OATLY Made a 'Duckshit Milk-Tea' for China—What's Next with China's Plant-Based Milk Consumption?

Exploring the Latest Trends and Tastes in China's Booming Plant-Based Beverage Market

Datapoints covered in this issue:

• China’s consumption of plant-based milk & beverages: trends, market leaders, and competitive landscape

• Oatly’s localization strategy: consumer sentiments, sales through online & O2O channels, the result of new products launch

The Soy-to-Oat Revolution

China, a country with a long-standing history of soy milk consumption, has seen its plant-based milk market expand and diversify in recent years. The increasing demand for healthier, more sustainable food options among Chinese consumers is propelling this shift towards a more varied selection of plant-based milk, including oat milk, almond milk, and coconut milk. In particular, oat milk has grown from being virtually unheard of to becoming a billion-yuan market in just three years.

In this post, we will explore the major players in this market, discuss the success story of OATLY, and examine future growth opportunities in the plant-based milk industry in China.

The Market's Big Names

The Chinese market for plant-based milk has attracted several key players, both domestic and international. Among them, the Swedish oat-milk brand OATLY has quickly risen to become one of the top-selling brands on e-commerce and O2O platforms.

However, newly emerged brands like OATLY are not yet viewed as a daily must-have for consumers. They are not something that consumers typically purchase in local supermarkets or convenience stores, like they do for their daily milk and eggs. Local brands such as 六个核桃 (Six Walnut) and 椰树 (Coconut Palm) still dominate sales channels such as supermarkets, convenience stores, and grocery stores.

Sales from representative channels are displayed to illustrate the relative sales of each brand. Online-to-offline channels include sales from JD Daojia, China's leading delivery platform; online channels include sales from Tmall, JD, and Douyin. Offline channels include sales from an unbiased sample of convenience stores, grocery stores, and small supermarkets nationwide.

As the demand for plant-based milk and beverages continues to grow, the competitive landscape is becoming increasingly diverse. In 2019, the top 30 brands almost completely dominated sales. However, in the past year, we have seen new companies enter the market, which has diversified the product offerings.

OATLY’s Oat-standing Success

OATLY entered the Chinese market in 2018 and has quickly become a favorite plant-based milk brand among consumers. In less than three years, its online sales have already matched those of time-honored local brands such as 露露 (Lulu) and 六个核桃 (Six Walnut). OATLY's success in China is largely due to its emphasis on the online sales channel, collaboration with local coffee and tea chains, and product localization strategy.

Captivating Young Consumers by Prioritizing Online Channels

Since entering China, OATLY has focused on online channels and online-to-offline platforms, such as JD Daojia and Eleme. As younger generations increasingly shift towards online shopping, OATLY has naturally attracted rising young middle-class consumers. Despite the COVID lockdown in China, OATLY managed to achieve reasonable revenue in the Asian market in 2022.

According to OATLY’s 2022 financial report, "Asia revenue for the fourth quarter was $44.7 million, or a 7.6% increase using constant exchange rates. Foodservice channels accounted for approximately 69% of Asia revenue in the fourth quarter of 2022, with significant contributions coming from the e-commerce channel.”

OATLY's Winning Recipe: Strategic Partnership with Coffee Chains

Pairing oat milk with coffee has become the primary reason why Chinese people consume oat milk. In fact, when we looked at Xiaohongshu, a popular Chinese social media platform, we noticed that the top reason why consumers love OATLY is to consume oat milk latte.