Oatly to build 3 new facilities by 2023 to meet soaring demand and cut production costs

SWEDEN– Swedish alternative milk company Oatly is expanding its global manufacturing footprint to meet unprecedented demand for its plant-based milk. 

The recent expansion would see the company open three plants in the U.S., U.K. and China before the end of 2023. 

The three facilities are expected to produce 450 million liters (118.9 million gallons) of product, according to COO Peter Bergh. 

The company already opened three facilities in Utah, Singapore and Ma’anshan, China, earlier this year. 

The rapid expansion of the Swedish plant-based milk company is coming on the backdrop of soaring demand for alternative milk in the global markets.  

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According to Future Market Insights, rising interest among consumers to reduce their dietary intake of animal-based food products amidst a soaring focus on sustainability, health, and ethical concerns has been critical in fuelling this growth. 

The market research firm forecast the demand for plant-based milk to reach a value of US$ 13.24 Bn in 2021 as more people troop to the non-dairy milk section.  

Oatly says that it had to rely more on contract manufacturers this year after struggling to build inventory and meet global demand.  

Supply issues also pushed the company to prioritize the production of oat milk over other dairy-alternative food products.   

Although contract manufacturing allowed the business to quickly build inventory and reduce supply chain risks during the pandemic, the higher cost involved is pushing production in-house.  

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Oatly aims to self-manufacture 50% to 60% of total volume, a significant rise from the current percentage which only stands at 21% of total volume. 

The company plans to use more hybrid manufacturing as a way to reduce its reliance on copackers.  

But supply chain issues and temporary hiccups in production have also prevented the company from ramping up its capacity plans as quickly as expected. 

U.S. production was slowed after the company’s new self-manufacturing facility in Utah experienced mechanical and automation issues that were unable to be repaired in a timely manner due to supply chain disruptions.  

Meanwhile, a potential, unspecified quality issue at Oatly’s Landskrona, Sweden, facility in November could also lead to the destruction of product. 

Oatly’s new factories also come as the company expects inflation to accelerate in 2022 for key materials such as oats and rapeseed oil.   

Poor harvest conditions in Canada are expected to drive a major increase in the price of oats by as much as 35% depending on the region, according to CFO Christian Hanke.  

“We expect the geographical localization of our production capacity, including bringing more of the production in-house, to provide some offset to inflationary pressures,” he said.   

Still, bringing more manufacturing in-house will also allow Oatly to add much-needed capacity in the long-term as demand for dairy alternatives experiences explosive growth.  

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