Oatly – Post-IPO Analysis & Growth Strategy & Opportunity Update - 27 January 2022

What trends are you monitoring across the plant-based milks industry and wider dairy industry, given both are relevant to Oatly? What’s changed since our previous Interview [see Oatly – Business Update & Global Growth Outlook Ahead of Potential IPO – 26 March 2021]?

There is quite an exceptional pick-up in plant-based dairy in Germany, from 4% to 9% penetration, which was seemingly very driven by oat milk given the numbers you provided. What is happening in this geography? Is there anything to monitor in Germany vs other markets around an inflection point in conversion?

You’ve highlighted structural differences in subsidies and therefore the relative price differential for Oatly potentially opening up presence in Europe, particularly the big markets, Italy and France vs Germany. Is there anything that might change around those regulations which could work in favour of the plant-based category? Could anything structurally different across consumer behaviours be a barrier? Could we observe a similar trend to Germany if Oatly were to address its supply issues and be more aggressive in Italy and France, or will there always be a market differential?

What material coronavirus impacts have there been on the plant-based industry? Has anything changed since our March 2021 Interview?

What might inflationary cost pressures across the plant-based industry indicate for margin pressures and the ability to take pricing? What impacts might it have on volumes and market shares? Could there be a significant dynamic in pricing differentials between plant-based and traditional dairy?

Does the cost inflation dynamic cause an acceleration in the trend of consumers switching from Oatly to a private label product, given this increases the price gap between them? Could this be a permanent shift, or do you think there’s enough of a quality differential that consumers may come back to a branded product such as Oatly when they have more disposable income or the price gaps begin to normalise more? We hear of consumers who prefer branded products within a category and another tier of consumers who only consume private label.

Has anything changed about your longer-term outlook for the plant-based milks industry and the oat milk category within that? What is oat milk’s longer-term potential for penetration, adoption rates and relative pricing?

Tapping into the mainstream consumer of non-milk oat products outside of plain milks is potentially a very big addressable market. What changes there? How could Oatly replicate or improve the quality of its product and close the quality and pricing differential? Could that be imminent, or is it still some time away?

Would you say the oat substitute doesn’t have as natural an advantage vs other plant-based alternatives outside of the fluid milk category, where the success of oat in fluid milk has been the consumer likes the quality and it offers something that more closely replicates milk?

Let’s say Oatly is a bit slow to market in some of these other categories and another brand comes in and does a better job at bringing this quality closer to what it’s trying to replicate. Does this mean Oatly will miss its opportunity? Could the strength of an Oatly branded milk translate to other categories?

According to Oatly’s Q3 2021 figures, sales were up around 50%, so obviously not a bad number, but it’s quite a bit below pre-IPO growth rates. Clearly there are a lot of one-off issues within that, such as supply shortages and channels closing. Might the underlying consumer demand for the brand’s products across its key markets have changed and be behind this slowdown? Or do you think these technical, one-off factors are behind it?

Could you comment on these supply issues and your confidence in Oatly addressing these constraints so the brand is in a position to get back on track in meeting demand?

In situations where Oatly is unable to fulfil customer orders or demand and therefore loses shelf space to a competitor, what might this indicate for longer-term customer relationships? How easy is it to get this shelf space back once the supply is in place? This ties in to this European shelf resets issue, so could you discuss what happened there and how confident you are about Oatly restoring its shelf space in Europe?

Are there any analogies or benchmark cases where loyalty and retailers bearing grudges has been a problem, or can’t it be compared with such a new category such as oat milk? How successful might Oatly be in restoring some of these relationships when supply is back on track?

How might Oatly’s 2022 revenue growth and margin recovery fare? Let’s assume Oatly reaches its guidance for FY21, or feel free to comment if you think that’s at risk.

You touched on Oatly’s longer-term gross margin target of 40%, and there seems to be a reduction in reliance on co-packing. Could the brand pull any other levers to reach this longer-term target? What are the pricing risks on the other side to executing on that 40% longer-term target?

If Oatly is successful in taking price increases and passing these pressures on to the retailer and the consumer, you said we don’t know how long these price pressures will last. Is there an opportunity for the brand to retain those higher price points and expand gross margin if costs come down again in 1-2 years? Do you think it’ll have to pass these back on to the consumer in due course, which tends to happen at the more commoditised end of the dairy spectrum?

How should we think about Oatly’s EBITDA profitability? Obviously gross margin is key within this, but what might be some of the other moving parts or risks? How long might it be before the brand breaks even and reaches its 20% EBITDA margin target?

Might any of Oatly’s strategies have changed in the last 12 months or post-IPO? Would you like to highlight any bigger-picture changes in strategy?