Mike Messersmith recalls a crazy moment at the beginning of the coronavirus pandemic in which he saw validation.
"You see a graphic that shows up on the news of the categories that are surging in growth. And you're like, OK, hand sanitizer, that makes sense," he said. "There was a toilet paper shortage. I've read about that. And then you see oat milk on that list, and you're like, 'What, how is that on there?'"
According to Nielsen, sales of oat milk were up 347.3% the first week of March, as consumers quickly stocked their pantries at the beginning of the pandemic.
Despite his amazement at this year's explosive growth, Messersmith, the North America president of Oatly, knows exactly why consumers are turning more to oat milk today, the reasons Oatly is one of the hottest products on the grocery shelf and how the pandemic has accelerated Oatly's sales and prominence.
Of the food industry success stories emerging from the pandemic, oat milk is the biggest. Though sales have moderated a bit since the explosive pantry stocking peak in March, they're still growing at an exponential rate. Through Oct. 3, dollar sales of oat milk were up 212%, posting the largest increase of any food item compared to last year, according to Nielsen. Oat milk is now the second most popular plant-based milk in the United States, according to SPINS.
And Oatly, with its quirky and no-nonsense vibe, celebrity backing, long history and international cult following is leading the pack. Oatly is a private company and does not report earnings, but in 2019 it produced 165 million liters of oat milk for customers worldwide — 93% more than in 2018, according to the company's sustainability report. Oatly's sales grew 88% worldwide last year, and it had a turnover of $206 million, the report says.
Messersmith said that a big part of Oatly's success comes from consumer preferences evolving — both because of the pandemic but also because of heightened understanding and concern about sustainability and health. Combining that with Oatly's nearly three decades of making oat milk and related products, the brand fits what consumers are wanting right now, he said.
"Coming with a really great-tasting, innovative product, combined with this movement that's going on [and] being driven by consumer preference has really set up this this growth story," Messersmith said. "And I think the catalyst for that, that we've seen, is there is an overarching consumer desire and willingness to try plant-based options."
What sets Oatly apart
It makes sense that Oatly is the first brand that comes to mind when thinking of oat milk because the company literally invented it.
Rickard Öste, a Swedish food scientist, first formulated the product in the 1990s. He was looking to oats, which are known both for their healthy properties in food and sustainable farming principles, to create food items that were better for the environment and available to consumers with milk allergies. The products first launched in Europe in the '90s, taking on several iterations before they got to be the more familiar oat milk products millions of consumers recognize.
Oatly is sold in 25 countries worldwide today and first came to the United States in 2016. But it didn't start on grocery store shelves. Instead, it launched in coffee shops. Messersmith said this approach was to help nudge people to try oat milk. While many consumers might not have wanted to pick up a whole container of Oatly on grocery store shelves, a bit of it in a coffee shop drink is different.
"We believe that if people have their first experience with Oatly, and with the idea of oat milk overall, through a really well-prepared latte or cappuccino, then it could really be this eye-opening, world-expanding moment of, 'Wow, like this is way better than I expected, and I don't miss my old routines at all,' " said Messersmith.
After winning consumers over in coffee shops, Oatly moved on to the grocery channel. Messersmith said an early indication of the brand's success was a shortage in late 2018, during which marked-up cartons were sold on eBay. The shortage abated in 2019, when Oatly opened its first U.S. factory in New Jersey. A second factory should open in Utah before the end of the year, Messersmith said, though the timeline for completion and beginning production was slowed down significantly by the coronavirus pandemic.
In 2019, the North American market was Oatly's third largest, making up 19% of its total business, according to the company's sustainability report. The only larger markets were Oatly's home country of Sweden, responsible for 24% of its business, and the United Kingdom, which makes up 23% of its sales.
While Oatly isn't the only oat milk brand on grocery store shelves today, Messersmith doesn't see the others as competition. Oatly is on a corporate mission to get more consumers to turn to more sustainable options, and he said they cannot be the sole producer. He's especially glad to see CPGs that had previously been in traditional dairy get into the oat milk space.
"We're trying to change the way that food companies approach how they think about the climate and planetary impacts of the products that they make," Messersmith said. "How they approach transparency around their ingredients and their sourcing. ...That, I think, is a really important conversation for us to be having globally around more mindful and considered consumption that is more than price points, more than Nutrition Facts, but also the environmental and planetary impacts of the food choices we make."
"Coming with a really great-tasting, innovative product, combined with this movement that's going on [and] being driven by consumer preference has really set up this this growth story. And I think the catalyst for that, that we've seen, is there is an overarching consumer desire and willingness to try plant-based options."
North America president, Oatly
The concern for the environment — which Oatly makes clear on every carton and in all of its corporate messaging — is one thing that sets the company apart from competitors, Messersmith said. Another big difference is the craft and experience that goes into Oatly's products. In its entire company history, Oatly has only worked with oats. It hasn't worked with other items to make dairy-free milk and related products. And with so many decades firmly focused on oats, the understanding of the grain and the quality of the products is high, he said.
"I know that speed is obviously a big part of commercial development, but for us, it's that combination of focus of trying to do one thing really, really well with a high degree of purpose. And the fact that we've been doing it for more than 25 years in Europe, that has allowed us to really hone and refine our product," Messersmith said. "And we think that does make a difference. We think that shows up in our ingredient list, in the taste and texture, in the consumer experience. We think that matters."
A carton of Oatly a U.S. consumer picks up off of the shelf in a grocery store today is a direct descendant of the first oat milk made by Öste in the 1990s, Messersmith said. It's also virtually identical to a carton of Oatly in any of the other countries where the oat milk is sold. The only differences have to do with the sizes and types of products consumers tend to buy in those countries. The U.S. has a much bigger refrigerated milk market, he said, while shelf-stable dairy is dominant in other nations.
What the future holds
As Oatly's U.S. popularity and sales grow, so does its product line.
The company started out with just its oat milks for sale. Last year, it added Oatly frozen desserts, pint-sized ice cream-like treats. And this summer, it added oat milk-based Oatgurt.
Messersmith said all of these are selling well and getting positive consumer responses across the board. And there are more items that could easily enter the U.S. market. Since Oatly's products are essentially the same from country to country, Messersmith said they have been able to carefully develop and perfect what they make. In some European markets, Oatly has a wider array of products — ranging from canned ready-to-drink lattes to oat milk drink boxes to spreadable cheese to cream designed for cooking. When Oatly's U.S. business is ready from a commercial, operational and organizational standpoint, Messersmith said it will be time to work on bringing some of those innovations to the United States.
Oatly is also working to bring some of its sourcing stateside. Currently, the majority of the oats for North American Oatly products come from Western Canada. But the company is working with two nonprofits — Sustainable Food Lab and Practical Farmers of Iowa — to get U.S. farmers to start growing food-grade oats as part of their normal crop rotations.
"As oat milk continues to surge, to be able to create more market opportunity for agricultural entrepreneurship and ingenuity in this country for food grade production that can work in partnership with other key initiatives that those farmers are looking at is a real big idea, we think, and it's something that we've been really, really excited about, even as we're a small company, to try to get going," Messersmith said.
The pilot program started last year with four farmers, according to the company's sustainability report. This year, the plan was to at least quadruple that, working to make oats a commonly farmed crop in the United States again.
With all of the hype and success surrounding Oatly, there have been rumors percolating that the company may go public in the near future. Sources close to the company have said a potential U.S. IPO next year could value the company at $5 billion. This summer, Oatly sold a $200 million minority stake to investors including Oprah Winfrey, Natalie Portman and private equity powerhouse Blackstone Growth.
Messersmith would not directly comment on Oatly's plans.
"The growth that we're seeing across markets — Europe, United States, China — is consistent," he said. "...The goal of the company, the imperative, from a climate and sustainability standpoint to continue to grow and scale is at the front of our minds, and present even since the beginning."
Widespread support and recognition of a brand like Oatly helps more people realize that message, and brings those changes closer to becoming reality, Messersmith said. That's a big reason why Oatly sold the stake to Blackstone, which has generated some controversy because the private equity firm's founder is a major donor to President Donald Trump. Oatly responded to the controversy with a sharply worded retort, saying if the company could convince a major investor like Blackstone that environmentally friendly oat milk could be profitable, it could inspire other funders to think the same thing, lifting the entire plant-based sector.
While Oatly has seen great success in a short amount of time, Messersmith said he thinks there is still more that the company can do. Given the environmental imperatives and plant-based trend, he believes oat milk is not a fad in the United States. Growth, he said, is likely to continue. In European markets where Oatly has operated for a decade or more, oat milk has a much higher percentage of the dairy market.
"This product wasn't launched or in reaction to any dietary trend or fad — it's trying to create something that is delicious and nutritious, but also, you know, is conscious about the impact on Earth's resources in how we make it," Messersmith said. "I think that the growing awareness, understanding that from a consumer standpoint, is only going to accelerate in the coming years, and we have these markers in other markets to be able to show where this can evolve to."
Correction: A previous version of this story gave incorrect dates for the U.S. launches of Oatly Frozen Dessert and Oatgurt.