The Lex Column
Jul 26, 2020
Dairy substitutes have exploded in popularity as Western consumers seek out healthier, more environmentally friendly options. Oat milk is the one on people’s lips.
A milk alternative squeezed out of pulverised oats does not sound particularly appetising. Yet Sweden’s Oatly, maker of the grain-based drink, has managed to hit a $US2 billion ($2.8 billion) valuation after selling a 10 per cent stake to a star-studded cast of investors led by US private equity firm Blackstone.
Dairy substitutes have exploded in popularity as Western consumers seek healthier, more environmentally friendly options. Almond milk dominates the category in the US, with 70 per cent of the market. But oat milk is the one causing a stir.
The drink has tapped into the cool-kid zeitgeist. Popularised by baristas, oat milk sales in the US have surged nearly 350 per cent in the 52 weeks to early July, according to consumer data group Nielsen. That compares with a sluggish 10 per cent rise in almond milk sales and a decline in rice and soy-based milk.
Malmo-based Oatly is the best-known brand in the newly fashionable sector. Sales at the company doubled to about $US200 million in 2019 and are expected to double this year.
Among dairy alternatives, oat milk most resembles real milk thanks to its creamy texture. This has helped it to win fans outside vegans and nut allergy-prone and lactose-intolerant consumers already drawn to substitutes. Clever and irreverent marketing has added to its appeal.
Yet despite the eye-catching top-line growth and fat margins, Oatly remains a loss-making company. That is largely due to aggressive investment in the business. Oatly went from one factory in 2018 to three in 2019 and has plans to open two more next year.
This is reflected in the deal. At a valuation of five times this year’s revenue, Blackstone is not paying a frothy price for Oatly. Beyond Meat, the “it” plant-based protein company trades at 17 times expected revenue.
Investors can afford to be patient. Food fads come and go. But there is reason to believe Oatly and its $US5 cartons of oat milk are here to stay.