Plant-based dairy producers: Big differences in growth & profitability

Mathieu Geuskens
Published on
July 11, 2022

A-INSIGHTS believes that the use of data is increasingly important for making the right strategic decisions. This month we look at producers of plant-based alternatives to dairy, which are increasingly competing with the dairy sector.

Market for plant-based dairy alternatives is growing, but the growth is not evenly distributed

Plant-based dairy alternatives are steadily gaining ground in supermarkets and the on-trade, and with an expected market growth of 12% per year on average towards 2027, this trend looks set to continue in the near future. While some of the growth is driven by increased consumer interest in animal welfare and the environmental impact of livestock production, consumer surveys show that lactose intolerance plays a greater role in the purchasing behaviour of consumers of plant-based dairy alternatives.  

Figure 1. Turnover development of plant-based dairy producers and average dairy industry

An analysis of the annual accounts of two of the best-known producers of plant-based dairy alternatives, Alpro and Oatly, shows that both companies occupy a different position in this growing market. The originally Belgian Alpro has been making dairy alternatives from soy protein since the 1980s and has been owned by dairy giant Danone since 2016. The company has shown steady growth since then, but will not surpass the average growth rate of the dairy industry until corona year 2020.

The Swedish company Oatly, which has been making dairy alternatives from oats since the 1990s, has shown a growth rate over the same period that is even more aggressive than its marketing strategy. The company, which has been listed on the US Nasdaq stock exchange since 2021 following an initial investment round, managed to increase its turnover more than tenfold in the period 2016-2021, far outstripping the growth of both the dairy sector and the market for plant-based dairy alternatives.

Growth at the expense of results for Oatly, Alpro generates solid margin

Oatly has seen growth accompanied by severe pressure on margins, resulting in the company generating an operating loss (EBIT) of 33.2% by 2021. The company says it has not been able to utilise production facilities sufficiently due to logistical constraints and the effects of COVID-19, resulting in margin pressure. An important reason for the pressure the company is experiencing is the low share of own production: Oatly only produces 25% of its sold volume itself, while the rest is sourced through co-packing and hybrid partnerships.

At the same time, Alpro achieves solid annual margins, well above the average of the dairy industry, whereby it is important to note that Alpro's results as part of Danone may be distorted by intra-group transactions. However, Alpro also seems to experience the advantages of the larger parent company: where Oatly has to outsource a large part of the production, Alpro has its own production network and the financial strength to invest in it. In September 2021 for instance, parent company Danone announced an investment of € 16.5 million in a new production line for Alpro's French factory, where the current seven production lines produce about 200 million cartons of soy beverages per year.

Graph 2 EN plantbased
Figure 2. EBIT as % of turnover vegetable dairy producers and average dairy industry

Alpro succeeds in incorporating high purchasing costs into price, but Oatly struggles

An important driver for the margin difference between Oatly and Alpro is the extent to which the latter manages to pass on high input costs in the selling price. Part of this is due to Alpro's product range, which in contrast to Oatly relies more heavily on alternatives to yoghurt and contains more fruit flavours. For the ratios per kilo, we look at the UK branch for Alpro, as Alpro does not disclose sales volumes at company level. This shows that in the UK Alpro generates a turnover of €1.55 per kilo of finished product in 2020, where input costs amounted to €0.99 cents. After deducting production costs, this leaves an EBIT margin of €0.10 per kilo of product sold. In the same year, Oatly realises a turnover of € 1.34 per litre of product sold, 21 cents less than Alpro, where the purchasing costs are comparable at € 0.97 per litre. This difference in gross margin translates almost one-to-one in Oatly's margin: per litre of product sold, it makes an operational loss of € 0.15 cents.

Graph 3 EN plantbased
Figure 3. Cost structure Alpro UK and Oatly per kilo/litre of finished product in euros

Although both companies are able to take advantage of the growing demand for vegetable-based alternatives to dairy, only Danone subsidiary Alpro is able to translate this growth into sustainable margin levels. Oatly says it is focusing on margins and is attracting additional capital to invest in its own production network, but it still has a long way to go. This also seems to be a sore point for investors: the share price, after an introductory price of $22.46 in May 2021, has now dropped to $3.73 in June 2022. This raises the question of whether Oatly, whose total market capitalisation has sunk to $2.21 billion, is not ripe for a takeover by an established food company that can bring much-needed expertise to the manufacturing field.

Want to find out more about the performance of companies like Alpro and Oatly? Our trendreport Plant-Based Alternatives shares a deep-dive analysis of companies with a focus on plant-based alternatives within the agri food industry. Download the report for free via the button below.

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