Bloody Good Business 🗝️ – Profiles Of My Favourite Companies In The World

Oatly – The Eventual Usurper To Cow Supremacy

Cows are going through the worst PR of their 10,500 year history.

It wasn’t too long ago that cows were labour, milk, meat and even in some parts of Australia we’d rather not share with you, bloody good company. Cows these days are just a sad story. Whatever animal affinity we used to have for them is gone. Dairy cows are pregnant their whole lives. Antibiotics keep them alive. The calves of these nonconsensual pregnancies are sold off to the meat trade. Cows are seen as quite a ‘stupid’ animal, thought of as just a soulless vessel between lunch or dinner. They are even being blamed for much of the excessive CO2 emissions circling our atmosphere.

There is a mass imbalance to the natural equilibrium of things. Our unhealthy relationship with the cow is counterbalanced by a further reliance on ‘alternative dairy’ products. Soy milk, almond milk, Oatly. As a former barista, I remember the days when the ‘soy cappuccino’ was an exciting occurrence. These days a popular cafe in any European capital city will balance a 50/50 trade.

The direction, to me at least, is clear. Cows are on the out. The dairy industry will return to a healthy equilibrium where quality is incentivised through higher price points. Options will be less, and it’s even likely most national milk brands will die, leaving in thier wake a few multinational’s whose ability to trade is liberated in the death of subsidies. This input leads me to draw a natural conclusion. Oatly is on the rise. They are the comprehensive market leader in ‘alternative milk’ in trendsetting European countries. They are superior to the soy and almond competitors because of their lower cost and more environmentally sustainable production of each owns respective key ingredient. They feel like a consumer brand more than they do a food brand. And they have secured significant financial investment from some of the sharpest minds in the business.

What You Can Expect From This Article

3 distinct chapters.

  • A Brief Look Into Oatly’s Story
  • A Casual Look Into The Manipulated Dairy Industry
  • An Estimation Of The Future – And Oatly’s Crucial Role In It

Oatly’s Story… It’s Not Milk! 🥛

How on earth does one withdraw from a pool of oats (yes, the same stuff in your porridge), north of 71,000,000 litres of milk per year? Ah, but not milk, Oatly.

Some of the most amazing innovations the world has ever known take place within agriculture sectors and, whether for better or worse, rarely get the attention their Boston Dynamic robots and social media comrades deserve. These innovations help shape global GDP’s, the shifting sands of geopolitics and how we consume food and drink, drink. Each innovation has in its own way driven down the cost of your food while even in some rare cases, made it healthier.

Much like the mind swelling amazement I had when I first learnt that almond milk was grown on trees and the subsequent discovery of California’s Almond Mecca. Each one of these examples are, for our not too distance ancestors, unquestionable feats of magic.

  • Smart Farming – The mechanisation of land. Automated filtration systems, measuring equipment, harvesting and seed tech. Removing labour input step function by step function.
  • Vertical Farming – Top to bottom control of conditions. Ultimate optimisation of yield, catering for whatever demand is most current. You want to harvest on this date? Good, we can make that happen. You want 𝑥 flavour profile accentuated? Good, it will be done.
  • Gene Editing – Surely the work of wizards. Gene Editing is doing everything from changing the colour of your capsicum to puppeteering the evolutionary desires of a crop’s pest.
  • Lab-Grown Meat – You thought we were playing god with Gene Editing? How about growing a Chicken in a lab.

But of course, among all of these wonderful agricultural innovations, the reason we are all here, and what also might be final straw for 🐄’s. Oatley

  • Milk Extraction – The wonderful world of science that turns 🌾 and 🥜 into 🥛.

Oat Milk Are A Swedish Invention. Oatly Are The World’s First Oat Milk Company.

Contrary to what you might think, Oatly’s present-day success is not consequence of being the first player at the table. Despite their discovery and thus first adoption of this new, mysterious type of milk, it was only until recently Oatly’s sales graph resembled a very tall, but nonetheless very narrow mountain.

The Oatly I write about today. The Oatly who you in America are just coming to learn about and you in Europe are probably having in your coffee right now. This Oatly bares fruit the type of marketing pivot that Harvard MBA’s will be dissecting long after you and I are departed.

But before we get to that, a quick ode to Rickard Öste, the man who discovered Oat Milk and the founder of Oatly.

Eureka! The Swedes Strike Again.

Rickard Öste was working as a researcher for Lund University at the time. It was the early 90’s and he was trying to understand lactose intolerance and sustainable food systems. Not much more is said on this, but as a foreigner living in Sweden, this story doesn’t surprise me one bit. The Swedes are surprisingly exceptional. It’s the subject of many a sociologist’s research, but how wonderful is it that an industry worth ≈ $4,000,000,000 per annum was discovered by a curious Swede in a country equal in populous to some small Indian suburbs.

The details are not shared in full, but however it went down, it seems through his research Rickard discovered the perfect blend of taste, consistency and scalability for Oat Milk and then in 1993, founded Oatly.

Despite initial sales and growth and hype, that mountain I eluded to earlier, it seems the hype of Oatly floundered away as quickly as it came to its plant-based comrades, soy and almond.

It was a drastically different time, although it feels not that long ago. But these poor cows weren’t considered a problem like they are now. Vegans were exclusively the smelly beard types and to have breakfast without a glass of milk made you a fool! There just wasn’t demand for alternatives. The horrific damage to both cow and the land wasn’t spoken of. People just didn’t know!

But 71,000,000 litres is a lot of Oatly. What happened? How did this company resurrect from the mat like a floored gypsy king and comeback to dominate the Oat Milk industry internationally?

Enter Toni Petersson

There is much mythology to this man. Who knows? A combination of both exceptional ability and exceptional luck I am sure, but Toni Petersson is the man held responsible, alongside Creative Director, John Schoolcraft, for what is one of the greatest re-brands of history.

For me, it’s all about the packaging. Suits will make a big deal out of internal processes and systems, but man, go to a grocery store and have a look at the dairy aisle. Whether it is the perfect colour combination, font, or the excessively millennial feel, Oatly reliably diverts your attention and quickly have you reading their, sometimes, overly self-aware text.

oatly old packaging and new packaging

Oatly is so perfectly different from all other ‘milk’ packaging options because they are precisely that… different. They are surely the first company to intentionally condescend their consumer with on-brand perfectly positioned tongue in cheek irony. That’s the key to marketing after all… attention through differentiation. All of marketing can be reduced to this question. How can I get attention and then how can I convert it?

So you stand in the dairy aisle, and Oatly immediately succeeds in the first and hardest step. Getting your attention. They then swiftly bowl you over and achieve step two, converting, with messaging that addresses you personally but also guilts you for not having tried it. It’s bold and risky, no doubt. But it worked, and such is the survivorship bias of ideas, Toni Petersson and John Schoolcraft started what will likely be a ubiquitous approach to packaging going forward.

Oatly Now – 2021.

Oatly are the comprehensive Oat Milk leaders in the market. In their 2018 report, they boasted >71,000,000 litres of production, a figure I am confident has grown considerably in the years since.

Astonishing numbers! But whats even better is their growing line of products to match it. I live in Stockholm, the global echo chamber of Oatly. Therefore my opinion of the product might be inflated due to daily consumption and advertising bombardment but, their products just taste better. Oatly is healthier for me, healthier for the environment and…. trendy?

Oatly featured in the coveted advertising glory of a Superbowl half-time this year. The most sought after advertising space of generations past. As an impartial outsider, I am absolute in my confidence that the yanks cannot be sold to the same as Europeans. And as such, I am very intrigued to see what the internal ROI has been for their ‘so bad it’s good’ time-slot in this years Superbowl.

One thing is for sure, Oatly are the superior Oat Milk company operating at the moment. I am but one mans opinion, but I also think Oatly is the greatest alternative milk company out there as well. Positioning them well above their perenial comrades/competitors – soy & almond – in both taste and consistency.

Blackrock Controversy

In 2020, Blackrock secured a $200,000,000 investment into Oatly which drew justifiable criticism from Oatly devotees here in Stockholm. Some even went so far as boycotting.

Blackrock is the worlds largest private equity firm, an altogether incredible company but nonetheless amoral with their capital allocation as far as I can tell. I am a huge fan of Stephen Schwarzman (‘What It Takes’ is an inspiring memoir) and I am in awe at the company he built, but with that being said one must be judged on what they do, rather than what they say. The dirty and beyond reproach paws of China are yielding significant returns for Blackrock year on year. Schwarzman even has a ‘school of excellence’ in Beijing and quite possibly yields as close a ties with the CCP as any other American businessman.

It is no secret that to do business in China one must be in good stead with the CCP. Blackrock, through Schwarzman, remain in business with China despite the numerous atrocities delivered by the state. One must be judged on what they do, not what they say. This is far to big of a tangent for me to explore here. But what is important for the story of Oatly is that they secured investment from Blackrock, presumably for US expansion, and by getting into bed with Blackrock, Oatly’s devotees see this as an offence by association equal to them committing the injustice themselves.

Oatly Should Have Seen This Coming

This is because Oatly makes a big deal out of their heightened social consciousness which includes all the cliches. Hyper-sensitive environmentalism, genderless workplace, racial diversity – if you could bottle Stockholm social consciousness into an office, then it feels like you would get Oatly. Now admittedly, I am speaking as a total outsider who does not know the company beyond what I am reading online. Perhaps one day I will get the opportunity to interview and discover the company, and who knows, more likely than not I have it all wrong. But, Oatly shouldn’t have been surprised, perhaps they weren’t, when they received significant backlash for getting into bed with the big, bad capitalist Americans and as such fraternised with the same people deforesting the Amazon.

Personally, I think it’s good business to work with the best businessman in the world to gain access to the biggest market in the world. Oatly will do more for the environment by becoming as big as they can than any social justice campaign ever could. More Oatly = less cows. Less cows = better environment and a better environment = less animal cruelty, a subject which I am passionate about.

The Industry Story. So Many Bad Incentives I Don’t Know Where To Start…

“Show me the incentives, and I will show you the outcome” uttered man of wisdom, Charlie Munger.

Off the top, one thing must be made explicitly clear. If it were up to the free market, we would be drinking waaaayyyy less milk. Dairy farmers are among the most protected species on the planet. It is true that environment, taste and social good are all considerations we make as consumers before we buy something. But at the end of the day, the privilege of looking beyond price is reserved for the few and absent the many. Price determines consumption. Show me the incentive… dairy farmer subsidised cheap milk, and I will show you the outcome… more and more milk consumption.

How Is Milk So Cheap?

I was in ICA Maxi the other day (Swedish grocer), and a 1.5L carton of Arla – Eko milk was going for 5SEK!!! I know that doesn’t mean much to those outside of Sweden, but that is about €0.50. I am a casual economist at best, but if you are trying to tell me that Arla is turning a profit on 5SEK milk then you need to start collecting your marbles!

The issue is subsidies. A subsidy abjectly distorts competition. It artificially supports industries which would otherwise be significantly more expensive, or worse, out of business. The question of why certain industries are supported while others are not is not as difficult to answer as you might think.

Australia, New Zealand, Switzerland, France, Sweden, Denmark, The USA, and essentially every other country that can afford it heavily subsidise their dairy farmers. We have a cultural affinity to our farmers. They are somehow intertwined with our identity. The farming life is one romanticised by us city folk. In Australia, my homeland, one of our most popular reality TV shows is ‘Farmer Wants A Wife‘. We are wet for ‘hard yacker’. So moist in fact that we inadvertently pay that man without even consuming his products. Imagine the social upheaval were you to not support the larrikin farmer? I am proud to support this man and his work through my tax dollars. Now, this isn’t a common way to think about it, but the truth is such.

Even though I purchase Oatly every-time I go to ICA Maxi, my tax dollars are purchasing Arla. There are purely unnatural mechanisms at play.

Sweden Love Arla

Sweden is no different to Australia. People associate Arla, the nations milk brand, as a Swedeism and with pride. There is the notion, not unique to Swedes, that our milk tastes better. Now it is completely unfounded but nonetheless felt throughout the nation. Our milk is of higher quality. Norwegian milk doesn’t have the same standards and the Danes? Please, I would rather drink no milk at all!

It’s a complicated one. Is Arla integral to Swedish culture? I think not, but I am not a Swede. Is Dairy Farmers integral to Australian culture? Honestly, I think it might be. I want my tax dollars to continue to support these guys, even though I am going to keep buying Oatly every time I walk into Woolies.

The dairy subsidy game is layer one of the bad incentives. It is the foundational resistance to Oatly.

Oatley’s Role In The Future Of Dairy & The Future Of Agriculture.

Incentives, incentives, incentives. Without subsidies the cost of cream, milk, creme fraiche, smör and the rest would go up over night.

As we’ve discussed, the only real question here to answer is the cultural one. Because all other upsides stack heavily against the dairy industry in question. Cows are terrible for the environment, there is much to be said this topic, but in short.

More land than you can comprehend is devoted to growing cow food. More land than you can comprehend is devoted to grazing and housing the cows. More antibiotics, filth and processes entirely unnatural than you would like to admit are imposed upon the cows every day. Every step of this process pollutes waste and yields significant CO2 production. And to top it all off, you are paying for it! The national budgets of small European nations inadvertently fund the very CO2 production the other half of the budget is committed to getting rid of!

The national budgets of small European nations inadvertently fund the very CO2 production the other half of the budget is committed to getting rid of!

Oatly – Unlike Cows, Diamonds Aren’t Forever

Bad Incentives All The Way Down

It’s hypocrisy and bad incentives all the way down. Oatly’s position as a genuine milk replacement formula, although formula is almost certainly the wrong word, has stood the dairy industry at attention more erect than it has ever been stood before. Oatly is a legitimate threat to the dairy industries reliably comfortable subsidy racquet.

Remove the subsidies and dairy farmers will have their hands forced. It will be ugly, many people will be out of business and overnight and the favourite dairy products that we grew up on will go from $1-$2. But this is the consequence of a shifting price incentive.

There is nothing as powerful as the price incentive. Oatly is positioned very well to capitalise on this seemingly eventual reality. It seems the Oat is quite a versatile crop for milk production. The creme fraiche, smör and the different milk varieties are essentially on par for taste and measured superior in health.

Now, before you get all up in arms about a plant product being more healthy than an animal product, take it easy. In my worldview and vision for the future, there is still a critical availability of animal products. There will still be cows milk, t-bones and chicken wings for the taking. The key difference, however, will be the quality. Price will focus production towards quality rather than quantity and as a result, we will have a world where the cow’s milk is organic and the meat is pure – rid of a pharmaceutical laden, soy diet. All of this B.S in current-day dairy production with antibiotics for a forever pregnant cow, deforestation for Amazonian soy farms and meat and milk for everybody every day will be behaviours firmly rooted to the past and looked back on in embarrassment.

Europe Will Likely Copy America

Oatly is working their way into the biggest, baddest market in the world. Californian demand alone would likely outstrip the entirety of Europe. America suffers from the same bad incentives as the Europeans do, but they are more embracing of change… especially when it is a cost-driven one.

The two big challenges Oatly faces, as far as I can tell, is consistency in quality as production becomes further and further distributed away from the watching eye of Rickard Öste and the farms of southern Sweden. Oatly still needs to grow big, stupid numbers tonnage of oats to realise their international scale. How this unfolds is going to be very interesting. I would love to know. 1 – How many oats are required for 1.5L of Oatly? 2 – How many oats can one 10HA farm yield per annum? And 3 – What constitutes suitable conditions for oat farming?

If I could find the answers to these questions from Oatly themselves then we might be able to get a better picture for what ‘Oatly worldwide’ production looks like. Because let’s not be naive. There are equal and opposite reactions to every action. We currently chop down desperately needed rainforest to grow soy for cows (action) which contributes excessively to global CO2 production (reaction). To meet growing Oatly demands we need to plant oats sufficient enough to quench the thirsty Americans (action) which will contribute how much to global CO2 production and land clearing (reaction)? Figuring out this dynamic is very important for painting a true and fair picture of Oatly.

Secondly, a big challenge Oatly face in opposition to the USA is marketing. Can their dry, personal and different feel win over Americans the same way it has Europeans? Time will tell. Something else I would love to speak with Oatly about is how they are thinking about marketing for different cultures as well, because the US is a whole different animal when it comes to marketing. More $$ are spent on marketing in the USA than anywhere else in the world. Oatly are sure-fire winners on product, but can they win the much more unfair game of marketing?

Time will tell.

I Am Very Bullish On Oatly

With all this being said, step back with me for a minute and let’s take a sweeping macro view of the situation.

Cows are going through the worst PR of their 10,500 year history. It wasn’t too long ago that cows were labour, milk, meat and even in some parts of Australia we’d rather not share with you, bloody good company. Cows these days are just a sad story. Whatever animal affinity we used to have for them is gone. Dairy cows are pregnant their whole lives. Antibiotics keep them alive. They are kept pregnant so they can consistently provide milk. The calf of these nonconsensual pregnancies are sold off to the meat trade. Cow’s are seen as quite a ‘stupid’ animal, thought of as just a soulless vessel between lunch or dinner. They are even being blamed for much of the excessive CO2 emissions circling our atmosphere.

The Narrative Supporting The Case For Oatly

This narrative signals to me a very predictable path the cow is orienteered down. There is a mass imbalance to the natural equilibrium of things. Our unhealthy relationship with the cow is counterbalanced by a further reliance on ‘alternative dairy’ products. Soy milk, almond milk, Oatly. As a former barista, I remember the days when I ‘soy cappuccino’ was reserved for the drama queen who wanted to show off sophistication. These days a popular cafe in any European capital city will balance in a 50/50 trade.

The direction, to me at least, is clear. Cows are on the out. The dairy industry will return to a healthy equilibrium where quality is incentivised through higher price points. Options will be less, and it’s even likely most national milk brands will die, leaving in thier wake a few multinational’s whose ability to trade is liberated in the death of subsidies. This input leads me to draw a natural conclusion. Oatly is on the rise. They are the comprehensive market leader in ‘alternative milk’ in trendsetting European countries. They are superior to the soy and almond competitors because of their lower cost and more environmentally sustainable production of each owns respective key ingredient. They feel like a consumer brand more than they do a food brand. And they have secured significant financial investment from some of the sharpest minds in the business.

One of the most referenced truism’s of Atlas Geographica is that prediction is folly and a fool’s man game. But I am a happy fool and an Oatly bull. Cheers to Rickard, Toni and cows everywhere. Oatly is in for a wild ride 😎

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References

  • https://www.oatly.com/uploads/attachments/cjzusfwz60efmatqr5w4b6lgd-oatly-sustainability-report-web-2018-eng.pdf
  • https://www.agritechtomorrow.com/news/2020/02/06/vertical-farming-the-high-tech-endeavor-has-gained-huge-traction-worldwide/11980/
  • https://ag.purdue.edu/GMOs/Pages/GeneEditing.aspx
  • https://pubs.acs.org/doi/10.1021/acsomega.0c01435
  • https://en.wikipedia.org/wiki/Cultured_meat
  • https://newsroom.notified.com/oatly/posts/blogposts/toni-petersson-ceo
  • https://www.grandviewresearch.com/industry-analysis/oat-milk-market
  • https://en.wikipedia.org/wiki/Schwarzman_Scholars
  • https://www.independent.co.uk/life-style/food-and-drink/oatly-boycott-cancelled-twitter-blackstone-accusations-deforestation-trump-a9700656.html
  • https://en.wikipedia.org/wiki/Farmer_Wants_a_Wife
  • https://en.wikipedia.org/wiki/Cattle

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