Why is there a shortage of Oatly barista?

Drought conditions last year pushed North American oat harvests to near-record low levels, threatening the supply of a popular ingredient used in plant-based milk.

U.S. oat production declined 39% last year from 2020, with harvested acreage at a record low 650 thousand acres, according to the National Agricultural Statistics Service. Canada, a major U.S. oat supplier, saw its smallest oat crop since 2010, according to Agriculture Canada.

Rail shipping issues have also added to supply woes. Floods in Western Canada at the end of last year washed out rail lines, and railroads were unable to meaningfully make progress on the resulting backlog due to a cold snap at the beginning of 2022.

"We're going to have a very, very busy first quarter here once we get some good weather behind us," James Cairns, senior vice president of rail centric supply chain for Canadian National Railway, said on an earnings call in January. "You think about the grain, you think about the coal, you think about the international imports, they're all there ready to move."

Rail constraints come as Oatly already expects lower production volumes in the first quarter due labor and raw material challenges.

Supply challenges have pushed up oat prices. The USDA's Economic Research Service projects the average price of oats in 2021/2022 season to hit $4.20 per bushel, which would top the 2012/2013 record of $3.89. Oatly is paying anywhere from 8% to 50% more for oats depending on the region.

The company has been rapidly building out manufacturing capacity to meet demand for oat milk and mitigate the effects of shortages. But high construction costs and supply chain delays have already disrupted those plans, pushing the company to pull back on certain investments.

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Starbucks launched oat milk in US stores in March, and just a month later some locations are experiencing shortages.

After a test run in the Midwest, Oatly-brand oat milk became the fourth non-dairy milk alternative available at Starbucks. The coffee chain promoted the addition with a new drink which has proven massively popular, the Iced Brown Sugar Oatmilk Shaken Espresso.

Read more: Recess scored a hit with its millennial pastel-hued CBD seltzer. Now its CEO is challenging PepsiCo with a move into magnesium-infused 'relaxation beverages.'

Five Starbucks baristas in four states told Insider that their stores had run out of oat milk. They blamed the outage in part on the popularity of the Ice Brown Sugar Oat Milk Shaken Espresso.

"Customers could almost never order this drink with all its components intact" in the month since its launch, a Louisiana employee told Insider. The brown sugar syrup is also frequently out of stock, several employees said.

"In all my years of coffee experience, I don't think I've seen a drink rolled out so horribly," the Louisiana barista said.

Starbucks confirmed that some stores are temporarily out of oat milk, but said there is not a national shortage.

"Customer response to the national launch of oatmilk at Starbucks has been positive, and as more customers return to our stores some may experience a temporary shortage of oatmilk at their store. We apologize for any inconvenience to the customer experience and recommend trying soy milk, almond milk or coconut milk," a Starbucks spokesperson told Insider. 

The spokesperson also said that oat milk would be available in stores again "soon."

Starbucks' supplier Oatly is experiencing a shortage, too, caused by a delay in a new production facility and increasing demand, Bloomberg reported. Grocery stores are reportedly having trouble keeping Oatly milk in stock, and the brand's website shows all four varieties are for online orders.

Oatly declined to comment.

Do you have a story to share about a retail or restaurant chain? Email this reporter at [email protected].

This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.

Ryan Knutson: Recently, I went to go get a latte at my local coffee shop. I had an ulterior motive, though. I had some questions for Molly, the barista there. So is oat milk popular?

Molly: Oat milk is super popular.

Ryan Knutson: Questions about oat milk. How popular is it?

Molly: So I go through probably four gallons of oat milk in a day.

Ryan Knutson: Wow.

Molly: And I would say I go through two gallons of whole milk in a day.

Ryan Knutson: So it's more popular than regular milk?

Molly: Significantly.

Ryan Knutson: Do you remember... In fact, in the middle of our conversation:

Molly: Do you mind if I make coffee?

Ryan Knutson: Of course. Yeah. She had to pause to make orders for two customers, both of them oat milk fans. Do you drink oat milk?

Speaker 3: Yeah, I do. The texture of oat milk, I think is just overall better. And the taste, I like the taste better.

Ryan Knutson: And there's one company that can take a lot of the credit for oat milk's popularity. Are you familiar with Oatly?

Molly: I am familiar with Oatly.

Ryan Knutson: Oatly. If you live in a big American city, you've probably seen their ads. They're blue with blocky lettering plastered over just about any available surface, buses, bus shelters, billboards. More than any other company, Oatly made this obscure dairy alternative cool. They propelled oat milk into coffee shops and grocery stores. And it's a big reason that oat milk is the fastest growing dairy alternative in the U.S. But while oat milk is on the rise, Oatly, which helped pioneer the whole industry is struggling to keep up. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knutson. It's Monday, March 14th. Coming up on the show: why Oatly is having such a hard time doing the one thing it's supposed to do, make oat milk. Our colleague Khadeeja Safdar covers business, Jesse Newman covers agriculture, and together they've been looking into Oatly and drinking a lot of oat milk.

Jesse Newman: Khadeeja you're a diehard, right?

Khadeeja Safdar: So I did make the switch from almond milk to oat milk prior to working on this story.

Ryan Knutson: And how would you describe it?

Khadeeja Safdar: It's creamy. It doesn't have any kind of offensive aftertaste. It's a little bit sweet.

Jesse Newman: I think it has a really earthy taste. You can sort of like taste the oats, taste the dirt. It's really, really pleasing in coffee.

Ryan Knutson: All right. I'm going to put your descriptions to the test because I happen to have a half gallon of Oatly oat milk right here, which I'm going to try for the very first time. I've never had it before. Oh, oh my God, I spilled some of it on myself. It's not bad. You know what it tastes like? It tastes like oatmeal water. So I might be a little new to oat milk, but Jesse told me that oat milk and Oatly aren't actually that new.

Jesse Newman: Oatly's origin story dates way back to the early 1990s in Sweden, where this group of scientists at Lund University were trying, they were researching lactose intolerance. They knew that a large portion of the global population can't process cow's milk. And so they wanted to make a better milk, basically. So they thought they found the solution in oats.

Ryan Knutson: The Swedish scientists figured that oats had a lot going for them. They were cheap, widely available and compared to dairy, oat milk's carbon footprint was small. So they seemed like a good choice environmentally at least according to Oatly. But maybe most importantly, oat milk had the right texture. It was creamy. Oat milk foamed.

Jesse Newman: So they came up with this process through which they could mix water with oats, add some other ingredients and take out some of the fibers, and they came up with oat milk. And that was again, back in the early 1990s. They've developed this proprietary patented enzymatic process that was certainly the first of its kind.

Ryan Knutson: Oatly launched the first oat milk in Europe in 1995. But for years, the company and its signature beverage weren't that popular. Unless you were lactose intolerant, you'd probably never heard of it. That is until 2012 when Oatly got a new CEO.

Khadeeja Safdar: So Toni Petersson had previously owned a music club and a restaurant, and he came into Oatly and totally transformed the company. We talked to quite a few employees and the word that they use for him is charismatic. They say that he's really good at getting people behind a cause. He speaks a lot about the plant-based movement and sustainability.

Toni Petersson: What do we do in the meat replacement space or plant-based milk is just an expression of what's going on in the world today. How people are becoming more cautious and aware of their own consumption, how that impacts the world and themselves.

Ryan Knutson: Petersson didn't come to Oatly alone. Shortly after becoming CEO, he brought on an old friend named John Schoolcraft. Schoolcraft was hired to overhaul Oatly's marketing department, or as he jokingly calls it "Oatly's Department of Mind Control". He said during a 2019 talk that the first thing he needed to fix after he got the job was Oatly's packaging.

John Schoolcraft: This is what it looked like. The ugliest, the chocolate one is maybe the ugliest packaging in world history. And this is what we had to work with. So I said...

Khadeeja Safdar: It was a very nerdy brand that would talk almost about the scientific qualities of oat milk and the nutritional value, almost the way that you would talk about a medication. He came in and completely transformed the marketing.

Ryan Knutson: Why was marketing so important for Oatly?

Khadeeja Safdar: They had this product that they thought was really great and nobody knew about it. It was really about getting the word out. And then I think the way they did that was challenging the dairy industry.

Ryan Knutson: Oatly's ads didn't just tout the benefits of oat milk. They also went after dairy with taglines like, "It's like milk, but made for humans" or "No milk, no soy, no badness". How did the dairy industry respond to these broadsides from Oatly?

Jesse Newman: So it's been different in different countries, but originally in Sweden, not well. The Swedish dairy lobby sued Oatly for its advertising campaigns and essentially for insinuating that cow's milk was bad for humans, and the dairy lobby won.

Ryan Knutson: Oatly had to pay a fine. And in response to the lawsuit, Oatly made an ad about getting sued.

Speaker 11: Right after our launch in 2014, we got sued by the dairy industry and we didn't back down from it.

Toni Petersson: This lawsuit comes in boom on the table.

Speaker 11: We thought it was unacceptable for big industry to try to stop us from telling the truth.

Ryan Knutson: And Oatly did not stop making fun of milk. The company kept running ads that cast cow's milk as environmentally unfriendly and embarrassingly uncool, like something you should stop other people from consuming.

Jesse Newman: They ran TV commercials, for instance, showing a father sneaking into a house late at night when it's dark and putting cows' milk, hiding cow's milk in the fridge. And a light comes on at the kitchen table and there's the teenage son sitting there. And he says in this very dry voice:

Speaker 13: What have we here? Cow's milk, really?

Jesse Newman: And then the tagline that flashes across the screen is, "Need help talking to Dad about milk?"

Ryan Knutson: Sort of like one of those old truth campaigns to get you off smoking.

Jesse Newman: Exactly.

Ryan Knutson: Confrontational ads like this helped raise Oatly's profile. And by 2017, when the company started to expand to the U.S., they used another novel strategy to find new customers.

Jesse Newman: They started out targeting coffee shops and specifically, baristas. What I'm told is that they would sort of shop the product around to different coffee shops in New York and elsewhere, and really kind of nonchalantly just drop off samples of Oatly along with some swag, give it to baristas and say, "Here try this. We think you'll like it."

Ryan Knutson: And it worked. Oat milk started appearing at hip coffee shops and customers started ordering it.

Jesse Newman: And that was sort of key because they had built up this base of consumers that wanted the product and then were going to be willing to buy it when they saw it on retail shelves, which is where they went next.

Ryan Knutson: At the end of this campaign, all these ads that were everywhere, these partnerships with coffee shops and going after baristas, was Oatly successful at getting people to start drinking more oat milk?

Jesse Newman: So it worked extremely well. So if you look at the sales data, sales of oat milk grew 70% last year and more than 200% the year before that, so in 2020.

Ryan Knutson: Wow. 200%.

Jesse Newman: Right? And this is in an industry where 1%, 2% growth is typically considered success. So oat milk, just suffice it to say, it's really the darling of the dairy aisle and certainly of the plant-based milk category.

Ryan Knutson: Oatly had arrived and in February of 2021, the company celebrated with an ad on the biggest platform corporate money can buy. It bought a Super Bowl ad. And like a lot of Oatly ads, this one was memorable.

Jesse Newman: So the Super Bowl ad is Toni Petersson sitting in a field of oats, singing in this really sort of odd way and just sort of singing this refrain over and over.

Ryan Knutson: Just to be clear, you're about to hear the CEO of Oatly performing a song he wrote himself, about oat milk, during the Super Bowl.

Toni Petersson: Wow. Wow. No cow. No, no, no. Wow. Wow. No cow. No, no, no, no...

Ryan Knutson: It's honestly catchy.

Jesse Newman: Definitely sticks in your mind, yeah.

Ryan Knutson: But as Petersson serenaded the masses about oat milk, behind the scenes Oatly was struggling with a very big problem, actually making oat milk. That's after the break. Just a month after its Super Bowl debut in 2021, Oatly launched a new partnership, one that had the potential to truly take Oatly mainstream. Here's Jesse.

Jesse Newman: Oatly strikes a deal to be the supplier, the oat milk supplier to Starbucks and Starbucks also launched a number of new drinks featuring oat milk. It's a pretty big deal for them to snag such a big account and it also really kind of blows open the universe of potential oat milk drinkers because no longer can you just find Oatly in some hip, upscale, independent coffee shop in New York City. Now, the idea is that in theory, you can get oat milk in smaller American towns and cities.

Ryan Knutson: At first things went great. Starbucks baristas were busy brewing signature beverages with Oatly like oat milk shaken espressos and honey oat milk lattes. That is, until they started running short of Oatly.

Jesse Newman: So within just a few weeks of its launched, the shortages at Starbucks were so significant in some places that Starbucks had to pull its oat milk and its oat milk based drinks from its app temporarily until it restocked its inventory.

Ryan Knutson: Eventually Starbucks brought on a second oat milk supplier to help meet its oat milk needs. But Jesse says that the Starbucks supply problem wasn't a new thing for Oatly. In fact, the company had struggled to make enough oat milk for years, since at least 2018.

Jesse Newman: They ran into a lot of challenges as they were trying to ramp up production in the US. And the way I think about it is that here's this Swedish company coming to the U.S., trying to meet people, trying to build relationships, trying to figure out who to work with and how to manufacture product in a foreign country and there were a lot of growing pains.

Ryan Knutson: Part of the problem was that when Oatly first started making oat milk in the U.S., it was fully reliant on contractors, but contracting out production was expensive and not always reliable. So in an attempt to scale up production faster, Oatly started building its own U.S. factories. And here, Khadeeja says, things got even more complicated.

Khadeeja Safdar: They started in Millville, New Jersey with their first plant and then they opened a second plant in Ogden, Utah. We spoke to several employees that were involved in ramping up those plants and they described many challenges, confusion about who was in charge, poor planning. One employee told me that they just tried to rush and throw together a factory as quickly as they could, because, keep in mind that demand is ballooning in the U.S. So they want to get these plants up and running as quickly as possible because competitors are coming in and they're capitalizing on the demand. So they brought in consultants, they looked to quickly hire employees and they tried to just move quickly on this, but they were having trouble.

Ryan Knutson: Oatly ran into trouble at both its U.S. plants. At its Milllville plant in New Jersey for instance, the company was producing a lot more wastewater than expected.

Khadeeja Safdar: They had told city officials that they would discharge a certain amount of wastewater, which is basically the stuff that goes down the drain when you're done. So it could be water, it could be mixed oat base residue, cleaning chemicals. And they started exceeding that limit, I think it was more than four times what they had initially specified to the city.

Ryan Knutson: Oatly had to stop producing oat base at the plant until it solved the problem. An Oatly spokeswoman said that the wastewater treatment issues have been resolved and that the plant's construction timeline was normal, but things haven't gone smoothly in Ogden, Utah, either. According to a company presentation, Oatly executives originally told the company's board that they need $50 million to get the Ogden, Utah plant up and running. But by the time the plant actually started producing oat base, a year late, that number had ballooned to $100 million, according to a person familiar with the matter. Employees say the plant still suffers from technical issues that prevent it from making as much oat base as it could. Oatly spokeswoman said the pandemic made getting the Ogden plant operational more difficult. And in an interview with Jesse and Kadheeja, Toni Petersson, the company CEO, said the incredible demand for oat milk in the U.S. caused Oatly shortages. He said the company has tried its best to supply its customers, but the demand was quote "beyond our expectations." And he said, quote, "even if we had Ogden, we would not have been able to fulfill the demand". So if Oatly created this huge demand for oat milk, but is unable to fully supply it, who is keeping up with the demand, who is supplying?

Jesse Newman: So you've had a number of different companies who've stepped in and now are also making oat milk products. And they range. A range from a company called HP Hood, which is 176 year old food and beverage manufacturer that is largely known for its dairy products, they are now the category leader.

Ryan Knutson: Wait a second. The biggest producer of oat milk in the U.S. is a dairy company?

Jesse Newman: That's right. Big dairy company making oat milk, And that's not all. Chobani is another example. So, Chobani the Greek yogurt giant, oat milk was their first foray outside the yogurt aisle. So these are two big dairy companies, or companies with dairy in their history, that are headed into the plant based market.

Ryan Knutson: So where does this all leave Oatly as a business?

Jesse Newman: Yeah, it's a good question. They are expanding like crazy, and not just in the U.S. I mean, in Europe, in Asia. And I think they just look at the data and they think they've got a lot of runway, a lot of consumers that they are still going to try to convert from cow's milk, dairy milk, into oat milk. And so they are pressing full speed ahead, but there's the growing pains, the missteps. Certainly those are things that any manufacturer has to learn from in order to stay in the game, and there's other companies now that they have to compete with in the category that they made.

Ryan Knutson: Oatly CEO says the company could've done things differently. He told Jesse and Khadeeja that Oatly probably should've started building factories sooner, but that it was hard to spend that much money while oat milk was still catching on in the U.S. Is there a lesson in Oatly struggles for other businesses?

Khadeeja Safdar: I would say that what this shows is that marketing is one thing. It's a really important aspect of a business and you can get a lot of people interested in a product or a service or an idea, but oftentimes delivering and executing on that is a completely different story.

Jesse Newman: I think something else that it shows is that execution is really hard. Just sort of figuring out the nuts and bolts of business, particularly in a new country, building manufacturing plants, and just purely churning out a product can be difficult. And so there's the sort of starting efforts of building demand for your product, but then making sure you fulfill it is a pretty key part of business that you don't want to fall down on.

Ryan Knutson: That's all for today, Monday, March 14th. The Journal is a co-production of Gimlet and The Wall Street Journal. If you like the show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.

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