Milking It: The Story of Oatly
S1: The first thing I see is there’s a huge tire behind you, what’s going on?
S2: Yeah, I’m leaning on the tractor. I took a little break. It’s very hot here. So even today,
S1: I caught Adam Arneson out in a field on an early summer day at his family’s farm, about a two hour drive west of Stockholm.
S2: Today, I’m doing some fencing. My father broke it with a tractor and we were preparing for actually sowing oats here last week. So, yeah, now I need to fix it.
S1: Adam turned his phone camera around and showed me a big open patch of dirt bordered by wildflowers, grasses and trees. Oh, so what’s going on there? That’s where the votes are going to go.
S2: Yeah, that’s where the votes are going. We had our picks there last year,
S1: but this year just plans
S2: this year. That’s.
S1: Adam’s grandparents bought this farm in the 1960s. Today, he runs it with his parents. It was a pretty small operation, but about six years ago, Adam got an idea. He’d just heard about a company called Oatly, located in the southern part of Sweden in a city called Malmo. It had a vision about completely changing agriculture in Sweden and the world. And it involved milk not from a cow, but from, yes, oats.
S3: It’s like milk made for you almost. It’s like milk made for you. Whoa, whoa. No, no, no, no, no.
S1: So what you’re hearing here is the singing voice of Oatly CEO, Tony Peterson. He’s standing in a field with a little electric keyboard, eyes closed, singing about vegan milk. This very silly ad poking fun at traditional cows. Milk didn’t seem so silly to the Swedish dairy lobby. They didn’t like the way Oatly ads disparage milk or the way Oatly suggested milk was unhealthy or unnatural for people to drink. And they took those complaints to court in 2015. Oatly lost this lawsuit, but it got a lot of free press in the process. It certainly got Adam’s attention.
S2: I felt that they were they were provocative, but I really liked this because I think I have always been that way also. And I think the agriculture is very conservative and it’s hard to do your own thing without being, well, kind of bullied, actually.
S1: Adam started looking more into Oatly mission. He found that it aligned with his own interests in sustainable agriculture. So he drafted a letter suggesting that Oatly partner was small farmers like himself who are looking to move away from raising livestock and more toward growing crops.
S2: I emailed them one evening and I got the reply the day after and they said that they had been thinking about this themselves also. And then quite soon after that, I met with their CEO and their sustainability chief
S1: Oatly and Adam formed a partnership that allowed Adam to make a real living, growing and selling oats. He became sort of a poster child for Oatly and its dream of turning conventional livestock farmers into oat maven’s. He even collaborated with them on his own limited edition beverage.
S2: Yeah, it was called Old Fashioned Oats Drink, and it was made on an old culture and the variety of oats originating from Sweden. So it was like an old fashioned milk. You know, it’s quite soft and creamy.
S1: Oatly splashed and frothed its way into America in 2016 and was a near instant hit. Other non-dairy milks had come before it, sure. But Oatly popularity is unparalleled and it’s still growing. It’s already booming. Sales doubled during the pandemic. It’s the top selling oatmeal brand in America and it’s helped boost milk sales tath soy to become the second best selling vegan milk after almond. It’s in Starbucks all over the U.S. in May, it went public at a valuation of 10 billion dollars. But as the company vies for global domination, it’s also faced its share of setbacks. The demand for Oatly is so great that it’s struggled to keep its own products on the shelf. And in order to expand its production, it’s accepted money from groups that critics say run counter to its vision of building a more sustainable future. How did this small company founded by two Swedish brothers become a multibillion dollar disruptor with a beverage so popular it shortages make headlines and as Oatly scales up, will it be able to hold on to the core values it built its brand around? Welcome to Thrilling Tales of Modern Capitalism. I’m Jeff Miller, filling in for Seth Stevenson today on the show, Milking the Story of Oatly. In the early 1990s, a Swedish professor of food chemistry named Richard Usted 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 milk like substitute made from oats, a grain that was often used as cattle feed. Ricard Ustad joined forces with his brother Bjorn, a software engineer, to found a company that would bring oatmeal 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 Tony Peterson.
S4: Ground zero for Oatly in the current shape or form is 2012.
S1: Emeco Terrazzano is the commodities correspondent for the Financial Times. She’s interviewed Peterson.
S4: He and his chief marketing officer, John Schoolcraft. They talk about Oatly when they arrived and they said it was just this dull, not even brand, this product, and they felt that they could do more with it.
S1: Tony Peterson 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, Peterson proved himself to be a savvy marketer. He and his CMO, 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 Peterson.
S4: His story is that he took a few years after Sweden took his family to Costa Rica, and there he witnessed climate change firsthand. You know, there’s lots of droughts and lots of floods. And he realized that, you know, 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 I think he’s sort of in his mind, he thought to go together
S1: 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. Peterson 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, Peterson started by making changes to Oatly packaging.
S4: They realized they didn’t have that much money to spend on advertising, so they put messages on the Oatly packaging itself and use that as a kind of medium to reach consumers.
S1: The earliest iterations of Oatly had been markedly unsexy, just a carton full of Oatly average geared towards 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 Peterson 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. And they also offered cheeky manifestos like a list of beliefs, including both that, quote, the reckless pursuit of profits without any consideration for the well-being of the planet. And the humans that live there should be a crime, unquote. And also that, quote, Bigfoot, the legendary Sasquatch, is real, unquote. And their TV ads could also be very self-deprecating.
S4: They had some very quirky ads which were quite confrontational. They have some old people sort of saying in an ad saying this is disgusting or whatever. After drinking Oatly
S1: 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.
S3: Oat milk was a rounding error in the United States. I mean, literally, it was less than point one percent of the total plant based milk category.
S1: This is about when Mike Messersmith met CEO Tony Peterson.
S3: He was talking to me about the vision for bringing this Swedish oatmeal brand to the United States. And I said, wow, I have never put those two words together in a compound word before. In my life, I was like, oatmeal, goat milk. OK, milk. OK, ok, OK.
S1: Mike had been working for different food companies around the U.S. and he wasn’t immediately sold on Tony’s vision. Plant based milk was already a crowded market.
S3: I was very skeptical honestly of. Whether or not this would even work at all, you know, like almond milk has won, it’s over, right? And then I tasted it and I was like, whoa, like 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 as I would I would drink this every day.
S1: In 2017, Mike ended up coming on board as one of Oatly first U.S. based employees. Today, he’s president of Oatly North America.
S3: The team talks about it as like the Oatly Department of Mind Control, like I did. I did it.
S1: Now, when Mike assumed command, there were two tasks in front of him. Launch a category and launch a brand, teach Americans what is, then get them to ask for Oatly by name.
S3: We have to get people to even say the words oat milk, they’ve never done that before. When you’re trying to create a new category, even just the exercise of getting people to articulate and vocalize words is is a is a major threshold, a milestone that you need to be aiming for.
S1: Mike and 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 is youthful branding, not a coupon in the Sunday paper or a Dixie Cup test or 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?
S3: And so we’re like, how do we create the best trial experience for someone to experience Oatly for the first time? And the company had had, 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 twenty seventeen, a handful of people within the company, we just started going to coffee shops in cities and small towns across the country from literally like New York to East L.A. to Seattle to Atlanta, to Charlotte and everywhere in between. And we just started bringing Barista Edition Oatly Milk into those shops.
S1: Oatly Barista Edition hit a sweet spot for certain consumers. It’s creamy, it froths well, an espresso drinks. And for environmentally conscious coffee drinkers, oats are a relatively guilt free crop compared to 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 milk by name, just like Mike had hoped
S3: I would like it oatmeal latte or I would like a Oatly cappuccino. And then you’re standing there in line behind those people and you’re like, wait, what did they just say? What did I just hear? That order we built on that. And once we got to the place where we saw consumers, you know, trying to buy Oatly, like 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 try to sell it other places now.
S1: There were a few hiccups in the retail rollout
S3: then, it was like maybe we should figure out a way to, like, set up our website and maybe we could we can deliver a valve to someone’s door. That exercise of trying to deliver milk through the mail is basically akin to try to put a person in space, as I found out.
S1: But generally speaking, things just took off from there. Oatly debuted in a few grocery store chains like Wegmans and Whole Foods, and it sold well. Some might say it too well at times.
S3: Are you talking about the great milk shortage of twenty eighteen? Not to be confused with the great milk shortage of twenty eighteen or twenty twenty one.
S1: More on that when we come back.
S5: Coffee is new to me. I came from fashion, so a little bit of a transition.
S1: Bredberg Berg is the director of brand and e-commerce at Intelligentsia Coffee, a high end chain of coffee shops operating out of Chicago that launched in 1995. When Brits started working there four years ago, she got a crash course in how discerning coffee drinkers were customizing their beverages.
S5: It was the first time I started hearing about milk and everyone was just so excited about it. And they’re like, you have to try every drink with milk and you have to try every drink with, you know, real milk. And, like, tell us what you think.
S1: Intelligentsia was one of those cool coffee shops where Oatly first landed in America. It did really well there and it still does today.
S5: And I remember pulling stats, you know, pre, pre, covid times and everything like that. But 13 percent of our drinks were made with 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 twenty eighteen when they were growing so quickly and there was, you know, the great shortage of Oatly that happened.
S1: By the spring of twenty eighteen, 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 three thousand locations across the country. It had ramped up production by one thousand two hundred and fifty percent since the previous year, but they would soon find out it wasn’t enough. Here’s Mike Messersmith, head of Oatly USA.
S3: We were literally at a company offsite at like a camp, and I opened up Twitter and I saw that Oatly was trending on Twitter. I was like, sometimes companies pay to be trending on Twitter. Like, I don’t think that was it. We didn’t do that, did we? Like you read an article in The New Yorker about like they’ve run out of milk in Brooklyn. And you read like Gothamist is like pray for Brooklyn. They’ve run out of milk. It’s like they drank all the milk in Brooklyn. I’m like, oh, my gosh. Like, what is happening?
S1: While the Internets used on what’s come to be known as the great oatmeal shortage of twenty eighteen, Brit and the team at Intelligentsia were tasked with breaking the news to their loyal patrons.
S5: They were like, what do you mean you don’t have it? And so I think until you take it away from them, you don’t really realize, like, how they love that
S1: 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 twenty nineteen, which helped curb American milk droughts. It just opened another factory in Utah and has plans for three more plants in China, Singapore and the UK, which will help it scale up around the globe. But twenty eighteen would not be the last time Oatly would face a supply shortage in 2020. At the start of the pandemic, demand for milk had grown even more than the demand for hand sanitizer on a year over year basis.
S3: We are escalating and accelerating our production every week. We’re setting records of how much we make, but it’s not enough.
S1: Oatly global revenue doubled in 2020 from about 200 million dollars to more than four hundred million dollars. But it was still operating at a sixty million dollar loss as it spent money to expand its operations and satisfy the exploding demand. The problem is the demand just keeps growing. Oatly expects that sales will double again in twenty twenty one.
S3: The vast majority of consumers for Oatly have only discovered the brand in the last year.
S1: The company needs to ramp up its production capacity fast because its competitors have noticed America’s insatiable thirst for milk. SILC, the company formerly synonymous with soy milk, now makes an oat drink. The yogurt company Chobani makes one two bigger companies like Nestlé are throwing their own plant based milks into the ring. Consumers who want milk can find it at the grocery store. Whether or not Oatly can make enough to meet demand,
S3: we cannot in the journey to make more compromise the standards or cut corners on quality, because that’s the whole reason why people loved it to begin with. And that’s incredibly frustrating, terrifying, daunting at times. And it’s led to tough conversations with partners and disappointed consumers who love it and want it. And we’re like, I don’t have any more for you right now. And we’re making as much as we can and we’re building multiple factories. That takes time.
S1: It also takes lots of money among Oatly as 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 for 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.
S3: 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 the way these food systems work, we can’t continue to do that for the next 50, 100 years with the growth of populations and the environmental associated impacts. 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. And see that being a sustainably driven food company is great business for them.
S1: Emeco Terrazzano of the Financial Times says that for some former fans of Oatly, this explanation doesn’t pass muster.
S4: 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 is just sort of seemed to go against their quirky entrepreneurial image.
S1: But the fact of the matter is that Oatly isn’t a small disrupter anymore. In May, it went public with a 10 billion dollar valuation. Oatly has said that it will use this new infusion of capital to further expand around the globe.
S4: Obviously, startups face this point where they have to face up to the fact that, you know, they’re going from a small entrepreneurial company to a big food company. And Tony Peterson has always said, I don’t want to be a big food company. But the fact of the matter is, if you have a big distribution network of big production network you’re selling in the big consumer markets like the US and China, then you will become more bureaucratic.
S1: Emeco says she’ll be particularly watching Oatly planned expansion into China, where there’s a whole new population that’s thirsty for oat milk. Oatly 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 fan base, too, since there’s already been criticism over the Chinese government’s backing of Oatly.
S4: The Chinese angle was quite controversial just because of human rights and environmental record that seems to go against what they were saying.
S1: Emeco also wonders about Oatly staying power.
S4: I think one of the big questions that Wall Street will have is, you know, is it milk just a fad? Is Oatly just a fad? Consumers happy to move on to the next, you know, shiny plant milk.
S1: Mike 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.
S3: 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 at a grocery store, you know, in the small town where I grew up in Pennsylvania and a coffee shop or a, you know, a school in Indiana. Right. And when we do that, we deliver on the mission at even higher scale, which is really special.
S1: Oatly has come a long way since its founding, even though it’s built an environmental mission into the center of its business model. We’ll see if the company can remain true to its earth friendly vision as it continues to scale up. Adam Arneson, the organic farmer back in Sweden, is hopeful that they will.
S2: When I first met them, they were, I think, around 60 employees in Malmo and some more of the factory and to what they have become now. But the thing is that I think they have kept their culture and their focus to do something good for the planet and to do what they can in every single way. And I really hope that they were well managed to keep keep. That’s when they are growing.
S1: That’s our show for today.
S6: That was our producer, Jess Miller. Next week, I’ll be back with a story about a magazine with an offbeat history.
S2: We represent the very best of marijuana. We are the National Geographic of marijuana.
S6: That’s next week on Thrilling Tales of Modern Capitalism. This episode was produced by Cleo Levin and Asha Saluja editing was by me and Gabriel Roth, Slate’s editorial director for Audio, and Alicia Montgomery, executive producer, a podcast at Slate. June Thomas is senior managing producer of the Slate podcast network. I’m Seth Stevenson. See you next week.