The following article is a written adaptation of an episode of Thrilling Tales of Modern Capitalism, Slate’s podcast about companies in the news and how they got there.
In the early 1990s, a Swedish professor of food chemistry named Rickard Öste was working with a group of other scientists to research lactose, a sugar that’s found in milk that about two-thirds of adults can’t properly digest. They ended up coming up with a prototype for a nutritional, milklike substitute made from oats, a grain that was often used as cattle feed. Rickard Öste joined forces with his brother Bjorn, a software engineer, to found a company that would bring oat milk to market. The two brothers ran a small operation in Sweden for a while, but things really picked up in 2012 when they brought on a new CEO named Toni Petersson.
Petersson was an outsider to the consumer packaged goods industry. He’d run a restaurant, a nightclub, and he dabbled in real estate and a few other ventures in Sweden. But when he took the top spot at Oatly, Petersson proved himself to be a savvy marketer. He and his chief marketing officer, John Schoolcraft, are widely credited with turning Oatly from a milk alternative product to a major brand. That brand was built around the environment, which was something of a passion for Petersson.
According to Emiko Terazono, commodities correspondent for the Financial Times, “the story is that he took a few years out of Sweden, took his family to Costa Rica, and there he witnessed climate change firsthand. You know, there’s lots of droughts, there’s lots of floods. And he realized that the environment issue was a huge thing that was going to affect people’s lives. And I think he was pondering what to do and then this opportunity to join Oatly came up and he thought the two go together.”
Around this time, the conversation about animal farming and its significant link to climate change was ramping up. A 2013 U.N. report estimated that livestock were responsible for more than 14 percent of the world’s greenhouse gas emissions, and that cows specifically accounted for more than two-thirds of those emissions. Petersson and Schoolcraft leaned heavily into this research and started marketing Oatly at the so-called post-milk generation. These were younger folks concerned about the future of the planet. And to reach them, Petersson started by making changes to Oatly’s packaging. “They realized they didn’t have that much money to spend on advertising,” Terazono says. “So they put messages on the Oatly packaging itself and used that as a medium to reach consumers.”
The earliest iterations of Oatly had been markedly unsexy—just a carton full of oat beverage geared toward the lactose intolerant. Maybe there’d be a picture of a cereal bowl with a little splash of milk coming out of it, but nothing that would necessarily stand out on the supermarket refrigerator shelf. When Petersson came on board, those cartons got a complete makeover, and they had a sense of humor: big bubble lettering, slightly off-kilter, and punctuation that didn’t totally make sense. They offered cheeky manifestos like a list of beliefs, including that “the reckless pursuit of profits without any consideration for the wellbeing of the planet and the humans that live here should be a crime,” and that “Bigfoot the legendary Sasquatch is real.” Their TV ads could also be very self-deprecating. They were “quirky,” Terazono says, and “quite confrontational. They had some old people in an ad saying ‘This is disgusting’ after drinking Oatly.”
Oatly took this “OK, boomer” messaging far. By 2017, the brand was making headway across Europe, but it hadn’t broken through in America yet. “Oat milk was a rounding error in the United States,” says Mike Messersmith, now president of Oatly North America. “It was less than 0.1 percent of the total plant-based milk category.” Messersmith had worked for different food companies around the U.S., and when he met Petersson, he wasn’t immediately sold on Oatly. Plant-based milk was already a crowded market. “I was very skeptical, honestly, of whether or not this would even work at all,” he says. “Almond milk has won. It’s over, right? And then I tasted it and I was like, Whoa. That is a winner. And I’m not a hardcore vegan. I hadn’t grown up with dairy allergies. So I was just a regular consumer. And I was like, I would drink this every day.”
Messersmith came on board as one of Oatly’s first U.S.-based employees. There were two tasks in front of him: launch a category and launch a brand. Teach Americans what oat milk is, then get them to ask for Oatly by name. The team at Oatly knew they had to let people try the product before they could get there, but they had to think about an outreach that was true to Oatly’s youthful branding. Not a coupon in the Sunday paper or a Dixie cup tester by the supermarket checkout—that wouldn’t work. Even a stall at a music festival didn’t seem right. I mean, who wants a glass of milk while the sun beats down at them at Coachella?
“We were like, how do we create the best trial experience for someone to experience Oatly for the first time?” Messersmith says. “Through the legacy of having been in Europe for many years, we had had a lot of success with specialty coffee shops in London and Stockholm and Copenhagen. And so that whole first year in 2017, a handful of people within the company, we just started going to coffee shops in cities and small towns across the country, from literally New York to East L.A. to Seattle to Atlanta to Charlotte and everywhere in between, and we just started bringing Barista Edition Oatly oat milk into those shops.”
Oatly’s Barista Edition hit a sweet spot for certain consumers. It’s creamy, it froths well in espresso drinks, and for environmentally conscious coffee drinkers, oats are a relatively guilt-free crop compared with some of the other popular alternatives. So for Oatly, coffee shops proved the perfect way to showcase its wares. Eventually, fancy coffee customers started to ask for oat milk and Oatly by name, just like Messersmith had hoped. “Once we got to the place where we saw consumers trying to buy Oatly over the counter, like ‘I’ll have my latte, but also if I could buy four cartons to take home with me,’ we were like, OK, well maybe we should start trying to sell it other places now.”
Oatly debuted in a few grocery store chains like Wegmans and Whole Foods. And it sold well—some might say too well.
Britt Berg, director of brand and e-commerce at the high-end coffee shop chain Intelligentsia, recalls that before COVID, “13 percent of our drinks were made with oat milk, which is a high number for the amount of beverages that go out our door. I realized it was a really big deal in probably 2018, when they were growing so quickly and there was the great shortage of Oatly that happened.”
By the spring of 2018, Oatly had a serious problem on its hands. It had successfully popularized oat milk in America. Once found only in trendy coffee shops, it was now being imported to be sold in more than 3,000 locations across the country. It had ramped up production by 1,250 percent since the previous year, but it would soon find out that wasn’t enough, with news headlines crying “Hey, Where’s My Oat Milk?” and “Brooklyn’s Oat Milk Shortage Is Rocking the Hipster Community.”
While the internet seized on what’s come to be known as the Great Oat Milk Shortage of 2018, Berg and the team at Intelligentsia were tasked with breaking the news to their loyal patrons. “They were like, ‘What do you mean you don’t have it?’ ” she says. “Until you take it away from them, you don’t really realize how they love it.”
Oatly was able to put a band-aid on the problem. It further ramped up production, opening its first U.S. plant in New Jersey in 2019, which helped curb American oat milk droughts. It just opened another factory in Utah and has plans for three more plants in China, Singapore, and the U.K., which will help it scale up around the globe. But 2018 would not be the last time Oatly would face a supply shortage. In 2020, at the start of the pandemic, demand for oat milk had grown even more than the demand for hand sanitizer on a year-over-year basis.
Oatly’s global revenue doubled in 2020 from about $200 million to more than $400 million. But it was still operating at a $60 million loss, as it spent money to expand its operations and satisfy the exploding demand. The problem is the demand just keeps growing. Oatly expects its sales will double again in 2021. According to Messersmith, “the vast majority of consumers for Oatly have only discovered the brand in the last year.”
Messersmith says the real goal is to get to a place where Oatly is thought of less as a trendy item for millennials and more as an everyday staple. “It’s not just for a great coffee shop in Brooklyn. We want it to be in a coffee shop in Brooklyn, but we also want it to be in a grocery store in the small town where I grew up in Pennsylvania, and a coffee shop or a school in Indiana.”
The company needs to ramp up its production capacity fast, because its competitors have noticed America’s insatiable thirst for oat milk. Silk, the company formerly synonymous with soy milk, now makes an oat drink. The yogurt company Chobani makes one too. Bigger companies like Nestle are throwing their own plant-based milks into the ring. Consumers who want oat milk can find it at the grocery store, whether or not Oatly can make enough to meet demand.
It also takes lots of money. Among Oatly’s investors are celebrities like Oprah Winfrey and Natalie Portman as well as Jay-Z’s company Roc Nation. But in its effort to scale up, Oatly has also taken funding from more controversial sources—for instance, a conglomerate that’s owned by the Chinese government and an investment group led by Blackstone, a major private equity firm plagued by controversies regarding the housing crisis and the environment and whose chief executive is a major Trump campaign donor. Oatly argues that every dollar invested in them is good for the planet.
Messersmith says, “When you see these top-tier private equity companies investing in sustainable-driven food companies and succeeding in it, it creates a market-shifting paradigm that the way we eat and the way these food systems work, we can’t continue to do that for the next 50, 100 years with growth of populations and the environmental associated impact. So we need to change that. We can’t just do that as Oatly by being outside of the system. We need to go in the system and create change and draw that sort of financial investment and use it to set the standard for what is possible. And we hope that through that, those financial companies look seriously at their investments and see that being a sustainably driven food company is great business for them.”
Emiko Terazono says that for some former fans of Oatly, this explanation doesn’t pass muster: “There’s been a lot of critics and a lot of unhappy, formerly loyal customers who have turned away from Oatly because of this. There are people who have followed them from the beginning who are very disappointed. The fact that they were connected to this big capital, I think it just seemed to go against their quirky, entrepreneurial image.”
But Oatly isn’t a small disruptor anymore. In May, it went public with a $10 billion valuation. Oatly has said that it will use this new infusion of capital to further expand around the globe. Terazono is particularly watching Oatly’s planned expansion into China, where there’s a whole new population that’s thirsty for oat milk. The company has gone so far as to say it might even move its stock listing to Hong Kong rather than the New York exchange, and had considered starting there before tense U.S.-China relations scuttled those plans.
Operating in China might raise other concerns for Oatly’s fan base too, since there’s already been criticism over the Chinese government’s backing of Oatly. Terazono says, “The Chinese angle was quite controversial just because of human rights and environmental record. That seems to go against what they were saying.”
Terazono also wonders about Oatly’s staying power. “I think one of the big questions that Wall Street will have is, is oat milk just a fad? Is Oatly just a fad? Are consumers happy to move on to the next shiny plant milk?”