INSIGHTS
How OATLY Shine in the Chinese Plant-based Milk Market
BY Ye ChenDec 15, 2021
Chinese plant-based milk market is dominated by some well-known traditional players but is considered too old-fashioned to keep pace with consumption upgrades. Therefore, many entrants are flocking to this market to compete, among which OATLY is a shining star. This Swedish brand opened this market by cooperating with boutique coffee shops, and then entered new retail channels to further boost sales. It further improved its popularity among young consumers by promoting the concept of “low sugar, low fat, low calorie.”

Which brand is the most popular pop star in the Chinese plant-based milk market? The answer must be OATLY.

It was popular on social media, highly recommended by different kinds of influencers, from food influencers to fitness bloggers. Also, the sales data shows that OATLY was the NO.1 oat milk brand in terms of sales on Alibaba e-commerce platforms in the first half of 2021, and it ranked NO.2 by sales in the plant-based market. 1 In the latest news, the company announced the opening of its first factory in China on November 18, 2021, as the demand in China keeps growing.

1-11.jpgPosts on RED that recommend OATLY

How did it achieve this great result? Before decoding its strategy, we need to understand the whole Chinese plant-based milk market.

Chinese Plant-based Milk Market

Plant-based refers to a new type of food and beverage products made mainly from plant materials, with plant protein instead of animal protein.

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Although “plant-based milk” is a new concept for most Chinese consumers, they are familiar with soy milk, coconut milk, almond milk, and walnut milk. Therefore, Chinese consumers find it easy to understand and accept this new concept because it is another name of their familiar products. More importantly, this new name links common beverages to a healthy lifestyle, which stirs consumers’ passion for this category.

According to the "Market Demand and Investment Planning Analysis Report of China's Plant Protein Beverage Industry for 2020-2025" issued byt Qianzhan Research Institute, the average annual growth rate of the Chinese plant-based milk industry is expected to remain above 20% in the next few years, and the market size is expected to reach 300 billion yuan in 2025. 2 The data from e-commerce platforms confirms its popularity. According to the "2020 Plant-based Beverage Innovation Trends" released by Tmall New Product Innovation Center, the Chinese plant-based milk market grew by 800% in 2020, and the number of purchasers increased by 900%. 3 In addition, regulated as beverages, the plant-based milk sector only accounts for 7% of the soft drink market 4, implying the large space for growth.

Besides the explosive growth rate, this market shows three characteristics. First, it is still dominated by some traditional Chinese companies whose main products are soy milk, coconut milk, almond milk, and walnut milk. They have a wide range of consumers, especially in the lower-tier markets and strong distribution channels. However, their market share has been decreasing, and their brands are aging because they fail to follow the latest trends and lack innovation. Second, many new domestic players have seen the opportunity and joined the competition, including giants in other sectors, such as the Chinese dairy giant Yili, and the bottled water giant Nongfu Spring. Other small brands are also rising with the support from investors who have confidence in this sector. For example, in 2020 September, OAKIDOKI gained an Angle round of financing two months after launching its first batch of products to the market. In 2020 October, OATOAT gained a Pre-A round of financing within five months just after it was founded. All these dynamics show that it is a very active market. Third, China’s plant protein beverages market has been in a long-term trade deficit and grows year by year. In 2019, the export value fell to 167 million U.S. dollars, and the import value increased to 575 million U.S. dollars, meaning that this market welcomes overseas players. 4

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Products from OAKIDOKI

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Products from OATOAT

How Did OATLY Win in This Market?

When OATLY entered China in 2018, it first explored the offline retail channels, focusing on boutique supermarkets, Ole and City’super. This strategy turned out to be a failure. OATLY remained an unknown brand among Chinese consumers after being put in the market for months. The team quickly changed the strategy to focus on the coffee scene. By working with boutique cafes in Shanghai to promote oat latte, OATLY became a popular brand among young consumers who loves fashion and cool things. In 2019, OATLY entered more than 4,000 boutique cafes. According to its prospectus, OATLY has cooperated with more than 8,200 coffee stores in China by the end of 2020, including more than 4,700 Starbucks stores that have exclusive cooperation with OATLY. 5 In addition to Starbucks, OATLY’s famous coffee brand partners in China also cover Manner, Tim Hortons, Peet's, Costa, Luckin, etc. After improving exposure through coffee shops and tea shops, OATLY actively expanded its business from B-end to C-end by cooperating with new retail channels such as Freshippo and MISS FRESH, thus boosting sales further.

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OATLY X STARBUCKS

Traditional plant-based milk brands rely more on gift consumption. Many Chinese consumers have this habit of giving gifts to their friends and senior relatives in traditional festivals, such as Spring Festival. Traditional plant-based milk is a good gift choice. To explore more consumption scenes and break this limitation, OATLY chose to market its products as daily beverages just like milk rather than as festival gifts. In the meantime, OATLY shaped oat milk as a symbol of consumption upgrade and a new healthy lifestyle. With a promotion concept of “low sugar, low fat, low calorie,” this brand successfully enters consumers’ daily life and becomes popular among young consumers.

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Six Walnuts: A traditional plant-based milk brand

Besides, OATLY improved its popularity among young consumers by promoting the concept of vegetarianism and environmental protection. This brand even calls its consumers “post-milk generation” to show its attitude to challenge the dominance of traditional milk and tighten its relationship with its consumers.  

Challenges in the Future

Though the market is promising, there are still risks worthy of attention.

The first important thing must be compliance. At present, China does not have a clear official regulatory definition of “plant-based milk.” Moreoverm there is only one relevant standard (GB/T30885-2014 plant-based protein beverages) issued in China, and it only sets standards for soy milk, coconut milk, walnut milk, and almond milk. New types of plant-based milk, such as oat milk, do not have relevant industry standards to follow, which may restrict the incubation, control, and inspection of new categories in the plant-based milk industry.

Second, some consumers still have doubts about plant-based milk. For example, we can know that, from the ingredient list, the nutritional content of oat milk has no absolute advantage over whole milk since it has lower protein and fat content than milk, yet it has higher prices in the market. Now consumers are pursuing oat milk or other new plant-based milk because relevant companies tell a good story to show these products are cool and have fresh concepts. However, in the end, consumers will consider if the products that they are paying for deserve this price. This can be a huge challenge for plant-based milk products.

Ye Chen
ChemLinked Research Analyst
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