May 4, 2020
Should I Start an Oat Milk Business?
Long term trends combined with a recent restructuring of how we buy our household items may mean it’s now a really good time to start an oat milk business.
Before I get into it, I’d like to make the disclaimer that I know very little about this topic. This idea popped into my head so I figured I would write it out. If you know more about oat milk, consumer goods, grocery, retail, etc., I’d love to hear from you.
But here’s what I do know: Consumers are increasingly concerned about the impact that products they buy have on the environment. Oat milk is environmentally friendly, using 14.5 times less water to produce and responsible for a quarter of the CO2 emissions of dairy milk.
And this trend translates to a realized and predicted growth in the dairy alternative category:
- The market size of plant based meat alternatives is predicted to grow from $4.6B in 2018 to $85B in 2030, just look at how Beyond Meat has penetrated the fast food market overnight.
- Demand for plant based dairy alternatives has grown by at least 60% since 2012. Some analysts predict the category could be worth $37.5B by 2020
- Oat milk retail sales in the U.S. grew from $4.4M in 2017 to $29M in 2019. Demand for oat milk is expected to grow 10% year over year from 2020 to to 2026.
Why Oat Milk Now?
For starters, it’s reasonable to assume that demand for oat milk will accelerate amid the Covid-19 pandemic, people are looking for shelf stable products they can stock up on to limit trips to the grocery, it’s a great time to convert dairy drinkers to something new.
But so what, there are at least half a dozen established brands who are better positioned to welcome these dairy switchers.
Yes and no.
There certainly is competition from the oat specific startups Oatly, Earth’s Own and Minor Figures, and from bigger CPGs who offer an oat product such as Danone’s Silk. But, I argue, the covid crisis has offered a rare rebalancing of the playing field, reducing the incumbents’ advantage, opening new channels for upstarts.
The primary advantage that these in-market oat milk products have is extensive distribution and big marketing budgets. They’ve made their way into grocery chains and coffee shops big and small. Both places where currently shoppers are spending minimal or no time, and likely not comparing products or particularly interested in trying something new. The reach of their marketing budgets has been stymied as well, with out of home advertising reaching a far smaller audience.
I’d also hazard the guess that none of these brands have strong loyalty among oat milk drinkers, limited penetration among other dairy alternative drinkers, and virtually no recognition with dairy drinking potential switchers.
Now that the playing field is more level, I would establish and compete in new channels, a strategy which a nimble upstart conceivably has an advantage over an established brand.
Direct to Consumer: I’d start by selling online locally, oat milk has a long shelf life so it could be shipped (expensively) but delivering locally is the most cost effective option. People seem eager to support local businesses right now, bringing back the milk man seems like a nice comfort to offer.
A trap many DTC startups fall into is the ever increasing acquisition cost of online advertising, but there has been a dramatic reduction in ad spend, due to big budget cuts during the crisis therefore lowering online advertising costs. Less competitive online real estate allows for low cost effective targeting of the local demo.
Restaurant Pantries: We’re seeing many local restaurants open their doors, or at least their websites, to act as local pantries and delivery services. It’s unlikely that they have a strong relationship with an Oat Milk dealer, I’d see if they’re interested in adding oat milk to their selection, it may even be reasonable to offer it on consignment.
Delivery Partners — The product could be listed directly on Uber Eats and other delivery apps, this cuts into the margins and/or increases consumer cost but it’s a great way to test with limited infrastructure. While we’re talking delivery I would also contact other new to delivery businesses who may have excess capacity, or bike couriers who might not have the same level of b2b business.
Door to Door Flyering — Honestly, why the hell not. It’s a relatively cost effective way to reach people (very cost effective if you do it yourself), and makes a whole lot of sense when there are efficiencies of having deliveries clustered together.
As I said before, there’s a lot I don’t know about oat milk, or the consumer food business. I didn’t even touch on production, the ability to easily manufacture a small batch through a contractor is crucial to the nimble success. With all the unknowns and unknown unknowns acknowledged, I hope this at least demonstrates that quite literally as covid closes some doors it opens new ones.