Interview Synopsis

Oatly – post-IPO analysis & growth strategy & opportunity update

  • Public Equity
  • Consumer
  • Europe

Environmental concerns and an increased focus on health and wellbeing continue to drive the growth of plant-based milk. Soy and almond products once dominated the market, but in recent years oat-based milk has grown in popularity, becoming the number one plant-based dairy product in the UK and Germany, and second in the US.

Expanding production key to Oatly’s profitability

In an Interview with Third Bridge Forum, a former executive at alternative milk producer Oatly Group said strong demand for oat-based milk meant the company could become EBITDA profitable by late 2023 or early 2024 – but only if it can upscale production. 

The specialist told us demand for Oatly products continues to outpace production, with current levels only sufficient to service Oatly’s oat-based milk and not its other plant-based products. This “leaves the door open” for other brands to develop rival products, the specialist warned, as well as impacting its ability to penetrate other European markets.

To ensure it can meet this demand, Oatly is expected to complete construction on three new facilities by the end of 2023, increasing its global production capacity to 1.4 billion litres. This should help the company meet its EBITDA profitability goals, but the specialist warned any delay would push that back to 2024 or “beyond”. 

Oatly also faces pressure from rising inflation, which will likely cause its COGS to rise by “double-digits”. The specialist said consumers would bear the brunt of these extra costs, as the company looks to ensure its milk remains a “premium” product. Although higher costs could lead consumers to choose cheaper “private labels” or return to dairy milk, the specialist was “confident” higher prices wouldn’t damage its market share – drawing comparisons with the energy drinks market in which Red Bull and Monster have been able to “dominate” despite being more expensive.

The specialist said they expect Oatly to fall short of its Q4 and full-year 2021 results forecast, but that gross margins will “start to improve” in 2022. The specialist said improvements will come as Oatly accelerates its transition from a co-packing model towards an end-to-end self-manufacturing model, and could push Oatly’s gross margins to between 35% to 50%. 

To access all the human insights in Third Bridge Forum’s Oatly – post-IPO analysis & growth strategy & opportunity update Interview, click here to view the full transcript.

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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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