Oatly: Route to alternative milk market domination

Swedish company Oatly was the first manufacturer to commercialize oat milk – a milk alternative made of pulverized oats. The product was developed by food scientist Rickard Öste back in 1994, becoming a sensation only after launching in the US in 2016.

The Oatly brand has shone without traditional marketing. While other challenger brands rely heavily on social and digital channels, more than 60% of Oatly’s budget goes to out-of-home advertising. In its brand building effort the company leaned on word-of-mouth tactics.

Oat milk represents a tiny fraction of total US plant-based dairy sales, but Oatly accounted for 36.4% of the category in 2019. The company has engineered demand by entering the US market through 10 high-end coffee shops in major cities to be exclusive sellers before the brand even attempts to sell in major retail stores. Oatly oat milk quickly became the preferred milk alternative because of its neutral flavor and ability to foam, according to baristas.

More ethically conscious shopping, coupled with the huge rise in consumers moving towards a more plant-based or vegan diet, has set the scene for Oatly to grow at a fast pace. However, while US retail sales of oat milk continue to climb, the small Swedish brand now faces more competition, as well as constantly rising appetite of buyers. Managing further expansion will not be easy for the small Swedish player, and scaling nationwide will be a big challenge because of the threat posed by big corporate competitors armed with better supply chains, logistics, and distribution muscle.