Oatly makes deal with Canadian manufacturer to fix oat milk shortages

Oatly is transferring leases and production capacity at two United States facilities to Canadian manufacturer Ya Ya Foods

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Oatly Group AB surged after announcing it will transfer leases and production capacity at two United States facilities to Canadian manufacturer Ya Ya Foods Corp. — a bid to fix product shortages that have plagued the Swedish oat milk maker.

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The US$98.1-million co-packing agreement, expected to close in the first quarter, will last 10 years and is part of a shift to an "asset-light" supply-chain strategy, Oatly and Ya Ya Foods said in a joint statement on Tuesday. Ya Ya Foods will assume the leases and acquire certain assets for Oatly's Ogden, Utah, facility and its planned production site in Fort Worth, Texas. It will also take over construction at the Texas plant.

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"We expect this partnership to help streamline the focus for our organization and remove the operational complexity associated with running factories and constructing them at the very same time," Oatly chief executive Toni Petersson said in an interview.

Oat milk is a surging segment of the plant-based food industry, now the second-biggest non-dairy milk category at U.S. retailers, with annual sales topping US$522 million for the 52 weeks ending Nov. 26, according to data from Nielsen. It's bested only by almond milk. The rise in demand was accompanied by production challenges at Oatly, which essentially created the category, leaving the door open for competing products from other companies.

Investors haven't taken kindly to Oatly's growing pains; its shares have lost about three quarters of their value in the last 12 months. On Tuesday, the stock rose as much as 15 per cent in New York trading.

Petersson said Oatly could still potentially build production sites in the future. "We’re not saying we’re never going to build our own factories," he said. "For now this is a prudent approach that will help us in our execution."

Ya Ya chief executive Yahya Abbas said his company will end Oatly's U.S. shortages. Oatly "will never again miss demand," he said.

Under the agreement, Oatly will retain control over making the proprietary oat base used in its products in both facilities, while Ya Ya Foods will own the assets for turning it into beverage products and preparing them for shipping. Oatly will handle distribution.

For Ya Ya Foods, a contract manufacturer that makes beverages and liquid foods, the deal is an opportunity to establish itself in the U.S., something the company has been working toward for four years, Abbas said.

Ya Ya Foods will expand capacity at the Utah site, and in Texas, it will install more lines than what was planned. It will also use both facilities to make products for other customers. The company already co-manufactures other liquid food and beverages including juices and broths at its facilities in Toronto.

Oatly's revenue in the Americas was US$179.8 million in 2021, or 28 per cent of sales.

Bloomberg.com

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