Swedish oat-milk maker Oatly is losing its froth. The company deployed quirky advertising and marketing to popularise a dairy alternative. Oat milk is now one of the fastest-growing plant-based milk in the US. But Oatly may have bitten off more than it can chew.
The group’s ambitious plan to build and operate its own factories has run into repeated delays and problems. This has left Oatly unable to meet demand. Rivals have taken advantage of the mis-step to grab market share.
Oatly’s operational challenges have also left it awash with red ink rather than vegan milk. Losses more than doubled to $108mn during the third quarter compared to the same period a year ago. Sales, up 7 per cent during the quarter, were hurt by the stronger dollar, zero-Covid restrictions in China and US production woes.
Do not expect the pressure to let up soon. Oatly has lowered its full-year outlook. It now expects revenue for 2022 to be between $700mn-$720mn, compared to $800mn-$830mn forecast just three months ago.
Oatly says it is moving to cut costs and will shift to a more “asset-light” model. This would probably involve the company contracting third parties to produce some of its oat milk rather than building more production facilities.
Unfortunately the moves may be coming too little too late. Once the darling of the oatmilk world, Oatly has seen its share of the market gobbled up by rival brands, including Planet Oat and Chobani. Bringing customers back would involve a higher marketing spend or deeper discounts. Both of those would be counterproductive when Oatly it is in cost cutting mode.
The group went public in May 2021 in an offering that valued the company at about $10bn. The shares were priced at $17 a piece. They are now worth just a little over $2 after the stock dropped another 12 per cent on Monday. That leaves Oatly trading at just 1.2 times forward sales. Investors will be left with a very sour aftertaste unless Oatly gets costs under control.
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