Oatly goes organic: Why is oat milk reinventing itself?

  • Oatly has launched a “Barista Organic Oat Drink”, showing how oat milk brands are seeking to differentiate 
  • This follows Oatly reporting a Q4 net loss of $298.7 million amidst heightened competition and media backlash
  • To rebuild consumer trust and stand out in an increasingly saturated marketplace, oat milk brands are tapping into product differentiation 

IN A landscape marked by health-conscious consumerism and evolving dietary preferences, the oat milk segment is undergoing a transformative shift. 

Once relegated to the fringes of the dairy aisle, oat milk has emerged as a true contender, challenging the dominance of traditional dairy products and other plant-based alternatives. Its appeal lies not only in its creamy texture and versatility but also in its perceived health benefits and sustainability credentials.

However, a few years on from its explosive emergence, oat milk is now being challenged over its health benefits, as well as facing a downturn in sales across the broader dairy alternatives market. In response, oat milk producers have embraced innovation and differentiation strategies to capture the attention of discerning consumers.

Oatly notably just launched its Barista Organic Oat Drink, which reportedly contains organic oats, water, rapeseed oil, unsaturated fat, sea salt, and potassium carbonate. The hook? It’s completely foamable, as well as being healthy and sustainable to boot. Other brands are also following suit.

“Although Oatly wasn’t the first to enter the market, it was the first brand to make oat milk mainstream and has always commanded a large market share,” says Tony Huang, founder of Attune Superfoods. “Naturally, competitors want to take a piece of the pie as the category grows, which feeds into steep competition. Not a bad thing, as it will force Oatly to stay innovative.”

Oat milk brands at large are now doubling down on innovation, introducing a wave of new products aimed at reinvigorating consumer interest and reclaiming market share. From fortified varieties boasting enhanced nutritional profiles to sugar-free options, the oat milk segment is entering a period of rapid diversification and differentiation.

Oat milk faces sales decline and media backlash 

In recent years, the oat milk market has struggled against headwinds, grappling with a decline in sales. This has been attributed to market saturation and heightened competition within the plant-based beverage sector. 

Oatly reported four consecutive quarterly losses in 2023, with a Q4 net loss of $298.7 million that they attribute to “other operational costs”. Interestingly, oat milk, plant-based beverage and dairy products have all experienced a dip in sales in the last two years.

Moreover, recent controversies have emerged about the sugar content and nutritional profile of some oat milk products. These have prompted consumers to scrutinise their purchasing decisions more closely, casting a shadow over the segment’s once-sterling reputation.

Oat milk may cause spikes in glucose, and current controversy also lies in the seed oils used in oat milk to achieve its prized creamy texture – which some believe to cause inflammation in the body. Fair or not, these claims are causing division amongst consumers.

“Narratives in the food industry are very common and often sensationalised to cause worry among consumers,” says Tony. “Dairy and milk consumption has hit all time lows in recent years. I’m not sure, but I wouldn’t be surprised if the dairy industry is pushing this narrative. Regardless, I think people will quickly forget and move on.”

Oatly’s organic product is a direct, health-focused response to this backlash. Today, many oat milk brands are looking for ways to remove the seed oil while maintaining the same consistency, to stand out and cater to the health-conscious consumer.

No longer “just” oat milk

Key to the oat milk segment’s differentiation strategy is the industry’s concerted effort to address concerns about product transparency and health claims. 

In particular, the segment’s emphasis on sustainability and environmental stewardship remains a central tenet of its differentiation efforts. With consumers increasingly prioritising eco-conscious consumption habits, oat milk brands are leveraging their plant-based credentials and lower environmental footprint to appeal to a growing cohort of environmentally aware consumers.

According to Tony, there is also a big push towards appealing to Gen Z. 

“Oat milk had a novelty factor for millenials,” he says. “Since Gen Z grew up with dairy milk alternatives, oat milk has been somewhat normalised – so it needs that something extra. Brands have offered that by turning it into a meme and status symbol among Gen Z.”

Altogether, this means the oat milk segment will likely continue to evolve and differentiate, its innovation fuelled by modern consumer behaviour and a competitive market landscape. Nonetheless, its prospects remain positive amidst a broader backdrop of shifting consumer demands and health-conscious lifestyles. 

Coffee Intelligence

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