How Oatly penetrated the Chinese plant-based market | Analysis - Campaign Asia

Recently during the Food & Beverage Innovation Forum (FBIF) 2024, Campaign conducted an exclusive interview with David Zhang, president of Oatly Greater China. Zhang shared the story of Oatly's evolution in the market, and how the brand built itself as an endorser of fashion, health, and sustainability.

Zhang joined Oatly in 2017. In 2021, he was honoured by FBIF with the 'Person of the Year' award. Oatly's remarkable success in China also earned it the '2021 Excellent Management Award' from Harvard Business Review China.

Campaign: Oatly, as a global brand, has released lots of exciting campaigns and made waves worldwide. Are there any particular Oatly campaigns that you like particularly? 

Zhang: Oatly has consistently been committed to practising business for good. This ethos is also reflected in our campaigns, which I find very appealing. For instance, at this year's FBIF, we set up a dedicated space for silent baristas and a sustainable recycling unit, hoping to convey Oatly's sustainable values to exhibitors and industry partners and to enable more people to experience the charm of oat milk.

Initiated in 2020, the Oatly Silent Barista project was officially introduced to assist young individuals with hearing impairments. This was achieved through vocational training for baristas, professional certification, and career guidance. Over the past few years, this initiative has made steady progress. Oatly transitioned from providing individual funding to offering systematic support for those with hearing impairments. The goal is to foster a healthy, self-assured, and self-sufficient environment for those in need, enabling more voiceless baristas to seize opportunities for self-fulfilment. 

At the FBIF event, we installed a recycling device to collect paper packaging from beverage exhibitors for future recycling. We have been actively participating in various environmental conservation activities, including the Yellow River remediation programme (utilising used bottles collected alongside the Yellow River to re-create eco-friendly raincoats) and Earth Day, among others, aiming to promote an eco-friendly lifestyle in every possible way.

Silent Barista in Shanghai
 

Oatly at Coffee Festival

When Oatly entered China, you invented the 'Three Ones' strategy, targeting one city (Shanghai), one market (coffee) and one product (Barista). How did you come up with the plan? Can you elaborate on that? 

The 'Three Ones' strategy was implemented following extensive market research, insight, and practical application. At the time of Oatly's initial entry into the Chinese market, there was no existing category for plant-based protein products. The concept of oat milk was unfamiliar to consumers, leading to numerous challenges for our brand. After careful consideration and exploration, Oatly decided to debut in the market through boutique cafes.

Back then, Shanghai was home to numerous independent boutique cafes, where most customers were environmentally conscious and had a passion for fashion and coffee. These unique characteristics of the customers and cafes aligned perfectly with what Oatly was seeking.

Drawing on these insights, Oatly launched the 'Three Ones' strategy:

• 'One Product' centred on the Oatly Oat Drink Barista Edition, distinguishing itself from traditional milk coffee in niche boutique cafes.
• 'One City' was initiated in Shanghai, a hub of international businesses and returning overseas students, and gradually expanded nationwide.
• 'One Market' targeted boutique cafes, the city's popular spots for environmentally conscious, fashionable trendsetters, enabling Oatly to identify its target audience swiftly.

Our journey started with the top 10 boutique cafes in Shanghai, where we gradually extended our reach. This approach allowed us to create a unique perception of oat milk through pricing differentiation. In our product promotion, we offer a distinct experience by telling the story of a Nordic lifestyle.

In 2018, our presence grew from only a few cafes in the first month to hundreds within a few months. By the end of 2018, we had collaborated with thousands of cafes. The conversation around oat milk began to buzz among consumers, and various coffee chains were eager to collaborate. This marked the beginning of Oatly's gradual expansion. From 2018 to 2023, the volume of Oatly products sold in the Chinese market was sufficient to make approximately one billion cups of oat lattes.

When you look back, what would you think are the key lessons for brands to enter the Chinese market? 

Upon Oatly's entry into the Chinese market in 2018, there was considerable uncertainty about the appropriate placement of our products on store shelves. This issue was also encountered on Tmall, where no suitable option was available amidst a long list of categories. China has been a large market for plant-based products, but there was no distinct category for plant-based or oat-based products, either online or offline.

From the beginning, we understood that categories serve as forests, brands act as trees, and business represents the fruit. Initially, there's a forest, followed by trees, and ultimately, fruit. Without a forest, the trees would be swept away by the wind. Only when a category is established can a brand genuinely exist.

Our mission at Oatly is to drive a systemic shift in society: leading people away from cow dairy to more plant-based consumption—for the sake of the planet.

To fulfil our mission, it's essential to promote wider usage of oat milk so that more consumers can experience plant-based products. We have pioneered a new plant-based category in China and remain committed to fostering its growth and evolution.

Now, Oatly has emerged as a signature product of oat milk and innovative plant-based milk among Chinese consumers. When competitors produce oat milk, they benchmark against Oatly, and each comparison serves as an additional endorsement for Oatly. 

The Oatly CCO once talked about 'killing the marketing department'. What do you think makes Oatly's in-house creative/brand marketing team stand out?

Oatly believes in the power of creativity. We have a division within our brand known as the 'Oatly Department of Mind Control'. Here, creative minds work to align creativity with business objectives, integrating both an internal viewpoint (understanding the company's operations) and an external perspective (grasping market trends). The focus is more on identifying opportunities to serve the consumer rather than engaging in meaningless competition. The aim is not merely to sell to the consumer but to provide genuine solutions to business challenges from the consumer's perspective.

When Oatly expanded in China, was there anything you needed to do to adapt to the local market? 

Understanding cultural differences, values, and meanings is crucial in the consumer goods industry.

We've discovered that numerous Nordic concepts are compatible with fundamental human logic, such as 'less is more', 'lagom'(Swedish for 'just right'), and 'sustainable development'. These concepts are also relevant in China.

In China, Oatly not only highlights the functionality of its products but also chooses to use them to represent a lifestyle. We discuss the Nordic way of life and position environmental protection and sustainability as our distinctive attributes, together with the importance of design and creativity as our primary focus, to showcase our unique strengths and qualities.

Lastly, we leverage coffee, a universally recognised medium for global culture, to introduce more consumers to experience the charm of oat milk. This approach has made Oatly what it is today.

Many new plant-based milk brands are proliferating in China. Are you worried about competition in the market? 

Our mission at Oatly is to drive asystemic shift in society: leadingpeople away from cow dairy to more plant-based consumption—for the sake of the planet.

Today, food and drink account for one third of the global greenhouse gas emissions, with animal-based products accounting for more than half. By increasing the intake of plant-based food, we can reduce the climate impact of thefood system.

Oatly has been instrumental in establishing a new plant-based category in China. We are excited to see more companies joining us to drive the category forward. In the years ahead, we will continue to play a pioneering role and connect with a broader range of Chinese consumers.

The demand for oat milk in the Chinese market has been consistently rising. We are well-positioned and prepared to cater to this growing demand.

What are the biggest challenges and opportunities for Oatly and plant-based food brands in China now?

China is a large market for plant-based products.  Over the past five years, oat milk has spearheaded the emergence of a new plant-based track, which has now diversified in numerous ways. Whether it's plant-based products, oat milk, or Oatly, the Chinese market is gradually moving from 'niche' to 'daily'. A broader consumer base can be tapped into beyond those we have already reached.

The whole market continues to expand. The challenge of shifting from a 'niche' to 'daily' means increasing the consumer base and its diverse needs. Still, at the same time, it is an opportunity for Oatly to maintain keen market insights and create R&D capabilities to meet the diversified needs of the general public for oat-based products.