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033 - What's going on with Oatly?

Why are Oatly upsetting so many of their fans at the moment? Oatly have been one of the leading lights for vegans, almost single-handly exploding a new plant-milk sector into the mainstream and being tipped as the next ‘Beyond Meat’ for investors. But following taking investment from a global investment fund with a checkered history, and after being criticised for taking heavy-handed legal action against small family-run competitors, many of the company’s fans have become increasingly unhappy.

So what’s the truth about what’s been going on at Oatly? How did the company that said (on its packaging!) that “the reckless pursuit of profit should be criminal” end up on the wrong end of so much bad press? How does a company that subverted the dairy industry now have the same people who championed their mission calling for a boycott of their product? And can a company scale up and grow whilst still getting all the ethical decisions right?

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Episode transcript

Hello and welcome to episode thirty-three of The Vegan Business Tribe Podcast with myself David Pannell, co-founder of Vegan Business Tribe.  If you have a vegan business, or are thinking of starting one, then Vegan Business Tribe is here to support and inspire you not just to build a vegan business, but to build a SUCCESSFUL vegan business.
 
And if you want to go beyond the podcast and connect with our community of like-minded vegan entrepreneurs then head over to Vegan Business Tribe .com.  As well as being able to get support from Lisa and myself and our amazing vegan community, you can also attend our online meet-ups, get access to our workshops, be part of our community on Slack with hundreds of other vegan business owners – you can even study our vegan marketing course and just be part of a wonderful community of vegan business people just like you.  And we’re always really grateful to our members because they are the people who mean we can keep recording this podcast every week and putting out all our content and just generally doing everything we can to support vegan business worldwide.
 
And we’ve also just relaunched our membership options, so if you’re not completely ready to get involved yet then you can now join us as a ‘Fan’ for free and still get access to our weekly email and content.  You can sign up as a full member for £12.99 a month to get full access to the website, our community and the support you need to grow a succesful vegan business.  A number of people have also asked if they can set up a corporate membership to support Vegan Business Tribe or just be able to make a  donation to give back and help us support the vegan business sector – and we’re especially grateful for anyone who wants to help us in that way, remember we’ve only been going for just over a year and a lot of that has been self-funded, so we’ve also launched our Patron membership tier which gives the same full access to everything but also allows you to give more to help us help more vegan businesses grow.
 
OK, so slightly different this episode because I don’t know if you’ve got involved with the audio social-media app Clubhouse yet (and don’t worry, we’re not doing an episode about Clubhouse just yet), but I was invited onto a Clubhouse session on vegan investing last week and it was fair to say there was only one company on the lips of everyone asking questions of the panel – and that was Oatly.  Now, if you don’t know who Oatly are, first, where have you been for the last few years?!  But second, they are the Swedish oat milk company who have been disrupting the marketplace and are being tipped to be the next Beyond Meat in terms of who you should be investing in for explosive growth over the next couple of years.  But with that disruption has come a deal of controversy.  In 2020, during a funding round to raise 200 million dollars they sold 10% of the business to The Blackstone Group, an American private equity fund with a chequered history of what projects they have chosen to finance – including links to projects causing rainforest deforestation.  This lead to a very high-profile backlash from some of Oatly’s biggest fans demanding a boycott of the product.  Oatly have also been recently criticised for heavy-handedness in threatening small, family-owned oat milk producers with legal action with very shaky footing for doing so – for example saying that the name Pure Oaty is an infringement of their Oatly copyright.
 
So, what’s going on with Oatly?  What’s became of the company that used to say, on its actual packaging, that the reckless pursuit of profit should be criminal.  As any challenger brand grows, can it keep to the same ethos that made it so popular with its fans in the first place, or if you scale up do you just become one of the companies that you were fighting against?  And is it a case that with vegan companies we hold them in higher regard than we do non-vegan ones.  For example, calling to boycott Oatly whilst still happily shopping at your local supermarket that invests heavily in animal products?  Well, this is the first point we need to clear up, because Oatly isn’t a vegan company.  And this might come as a shock to you because they get described as one all the time, but Oatly’s founder was professor Rickard Öste (Usta) who brought together a team of scientists in the 1990s following research showing that the majority of the world’s population was, in some form, lactose intolerant. Oatly was to be the answer to that.  As far as I can find out, no one who had any major involvement with Oatly was vegan or promoting the vegan agenda.  Their advertising slogan of ‘it’s like milk, but made from humans’ comes from that research into lactose intolerance, not from any ethical standpoint.  Milk is, by its nature, a food substitute for babies – and we’re not supposed to keep consuming baby food throughout our lives which is why the studies show that as we age, our bodies become more intolerant to it. But ‘it’s like milk, but made from humans’ is a good slogan, and one that also fits the vegan agenda which is why so many of us vegans adopted Oatly as one of our own.
 
And that suited Oatly just fine!  Because the company didn’t really start to gain visibility until 2014 when it was sued by a Swedish dairy lobby for the damage Oatly’s advertising was causing to the good name of milk.  Now, the thing you have to know is in Sweden, dairy is big business.  In 1990, the population of Sweden consumed a third more dairy milk than the population of the USA.  The Swedish dairy industry is like the gun lobby in the US, they hold a lot of power, are well funded and aggressively defend the dairy industry – but all their lawsuit achieved was making more people aware of Oatly, and also, of positioning them as the challenging, ethical underdog. The dairy lobby’s lawsuit claimed that Oatly was saying that milk was out-moded and “unmodern”. It said they were  “misleading consumers” and “scaring them into thinking milk is dangerous”.  And, surprisingly, they won and Oatly were fined £100,000 – but their sales were reported as increasing by 45% as a result of the legal action.  In fact, after the lawsuit was lost, Oatly’s CEO Toni Petersson commented maybe they should have tried getting sued by someone before as a marketing activity. 
 
So – even though Oatly hits a lot of the right vegan notes with their product and their seemingly pro-vegan slogans, the truth is they are not a vegan company. Their founder has spoken about how he believes dairy isn’t inherently bad, it’s the intensive farming methods that are.  The race to be the leader in plant-milk is high-stakes.  Sales of oat milk are expected to grow 13.4 per cent a year over the next five years and reach 6.8 billion dollars in 2026 – indeed Oatly’s sales figures in 2020 were over 420 million dollars. And as we’ve spoken about on other podcasts, that kind of demand can’t be just from vegans.  Even if we were all bathing in the stuff daily, Oatly would not be growing at the rate it is unless the majority of its consumers were not vegans.  They know this, the marketplace knows it, and the dairy industry knows it which is why they are getting so upset by it – Oatly are actively stealing their customers.  But it also means that any boycotts by the small per cent of their customer base that are vegan because of who they accept funding from are not necessarily welcome, but don’t actually make a dent in their progress either.
 
So let’s take a look at the reality of what’s been happening at Oatly.  Because although the company was born out of a need to supply a milk alternative for lactose intolerance, that’s not the basis of a great marketing campaign.  Sustainability soon became the focus of Oatly’s message, and if a company launched itself on the mission of producing a product in a sustainable way, then the idea of supermarkets who were very much linked with the meat and dairy products that they were fighting against were not a great ethical fit for the brand – which is why they actively shunned the supermarkets, instead choosing to sell through independent health-store retailers.  But they knew that if they wanted to reach out to a wider audience with their message (ie the majority of the population who did not shop in health stores) and convert them to a plant-based alternative to milk, then would it be better to go into partnerships with these supermarkets to bring change from within?  So take the product where they know the people are.
 
And although Oatly say this was an ethical dilemma for them to decide to sell through supermarkets, the reality was that they probably just didn’t have the market penetration to get taken up by supermarkets in the early days.  However, whether this tale was retro-spun or not, we are exceedingly grateful that Oatly ended up in the supermarkets, because that compromise opened up a whole new category for all the other plant-based brands that followed. They showed that a supermarket could give up space to plant-milks and make money from doing so.  And this same idea is the basis of their defence for taking money from huge (and at best ethically neutral) investment funds like Blackstone. If they are going to continue to have a big impact on the marketplace, at the scale they need to spend to do that globally, then you need to take investment to get there.  And there is a question mark over if enough investment is available that is completely untainted, that just comes from ethically proven sources, but Oatly seemed to engage with The Blackstone Group in full knowledge of the controversy surrounding some of the other ventures that their 4 trillion dollars of investment has also funded.
 
So can Oatly engage with Blackstone and prove they can make as much profit from backing sustainable, ethical companies such as theirs? Can this action even steer and influence other funds to actively look to back more plant-based companies – by seeing the market-leader in investment finding success in more ethical investment opportunities?  Well, it’s a strong argument from Oatly – can they make the change from within?  If they are going to change what kind of companies these huge investment funds support, to get them to move that money away from oil and gas and the meat and dairy industries, then they need to speak a language these investment companies understand.
 
Now, I doubt I will ever lead a company that is valued in the billions of dollars like Oatly so it’s hard to make a full and fair judgement on how they made their decisions, but one thing I do know is that I will always run a VEGAN business.  And this is where the conflict lies.  Remember that although Oatly sets out its stall as an ETHICAL business, it isn’t a vegan one.  So as much as we love the company and what they have done in terms of bringing plant-milk into the mainstream, their ethics are not 100% aligned with our own as vegan consumers.  There are indeed ethical, vegan-founded and vegan-run investment funds out there.  We have Beyond Animal and Beyond Investing, headed up by Claire Smith who launched the world’s first vegan-friendly and climate-conscious stock index and exchange-traded fund.  We have Veg Capital, which was created by Veganuary founder Matthew Glover and funds a number of vegan brands including Oatly’s competitors The Mighty Pea and newly launched Vegan Fried Chicken, or VFC.  So if Oatly had been fully aligned with the vegan mission, would they have looked harder for funding alternatives?  And it’s this realisation that, actually, Oatly’s ethics have some flexibility in order for them to meet their mission – a mission that isn’t rooted in veganism.
 
Oatly’s CEO Toni Petersson was interviewed for Goldman Sachs in 2020 and he was asked the question: how do you balance ‘doing good’ and the P&L (or the profit and loss sheet) when you have investors?  Toni’s answered that it was a question that owners of companies should discuss in-depth.  He answered that sometimes you have to give up margins to do good.  Sometimes you have to give up profitability to do good.  And then you have to make sure that your investors think it’s worth it.
 
And if you decide you do not agree with Oatly’s business choices then you are free to buy other Oat milks, in fact as conscious consumers we SHOULD base what we buy on if we support how that company operates.  It would also probably be cheaper if you bought from one of their competitors.  Oatly costs from £1.80 to over £2 a carton in the shops, it IS a designer brand.  I can buy Aldi’s own-brand Oat milk for less than half that price. But, are these other brands any more ethical?  And this is where we realise what a mess we can get ourselves into, and where consumer choices lead us to face a lot of our own hypocrisy. Alpro is one of the largest producers of milk alternative products in Europe, claiming they have 40% of the plant-based dairy alternative sector – but they are owned by France’s largest dairy producer Danone. Last year in the UK, a new brand hit the supermarket shelves called Jord, promoted as a Nordic Oat drink.  Jord is actually Arla Food’s entry into plant-based, one of Europe’s biggest dairy producers.  But you won’t find any mention of that on the packaging, and because Arla produce the majority of supermarket’s own-brand dairy milk, it’s also probably why they were able to secure such good product placement on the supermarket shelves.  Take a look at the other independent alt-milk brands and you won’t find many vegans behind them.  It’s only when you go further down the ladder, and actually start shopping back in the health food stores or buying direct that you will find the truly vegan plant-milk businesses.  And we have some amazing people doing amazing things in the sector. One of our VBT members, Geraldine Starke, launched a pilot of her company called Refarm’d that aims to transition dairy farms into producing Oat milk instead of dairy.  But as part of the process, the farms also became sanctuaries so that their current animals can live out their natural lives.  The pilot successfully transitioned three farms and Geraldine is now working towards getting the full business funded.  THAT is a vegan company.  That is a company we can all ethically align with and choose to support because they are saving lives, not just producing milk – and Oatly can’t actively claim that.
 
So we know there are vegan-owned and run companies making their own alternatives to dairy as a way to save the animals not just to make a living, but as lazy consumers we choose the brands whose products happen to be plant-based but are also on the supermarket shelves when we do our weekly shop rather than buying from vegan companies.  And giving in to convenience is OK, to some extent, but it also means we cannot then be surprised when these companies don’t operate to the same standards as we would expect a vegan company to.
 
But, should we hold them to the same standards either?  If Oatly ARE responsible for taking market spend away from the dairy industry and introducing millions of people to plant milk, then as vegans are they not delivering our agenda for us?  As more people become familiar with plant-milk, that opens up the market for more truly ethical vegan companies to sell into that market.  The commercial pressure that companies like Oatly are bringing CAN be combined with our own activism to further educate people on why the dairy industry is so horrendous, but now we can also funnel people to an alternative that they can pick up in the supermarket as a first step.  Because no matter how worthy your cause, or how much you can get someone to agree with you that our treatment of animals is wrong, it’s really hard to change people’s buying habits.  This is a real barrier many vegan businesses hit.
 
And regardless of what our opinion is of Oatly as a company, the shift they have helped achieve IS significant to us who champion the vegan movement. And we can also learn so much about HOW they have done it so that truly vegan-owned and run companies, such as our member companies at Vegan Business Tribe, can learn how they can do it themselves with companies set up on vegan ethics.
 
Because most food and drink companies follow a set route:  they sell locally to the people around them first, then into a few local independent retailers until reaching the stage where they can produce enough to sell to wholesale distributors who then sell into lots more independents.  Then, when that demand is proven and an audience has already been built, then the supermarkets will take an interest.  And this is pretty much where Oatly had got to when their CEO Toni Petersson joined in 2012. Remember, a lot of us look at Oatly and Beyond Meat as being these overnight vegan success stories – but Oatly launched in the 90s. They will soon be a 30-year-old company.
 
But again, the big problem Oatly had was getting people to TRY the product in the first place.  The product was great, they knew that, and they knew once someone had a good experience with the product, they would pick it up from the shelf and put it in their basket.  They had already identified that America was going to be a huge potential marketplace outside of Sweden, so instead of going hard on advertising and public information campaigns to try and gain visibility when they launched in the US, instead they concentrated on the one place where consumers could experience the product as it was supposed to be used – and that’s in coffee shops.  Now, few consumers just sit down and drink plant-milk in a glass.  We put it in our drinks, we use it for cereal, so Oatly had to work out who were the gatekeepers of this marketplace?  Who would be able to give consumers a great first experience of their product?  And the answer was coffee shop owners.
 
So in a move of brilliance which has since been copied by many other plant-milk companies, Oatly didn’t try to win over the general public to enter the American marketplace, they won over the coffee baristas. These were the middle-men and women between the customer and their product.  If you could get the coffee shops using and promoting the product, and the customer had a great experience of it, then that was half the battle won.  And all this comes from them really understanding who their customer was – because they didn’t try and partner with Starbucks, they partnered with ‘hipster’ boutique coffee shop chain Intelligentsia first.  They developed a special Barista blend of their product that was thicker than other plant-milks meaning that the server could still create their coffee art on top of your cup.  And it was so successful that other chains were soon putting Oatly onto their menu, even leading to a national shortage in 2018 that saw people reselling the product at $20 a carton as the company struggled to keep up with production. 
 
In a talk given by John Schoolcraft, Oatly’s Creative Director, he stated that Oatly didn’t develop customers, they developed friends and started a movement.  Because many of their early customers were introduced to Oatly by their local coffee shop owner, they felt part of an exclusive group rather than being sold to by what was then a large commercial operation. And Oatly embraced this as they grew.  Their advertising campaigns are painted on the side of buildings and carry subversive messages that you wouldn’t expect a large, valuable established company to say.  They acted as a cool start-up when they were twenty years old. Their advertisements seemed to poke fun that they had got you stop and read the advert rather than promoting the actual product – the kind of really subversive, guerilla marketing that you would expect from a challenger brand rather than a market leader.  They call their team ‘Oat Punks’ and even replaced their marketing department with The Oatly Department of Mind Control.  A lot of their marketing takes place away from the actual product, and simply looks to engage the consumer as if they were a friend.
 
And although this has worked spectacularly, it’s also the main source of the conflict.  I mean how do you react when you see your friend act like a bully?  How can a company that was sued itself now be taking legal action against small family-owned brands that a consumer would never mistake for being Oatly?  Well, the truth is – they were never actually, really your friend, they are a publically-traded company who are bound by their shareholders to aggressively protect their brand and their intellectual copyright, probably even if they didn’t actually want to.  It’s just a daily activity for a business the size of Oatly.  After the huge online campaign by fans of the brand to boycott the company after they took investment from Blackstone, Oatly saw absolutely no impact on their sales.
 
But I can’t help thinking that as Oatly has grown, it has also been a missed opportunity to change and challenge the norms of big business.  Again, I’ve had my own successful companies but I doubt I will ever head up a company valued at several billion dollars so it’s easy to say all this as an observer, but can you grow a business to the size of Oatly and keep making those ethical decisions?  Of course you can, and it might result in more cost and slower growth.  But as the CEO Toni Petersson said himself, sometimes you have to give up margins to do good.  Sometimes you have to give up profitability to do good. 
 
It’s not just Oatly who are facing this dilemma, other companies who have launched a movement as much as set up a business have hit the same growing pains.  Brewdog launched their ‘anti-business’ model called Equity for Punks in 2009 in which their customers also became their shareholders, and we saw the creation of a similar challenger brand that grew 200%.  Their latest funding round broke the world record for Equity Crowd Funding at over £126m.  But they too are now being held to a higher standard than other companies are being held with allegations of bullying from a group of former employees being made against the company, which led the company to launch their own counter-claims back.
 
But compare this with vegan chocolate company MooFree.  You will also find them in most supermarkets, but they set out to put ethics ahead of profits.  They have 100% vegan factories that send zero waste to landfill.  They have a policy to employ people who have barriers to finding work – in fact at one time nearly a quarter of their workforce were people with autism.   Look at Vegan Fried Chick’n (or VFC) who launched with a counter on their website estimating how many chicken’s lives they have saved and pursue a truly vegan mission.  These are the things that make companies truly ethical, but there’s no reason why an organisation can’t have a BIG mission like Oatly (without which, remember, the plant-milk market would not be where it is today) but also keep those ethics at its core when it scales up.
 
So, to return to the title of this episode: what IS going on with Oatly?  Well, perhaps if Oatly WAS actually a vegan company, then it would be a different story – but what I want you to take away from this session is remembering that YOU have something they don’t have.  When you are a vegan company, you have a burning desire to make the world a fairer, cruelty-free place.  When you have a vegan business, lives are literally at stake and that should impact everything you do.  And that’s why I love this new breed of vegan owned and run companies that are not just trying to knock animal products off the shelf, but holding themselves to account whilst doing it.  Companies like VFC, One Planet Pizza and many others.  And what they have taught me is there’s no reason at all why we can’t turn a profit whilst doing good – in fact, you can do far more good in the world with a profit than you can ever do with a loss.
 
And that’s pretty much it for this episode, I know usually I focus on teaching you a new skill in these sessions but Oatly have popped up in conversation with so many people recently that I thought it would be worthwhile taking a closer look at what’s actually going on – and we’re at an interesting point at the moment where plant-based companies are really piercing through into the mainstream and investors are falling over themselves to get a piece of the action, which makes it easier for all of us to get our own vegan businesses and products accepted by the mainstream.
 
And if you are building a vegan business at the moment, and you want to link up with other people who are on the same journey as you, or if you just want to support our own mission of skilling up the vegan business sector, then do come and check us out on Vegan Business Tribe .com.  As I said at the start, if you’re not completely ready to get involved yet then we’ve just re-arranged our membership tiers so you can now join as a ‘Fan’ for free and still get access to our weekly content, or you can sign up as a full member for £12.99 a month to get full access to our community and support – or if you really believe in our mission, you can also join us as a patron for £99 a month to support the work we’re doing and give back to the vegan business sector.
 
So thank you for your time, I hope to see you over on the website too or in our community on Slack so that we can talk further, and I will see you on the next one.

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