As the president of Mattson, a food and beverage consultancy based in Silicon Valley, Barb Stuckey is perennially on the lookout for new brands that consumers can eat or drink. That’s why she vividly recalls a recent trip to Manhattan. Making the rounds of the borough’s independent coffee shops, Stuckey was struck by something new that all of them had in common: At the barista station was a carton of Oatly, the dairy-milk alternative made, as the name suggests, from the husks of oats.
“It was at every single coffee shop,” Stuckey says, still sounding surprised. “And I remember thinking, I’m sure Quaker [Oats] is behind that—because that’s a good idea! [But] it turns out it wasn’t even an American brand.”
Stuckey is correct. Oatly isn’t an American brand. And it’s also not owned by Quaker, though Quaker parent PepsiCo might well wish that it was. Oatly hails from the Swedish coastal city of Malmö—an ocean away in geography and cultural sensibilities alike. While a number of Swedish companies have established major presences in America (think: Ikea, H&M, Spotify), food brands have always had a tougher time crossing international borders.
Yet Oatly, which slipped almost unnoticed into the U.S. at the end of 2016, has become a major force in comparatively no time at all. Between 2017 and 2018, Oatly’s revenues surged from $1.5 million to $15 million—a tenfold increase. Across the United States, Oatly can now be found in 1,500 grocery stores (including Wegmans and Whole Foods) and—as Stuckey saw for herself—in coffee shops far and wide: over 2,500 as of this writing.
Of course, most any brand can make a splash if the company dumps enough marketing money into the effort—except Oatly has done very little advertising. In fact, the company has no CMO and no marketing department either. Instead, Oatly established its American beachhead the old-fashioned way: by hitting the sidewalk, walking into coffee shops and leaving free cartons of milk. It’s an unlikely method whose long odds are obviated by the fact that it all actually worked.
“The United States is a very tricky market for a Swedish company to enter,” says John Schoolcraft, Oatly U.S.’s creative director. “[But] as we grew the brand, it became more apparent that the United States was a perfect match for what we were making.”
Fortunately for him, Oatly is finding a highly receptive audience at the moment. Americans are searching for alternatives to dairy milk, whose consumption has been slipping for a decade now. According to data from the Dairy Farmers of America, milk sales fell by $1.1 billion in 2018.
There are many reasons for the slump, from lactose intolerance to concerns about milk’s impact on the environment. But whatever the causes, the consequence is the same: flush times for “milks” made from plants ranging from soy to rice to almonds. According to Nielsen, alternative milks made up 13% of milk sales in 2018, up 4% from the year prior. Mintel data shows that sales of nondairy milk grew 61% over the last five years.
As the originator of oat milk, Oatly is the newcomer to the alternative-milk segment, even though the company itself is not new. Founded in 1994 by Lund University food scientist Rickard Öste, Oatly is a well-established brand in its native Sweden. Its patented process uses enzymes to break down oat starch, removing the shells and then dissolving the beta-glucans (soluble fiber) in water before adding calcium and other vitamins. The result is a beverage that’s low in cholesterol, calories and saturated fat, and higher in fiber than most other alternative milks. Not incidentally, oat milk is also closer to real milk in its taste and consistency. The aforementioned beta-glucans give Oatly a full-bodied, almost buttery consistency.
Oatly also blends well with coffee—a consideration that, as the company eyed the U.S. market, was decisive.
There’s no single way to enter the world’s most desirable consumer market, but Oatly opted for a side door. Instead of courting grocery chains or big-box retailers, Oatly made its first overtures to coffee shops—and not Starbucks, either. Over a planning process that took years, Oatly identified desirable “third-generation” shops (independent outfits that roasted their own beans and enjoyed loyal followings), and then dispatched its representatives (themselves coffee-shop veterans) to approach them one at a time. It was a shoe-leather operation more reminiscent of midcentury encyclopedia salesmen than anything you’d find in the digital age.
Schoolcraft explained that the decision to drop the product in local coffee shops was simple: They make good cups of coffee. “If you’re going to get people to try oat milk for the first time,” he says, “you want to make sure that first trial is the best possible situation.”
But Oatly refined its strategy even further. Its reps approached the baristas, kept the spiel brief (a bit about nutrition, a bit about the environment) and then left some free product behind. At first, many baristas wanted nothing to do with Oatly, claiming they had several milk alternatives behind the counter already. But Schoolcraft wagered that the baristas would try Oatly sooner or later. By withholding the hard sell and letting the beverage speak for itself, Oatly quickly built up a loyal following that spread from baristas to customers and thence, by word-of-mouth, to more baristas and more customers.
Clever as it may be, this method alone probably wouldn’t have succeeded were it not for several other factors that Oatly has going for it. One of these is the so-so quality of the alternative milks that preceded it.
“My opinion on why Oatly is resonating right now is there are so many alternatives in the plant-based milks, most of which have very low nutrition, meaning they’re very low in vitamins and minerals and they’re low in protein,” Stuckey says. “In many cases, they contain sugar that’s added to give them body and mouth feel. So there is a bit of backlash against some of the early plant-based milks that were almost like opaque water substitutes and didn’t behave like milk.”
Oatly has another edge in Americans’ near-automatic perception of oats as a healthful food, and in its comparatively low carbon footprint. Obtaining a liter of cow milk produces 2.3 kilograms of carbon dioxide; oat milk’s CO2 yield is only .9 kilograms.
Finally, there’s the whole Sweden thing. Americans’ standing perception of Scandinavian countries as progressive, educated and industrious surely hasn’t hurt Oatly, whose website flat-out says that the brand is very Swedish in that it’s “somewhat boring, super practical, painfully honest, notoriously hardworking and independent.”
It’s a good thing Oatly’s strategy has worked out because, as the company readily admits, it has no real marketing infrastructure to fall back on. “I have this feeling that marketing departments … I don’t really know what they do,” Schoolcraft says. “They’re kind of a filter to the CEO.”
Schoolcraft believes that brands lose too much valuable time engaging in process—briefs, meetings, the constant seeking of approval for everything. In lieu of a marketing department, then, Oatly has a small in-house creative team that works on everything from product innovation to supply chain to package design. By keeping a versatile core of people unburdened by bureaucracy and empowered to make decisions, “we can spend all the time developing ideas,” he says.
One of those ideas is Oatly’s packaging. In contrast to many CPG brands, Oatly has no color-saturated photos of what’s inside. The muted pastels and blocky lettering give the product “a very distinctive look that I don’t think looks like anything else I’ve seen on the shelf,” says Martin Ringqvist, who works alongside Schoolcraft as creative director for Oatly Nordics. Not only is the packaging text-heavy; that text is a bit strange. Quirky and conversational, folksy without feeling contrived, the verbiage doesn’t tell you about the product so much as the eccentric culture of the company that makes it. “Nobody reads the side of packages,” announces the side of one package. Another instructs the purchaser that Oatly is “like milk, but made for humans.”
Schoolcraft, who writes the copy himself, is not afraid to push things. On the side of one carton, Oatly quoted one of its customer’s negative reactions to oat milk: “This tastes like shit! Blah!” Ringqvist relishes the fact that some of Oatly’s commentary is simply “nonsense,” like this tidbit: “By drinking the contents of this carton you will be summoned when the fourth moon rises under the emerald sky and the rabbit runs thru the 14th sector to gather in a field of oats and watch the paranoia burn.”
Say what you will about these cannonballs, Borden isn’t likely to put them on its milk cartons. And according to Charlie Hopper, principal at creative agency Young & Laramore, consumers respond to it. “You don’t have to spend much time with [Oatly’s] package to feel like you know about the company,” he says. “It works for them—very much because they’re not trying to be Quaker Oats. They’re trying to look independent. It’s a fun design, but it’s also handled very well.”
Ringqvist adds that the creative team decided that they should treat their packaging “as billboards.” And billboards, it turns out, have also been a part of Oatly’s entry into the U.S. In conjunction with approaching baristas at independent coffee houses, Oatly also took over the sides of a few buildings, painting murals with decidedly analog messages like: “We made this mural instead of an Instagram post.”
As Schoolcraft explains, the approach feels more genuine than a billboard. “If you paint a wall, it feels real,” he says. “It doesn’t feel like you’re advertising. It feels like you actually want to tell somebody something.”
Though Oatly is clearly enjoying both a culinary and cultural moment right now, its plans for continued U.S. expansion (it aims to be in 5,000 grocery stores by year’s end) are not without challenges.
Looming on the horizon, for example, is the possibility that Oatly might not be able to call its oat milk “milk” for much longer. Last summer, the Food and Drug Administration began making noises about restricting the term’s usage so that only dairy producers could use it. FDA commissioner Scott Gottlieb has gone on the record saying that “alternative products are not the food that has been standardized under the name ‘milk’ and which has been known to the American public as ‘milk.’”
Schoolcraft says he and his colleagues are not concerned about this move, venturing that the FDA restriction might even be a good thing since Oatly wants to distance itself from associations with milk anyway.
And then there’s the unavoidable truth that many healthy food items that take the country by storm can’t always sustain that initial momentum. New England Consulting Group founder and CEO Gary Stibel has worked with the dairy industry for years. He describes Oatly as “unique,” “different” and “interesting”—but also “faddish.” And he doesn’t believe that it, or any alternative milk, will unseat the dairy industry.
Stibel cites the examples of butter and bacon, two foods that were vilified as dated and unhealthy in the not-too-distant past, but have since had their bona fides restored. He also points out that, whatever people might think of milk’s somewhat higher carbon footprint, no substitute beverage can compare to the nutrition in a basic glass of moo juice. “What could be more wholesome than milk?” he asks. “What could cost less money and be more pure and natural?” (You can buy a carton of milk for $2.69 and a carton of Oatly for $5.29 at New York’s online grocer Fresh Direct, for comparison.)
Stibel doesn’t blame the abandonment of milk on Oatly—he blames it on milk. “Milk consumption has been declining—and yet the industry has spent hundreds of millions of dollars permitting that to happen,” he says. “The principal factor that’s hurting milk consumption is bad marketing.”
Paul Ziemnisky disagrees. As evp of global innovation partnerships for trade association Dairy Management Inc., he’s as staunch a defender of milk as you’ll find, and insists that “the majority of milk’s declines are not the alts.” Americans are drinking less milk, Ziemnisky says, because they’re consuming less breakfast cereal, and also because younger consumers have gravitated to the myriad other non-milk beverages on the market.
So does Ziemnisky view Oatly as a threat? “I view all competitors as threats,” he says, but promises that milk is on its way back—both with new products and a renewed marketing push that will manifest themselves in the next 24 months.
Whatever counterpunch the dairy industry is readying, Oatly’s Schoolcraft isn’t terribly worried. “The dairy industry is realizing that times are changing,” he says. “Younger generations have a completely different view of the future of the planet and our role as humans in it.” The dairy industry, he insists, is “on the wrong side of history. And that’s it.”