Oatly Group raises US$1.4b in plant-based IPO

Oatly IPO Nasdaq oat milk Wide Open Agriculture ASX WOA
Oatly Group’s shares closed the first day of trade up almost 20% on the US$17 IPO price.

Amid a global push to plant-based foods, Swedish alternative milk brand Oatly Group has raised US$1.4 billion through an initial public offering to US investors ahead of its Nasdaq debut overnight.

The company first made noise about a potential market listing in February when it submitted a confidential IPO filing with the US Securities and Exchange Commission.

In the lead-up to the filing, the plant-based food maker sold part of its stock to celebrity backers including Oprah Winfrey and rapper Jay Z, as well as private equity firm Blackstone and former Starbucks boss Howard Schultz.

That deal alone was believed to have valued the company at US$2 billion.

On Wednesday this week, Oatly closed its IPO with the issue of 84.4 million American depositary shares at US$17 each, which gave it an indicative market value of US$10 billion on listing.

The company hired Morgan Stanley, JPMorgan Chase and Credit Suisse as underwriters for the raising.

Growing a brand

Oatly was founded in 1994 by brothers Rickard and Bjorn Öste who discovered a way of processing a slurry of oats and water with a patented enzyme technology to create a naturally sweet, non-dairy liquid with a milk-like taste and consistency.

In 2019, the company opened a US$15 million processing facility in Millville, New Jersey to meet growing US demand, citing the small city’s proximity to major markets in New York, Philadelphia and Washington.

The facility was spread over 1,765 square metres and built in collaboration with US company Innovation Foods as part of an ongoing US$110 million partnership and investment agreement.

The following year, Oatly said it would open a second facility in Utah, with three times the capacity of Millville to service customers on the US west coast.

And in March, the company announced that Innovation Foods would build a new US$45 million, 6,600sq m processing and packaging plant behind the original Millville factory to cater to “explosive demand”.

Alternative of choice

These days, the Oatly brand appears to have become a dairy alternative of choice, having well surpassed the small customer base of upscale New York coffee shops it serviced when the product was first launched.

Oatly’s products are now marketed across 50,000 locations in more than 20 countries and there are plans for long-term expansion solutions to meet “massive demand” from European consumers.

Of note is the company’s presence in China, which commenced in 2018 and has been rapidly scaled through an e-commerce partnership with Alibaba and an exclusive branded partnership across 4,700 Starbucks outlets.

At the end of December last year, Oatly had more than 9,500 food service and retail points of sale across China, with a growth rate of over 450%.

Consumer preferences

The strength of Oatly’s IPO is believed to reflect changing consumer preferences and a reshaping of the food industry.

Where alternative milks were once found only on shelves for people with allergies, the tables are rapidly turning in favour of foods which also address environment and lifestyle concerns.

Food production is a leading contributor to climate change, especially when animals such as cows (which can produce up to 500 litres of methane gas a day) are involved.

Oatly said the production of milk substitutes made from soybeans, almonds, rice and oats have proliferated in response to soaring demand.

“Traditional food production is one of the biggest drivers of environmental impact … [it] uses about half of all habitable land on earth, requires large amounts of resources, emits greenhouse gases and harms biodiversity,” the company said in its prospectus.

“We believe that transforming the food industry is necessary to face humanity’s greatest challenges across climate, environment, health and lifestyle.”

Follow the leader

Perth-based Wide Open Agriculture (ASX: WOA) has followed Oatly’s lead with the development of its own dairy-free oat milk using locally-sourced ingredients.

Released under its Dirty Clean Food brand, OatUp is claimed to be the first of its kind in the world to utilise oats grown using regenerative farming principles, meaning fewer inputs, less water and lower greenhouse gas emissions.

It is also the world’s first oat milk to receive carbon neutral certification.

The certification was secured from the Australian government’s Climate Active group and recognises OatUp’s production and sales processes for their zero net greenhouse emissions.

Wide Open Agriculture ASX WOA quarterly revenue results OatUp
OatUp is the world’s first oat milk to receive carbon neutral certification.

Specialty food and beverage distributor European Foods will market and sell OatUp to more than 500 sales outlets in Perth, including cafes, restaurants and supermarkets.

According to Wide Open Agriculture, the plant-based milk industry is worth US$2.8 billion globally, with oat milk leading the charge for its low environmental footprint and availability of raw ingredients.

The company is also exploring potential opportunities to develop, package and sell other oat-based drinks with new flavours and nutritional profiles.

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