Oatly’s Rebranding
Oatly is a Swedish food company which uses oats to provide alternatives to dairy products. It was founded by brothers Rickard Öste and Björn Öste in 1994 when they were researching an alternative to cow’s milk for lactose intolerant people at Lund University. Oatly has existed for almost 30 years; however, it is only in the last decade that the company has become a unicorn in the plant-based protein market, which was valued at USD $13 billion after its IPO in May 2021.
Oatly’s success started in 2014 when Toni Petersson was appointed as CEO to rebrand the company. He changed the logo from a small red “Oatly” to “OAT-LY!” in bubble letters, as well as the packaging from Swedish into English. He also started a marketing campaign emphasizing oat milk’s environmental benefits – claiming that consuming one liter of oat milk instead of cow’s milk produces 80% fewer greenhouse emissions. Oatly subsequently became a huge success in Europe and later in the U.S, increasing its revenue from USD $15.5 million in 2017, to USD $69 million in 2019.
After Oatly’s success in Europe, David Zhang was appointed as the President of Oatly Asia. He had 20 years of experience at some of the world’s biggest companies, such as GE and Siemens, where he worked in energy equipment sales and infrastructure investment. David Zhang is also a graduate of CKGSB’s EMBA program. In 2017, with no experience in fast-moving consumer goods, he joined Oatly to launch the company into the Asian market. But how has David Zhang managed to launch Oatly into the largest market in the world? CKGSB interviewed David Zhang to understand his business strategy.
Challenges Entering China’s Market
Zhang knew that there would be many challenges to brand oat milk in China. He once remarked,“For every 100 food and beverage brands that attempt to launch into the Chinese market, only around 5 will survive, and only 2 will be successful. That makes the success rate just 2%!”
“In the west, people are used to eating meat-based products. There is a greater awareness about the consequences which meat can have on one’s health and the environment. This has led to a rise in popularity of plant-based products as an alternative. In contrast, plant-based foods are an integral part of Chinese food culture which goes back thousands of years. People in China grew up drinking soya milk, so it is more difficult for dairy alternatives to be successful in the market.”
When Zhang consulted his friends about Oatly’s product, many were not convinced. A doctor said, “take it away, I am not used to that taste”. His EMBA classmate said: “is this not just soya-bean milk? (Soya milk only sells for around 3 yuan in China, around USD 50 cent).
Zhang continued to explain: “We initially tried selling Oatly at Ole – a high-end supermarket, but we only sold around 2-3 cartons a day. The problem was that supermarkets did not know how to stock Oatly because it did not fit into a category. They could not put it with Coke, as it cannot be classified as a beverage; they could not stock it with milk as it is also not a dairy product. Moreover, each carton only sold for a few yuan. This was not enough to compensate for the large shipping expenses from Europe.”
Zhang went on to discuss further challenges. “Contrary to how the media often portrays it, our team could not draw on Oatly’s success in Europe and the United States. In China, there is not an existing coffee culture like there is in the west – where consumers are used to making and drinking coffee at home. This meant that it was easier to sell Oatly through retail channels in the west. In China, it was the retailers who were blocking Oatly’s path to success.”
How did David Zhang Lead Oatly to Success?
Zhang’s team decided that the best strategy to market Oatly in China was not through retail, but through a bottom-up approach of targeting high-end coffee shops.
“As we were based in Shanghai, we were aware that there was a large market there for up-market coffee shops.”
David Zhang subsequently devised Oatly’s “three-one’s” strategy: targeting one city (Shanghai), one market (coffee) and one product (Oatly’s “Barista”). Zhang then ordered his team to travel around Shanghai to form partnerships with as many coffee shops as possible.
After negotiations, many baristas were positive about Oatly’s Barista Edition. They thought it frothed well, contained few artificial additives, and brought out the aromas out in the coffee. With 20 years of experience in sales, David Zhang believed it was necessary to uplift the price for coffees with Oatly’s oat milk. This would trigger consumers’ curiosity and lead them to question the uplifted price. Baristas could then relay Oatly’s environmental and nutritional benefits.
By the end of 2018, Oatly had become hugely popular with high-end coffee shops not only in Shanghai, but all over China – to such an extent that Oatly had exhausted its entire inventory. At that time, Oatly’s Barista edition increased in price exponentially, rising to hundreds of yuan per liter.
Only after establishing its brand in up-market coffee did Zhang look to online retail platforms. Oatly launched first on Tmall, China’s largest B2C e-commerce platform. It was extremely popular, selling 5,000 cartons in 11 minutes on Singles Day (China’s equivalent of Black Friday) on 11th November 2018. Since then, Oatly has also launched on JD.com, China’s second largest B2C platform.
After launching into the online retail market, Oatly was unable to keep up with the demand. With its factories overseas and cargos taking 2-3 months to arrive in China, Oatly had run out of stock. Due to supply chain issues, David Zhang had to turn down many offers from coffee chains looking for partnerships.
After supply chains became more consistent, Zhang looked to negotiate with the senior management of coffee chains in Hong Kong. He managed to sign agreements with 5 coffee chains, including Starbucks. These partnerships paved the way for Oatly to enter South Asian markets such as Thailand, Singapore, Malaysia and Indonesia.
By adopting a bottom-up strategy, partnering with up-market coffee shops, before selling on e-commerce platforms, chain stores and large convenience stores, David Zhang successfully led Oatly to dominate the Asian market. Oatly’s success in Asia meant it had the funds to launch an IPO on Nasdaq in May 2021. Although initially priced at $17 per share, it climbed 19% to $20.20, with a market value of USD $12 billion.
Oatly’s success has reflected a general trend of consumers opting for a healthier and more sustainable diet. The Swiss investment bank UBS expects that as part of an agricultural revolution over the next decade, the global plant-based protein market could grow to an estimated USD $85 billion by 2030.
