Oatly's blockbuster IPO shows healthy appetite for plant-based living is growing

The world's largest maker of milk made from oats was valued at $10 billion US this week, the latest sign that the ongoing trend toward plant-based eating shows no sign of dissipating.

Sweden-based Oatly raised $1.4 billion in an IPO on the Nasdaq this week, selling shares to the public for $17 apiece. 

By Friday, those shares were changing hands at more than $21 apiece, enough to value the company at more than $10 billion.

Not bad for a company that sold about $400 million worth of milk, ice cream, yogurt and butter alternatives last year and is on track to perhaps double that figure in 2021.

Although they may seem like a new entrant to the space, Oatly has in fact been around for almost three decades. Founded in 1994 in Malmo, Sweden, the company has quietly accumulated an impressive list of financial backers over the years, including Oprah Winfrey, actor Natalie Portman, rapper Jay-Z and Starbucks founder Howard Schultz.

The company's recent success is an example of how the growing demand for more environmentally friendly products is being reflected in the food industry.

"We're here to make the world better," Oatly CEO Toni Petersson told investors ahead of this week's IPO. "I know it sounds stupid, but it's true."

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Meat alternative company Beyond Meat kicked the plant-based eating  movement into high gear with its 2019 IPO. The company's $1.5 billion valuation seemed hard to stomach at the time, but within six months it ballooned to almost 10 times that. Today, the company's shares are changing hands at just over $100 a share — still four times the IPO price of $25.

More money is piling in. Just this week, Toronto rapper Drake took a bite of Daring Foods Inc., a maker of chicken alternatives, as part of a $40-million US fundraising round.

"I was immediately drawn to the Daring team's mission to transform how we eat and I am excited to invest in and support a product I enjoy," Drake said in a press release.

Canada is no exception to the trend, with small startups including Vancouver-based vegan grocer PlantX and Edmonton's packaged foods maker Nabati Foods both announcing plans to grow and expand their production capacity in recent weeks.

First meat, then dairy

While meat alternatives were the first flavour of the month, the dairy aisle is fast becoming the latest front in the battle to satisfy growing appetites for plant-based eating.

Plant-based milk alternatives currently make up about 12 per cent of the global market, but that ratio is larger in some places than others.

"Milk alternatives have been entrenched in Asian diets far longer than elsewhere as Asia has higher levels of lactose intolerance," RBC Capital Markets analyst Emma Letheren said in a recent note on the topic. She noted Asian countries already consume almost $10 billion US a year worth of drinks made from soy, nuts and now oats.

The North American market is worth a little more than $3 billion, but growing fast, Letheren said. While milks based on nuts dominate, rice and oat-based products have leapfrogged past soy and are gaining fast.

That's why Oatly is fast becoming one of the biggest players in the space, said Robert Carter, managing partner with consulting firm the StratonHunter Group, who pays close attention to the food business.

"Their ability to get in front of consumers has been impressive without much marketing," he said in an interview with CBC News.

"It really shows the groundswell but there is still so much room to grow."

After only two days as a public company, Oatly is actually already worth more than Beyond Meat. It's largely because it has become the latest hot name in a broad investment trend driven mainly by Millennials and Generation Z to put their money into products with a lighter environmental footprint, Carter said.

Oat milk takes less land and energy to produce than dairy milk and emits fewer greenhouse gases. But it also beats other plant-based milk alternatives in its environmental impact, according to a 2018 Oxford University study. Rice farming leads to more fertilizer runoff than oat milk, for example, and almond milk requires more water because almond trees are primarily grown in drought-prone California.

"They're very aggressive in promoting how much less greenhouse gas they produce and  less land they use," Carter  said. "All this stuff that the dairy industry is really not going to be able to [claim.]"

Jennifer Bartashus, an analyst with Bloomberg Intelligence, says "trendy, fast-growing categories" such as milk alternatives are now dominating the plant-based food space, but the reasons for investor zeal are the same as the ones Beyond Meat tapped into.

"[They're] capitalizing on the consumer trend away from dairy, prompted by issues of health and sustainability," she said.

Martin Pelletier, a portfolio manager with Wellington-Altus Private Counsel, says zeal for things like electric cars was a major investment trend a few years ago, and now that desire to save the world is coming for the food business.

"People are looking at climate change and [saying] how we can find alternatives toward more environmentally friendly foods," he said in an interview. "Maybe oat milk is it."

Pelletier says it's hard to swallow the idea that Oatly will convert enough dairy drinkers into plant drinkers to justify their sky high valuation long term, but there's definitely enough of a push behind the company to make money in the short term at least — not unlike another asset class popular with young investors.

"Oat milk: the new cryptocurrency," he quipped.