Plant-based milk alternatives are stealing the limelight again, but this time in the form of oat milk, the new coffee shop craze.
Oat milk has a light creamy flavor that works well for latte art, making it superior in both taste and aesthetics. Let’s look at how this new spike in demand is affecting the market…
As people turn to plant-based milk alternatives over dairy, dairy milk sales are expected to fall by 1.2% this year. This is hurting the dairy industry. Major milk player, Dean Foods Co. has initiated a $150 million cost-cutting plan due to falling sales.
At the same time, milk alternatives, like oat milk, are rising. Oat and almond milk demand are expected to rise by 3% this year. Demand is increasing faster than supply can keep up, leaving coffee houses with shortages for days and even weeks. One company meeting the demand, Oatly Inc. is planning on increasing its production of oat milk by 50% over the summer.
The popular coffee company, Intelligentsia, introduced Oatly Inc. oat milk to the U.S. in September 2016. Since then, it has expanded to use in over 1,000 U.S. coffee shops and is sold at a premium over milk of just $0.50 USD.
In light of this demand, the dairy industry is lobbying to change the labeling practice, so that plant-based milk alternatives cannot use the term “milk” on the label. International companies typically don’t use the word “milk” on the label: for example, in Sweden, oat milk is labeled “oat drink.”
The potential of Oatly Inc. after this surge in demand may lead to a buyout. It has been speculated that PepsiCo will take over Oatly, but the company hasn’t commented on that possibility.
Is the demand for oat milk here to stay?
Will the dairy industry lobby successful to get “milk” off the label?
Will PepsiCo buy out Oatly Inc.?
It is still too early to tell but the lattes and coffee shop baristas certainly aren’t seeing a slowdown in the demand. While this is one of the latest food craze we’ve seen for oats (another one being oats ice cream), it’s healthy to see a bit more diversification for the end-use cases for the cereal.
That being said, we don’t think that oat milk or ice cream will rally oats prices by a dollar or two per bushel any time soon. More than anything though, it’s important to understand the different markets where your product is going.
Coffee Shops Are Already Running Out of America’s Newest Milk Craze
There’s a new plant milk in town, and it’s started such a craze that coffee shops across the country are struggling to keep up with demand.
Oat milk “tastes the best of all the milk alternatives,” said 22-year Micah Lindsey, who works as a barista at an Intelligentsia coffee shop in Chicago’s Logan Square neighborhood. It has a “really creamy texture” that mimics real dairy and works well for latte art, she said.
Plant-based beverages have been stealing market share from dairy for years, and the trend isn’t showing signs of slowing. In 2018, U.S. retail sales of traditional milk are projected to drop 1.2 percent, while alternatives like oat and almond are expected to climb 3 percent, according to researcher Euromonitor. The switch has taken a toll on companies like Dean Foods Co., the largest U.S. dairy producer, which in February unveiled a $150-million plan for cost cutting amid sluggish sales.
Dollop Coffee Co., a Chicago chain, began carrying Oatly oat milk in October 2017. Demand is especially growing among customers who are switching from soy milk, said spokesman Nate Furstenau. In March, the shops ran out of oat milk for about two weeks, and the company’s heard from its distributor that shortages could continue over the next month.
Oatly arrived to the American market in September 2016 through Chicago-based company Intelligentsia, which has 11 U.S. coffee houses. It’s now offered at more than 1,000 coffee shops nationwide and is moving onto retail shelves, Messersmith said.
About 13 percent of Intelligentsia drinks are now made with oat milk, for which customers pay a 50-cent premium over dairy milk, according to James McLaughlin, the company’s chief executive officer.
Malmo, Sweden-based Oatly started making its product two decades ago based on research from the nation’s Lund University. To make the beverage, the company mixes oats with water then adds a proprietary enzyme to break down starch and sweeten the pot. After that, loose shells from the oats are removed from the liquid base. There are no sugars or thickeners added.
The dairy industry is lobbying regulators to enforce labeling laws that would stop plant-based beverages from using the word “milk” in branding. The National Milk Producers Federation point out that in Sweden, it’s called an oat “drink.”
“The very same packages sold in the U.S. with terms such as a oat milk or almond milk are not able to use dairy terms when sold overseas,” said Chris Galen, spokesman for the group.
In the meantime, business is booming for plant-based beverage makers like Pacific Foods of Oregon, which is also looking to expand its production of oat milk, according to brand manager Kimberly Nieves. While the company has offered an oat product for 20 years, demand has really taken off recently amid the coffee-shop craze.
“We have seen a surge in demand for our oat products beyond what we were able to supply,” Nieves said.
As consumers drive big changes in the world of agriculture and food, traditional companies have been buying up natural food startups. Campbell Soup Co. last year bought Pacific Foods for $700 million.
Oatly could become a takeover target, said Kenneth Shea, an analyst with Bloomberg Intelligence, citing possible buyers such as PepsiCo Inc., which makes Quaker oats products. PepsiCo didn’t respond to requests for comment on a possible deal.
When asked about the possibility of a takeover, Messersmith said the company still needs to ramp up its production.
“We are at a very early stage,” he said.