Oatly through the looking glass

Oatly, possibly the world's best-known oat milk brand, is widely admired for its quirky, 'love-us-or-hate-us' branding and marketing. But there is nothing to admire about its worsening financial performance.

Oatly's financials were already crumbling in 2021. It has just reported financial results for the first quarter of 2022 which tell us that its high-growth business plan is turning to compost in its shareholders' hands:

  • Every $1 of product Oatly sells costs it $1.49 to make.
  • It reported first quarter sales up an impressive 18%.
  • But its operating losses were up by 229%!
  • It generated an operating loss of $92.1 million in just the first three months of 2022.
  • The real killer? Oatly's gross margin collapsed from 29.9% in 2021 to just 9.5% in 2022.

With raw material costs spiralling (which pre-dated the war in Ukraine by several months) and consumers likely to become more budget-conscious as inflation and/or economic slowdowns eat up their disposable income, it's going to be a hard road for Oatly to get its gross margin out of the basement. And its target of 40% gross margin looks like the unicorns-and-rainbows belief it always was.

Another grim statistic: Europe (EMEA) is Oatly's main market, accounting for around 52% of sales. It was also the company's only profitable market – until now. Europe seems to have gone from an operating profit of $8.498 million in 2021 to a loss of $5.856 million in 2022.

In every market in which it operates, Oatly lost more money in 2022 than in 2021. In the key US market Oatly is outsold by Planet Oat (made by dairy group HP Hood). Oat milk is firmly a niche and in the US sales of lactose-free cows' milk are four times bigger - and growing faster - than oat.

Clearly, Oatly's CEO and his team are possessed of a very special talent!  

The company has brought in two experienced food industry executives, one from Mars and one from Danone. To rescue Oatly from its current situation, they are likely to be kept busy slashing marketing costs, slashing headcount, scrapping factory-building plans, abandoning the high-growth goals and re-focusing Oatly on business basics. And if they cannot do that, Oatly runs the risk of becoming one of the most spectacular failures in food industry history.

Our podcast back in February on why the end-times are approaching for 'jam tomorrow' business models is even more true now:  https://newnutritionbusiness.podbean.com/e/jam-tomorrow-business-models-are-toast/

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