of oat milk lattes. CEO Grant Gyesky told BevNET the company began producing its own oat milk for its latte line, and opted to begin selling it as a standalone product — boasting an organic and clean label approach to help it stand out on shelf. But from a business perspective the line is low-risk, Gyesky said. At best, it could become a significant expansion for the company; at worst it can be discontinued without damaging the core business.
As more brands continue to roll out new oat milks, Steltenpohl said his main worry is that the industry could let a trend get ahead of quality.
“Oat milk opened the door but now the industry — and we like anybody else — need to know how to make it well and make it in abundance,” he said. “Underneath all of this is the impact of this show [Expo West] and the trends that are marched out of this, and how fast mainstream grocery and even mass pick up on the ideas that they see here. But they like to see good execution.”