Oatly Moves To Hybrid Production Via Deal With Ya YA Foods

Oatly is making moves toward its transition to an asset-light, supply chain strategy after inking a $72 million deal with Toronto-based co-packer Ya YA foods on Tuesday.

Oatly will continue to produce its proprietary oat-base at both its Ogden, Utah and Fort Worth, Texas facilities, the companies said in a press release, while Ya YA will handle manufacturing and packaging for finished liquid Oatly products at the plants, which were formerly fully-operated by Oatly. A spokesperson for Ya YA declined to comment on whether the company would manufacture Oatly’s other products, including yogurt and frozen novelties.

With this deal, Ya YA will acquire a majority of the Ogden facility’s assets including mixing and filling equipment. The aseptic food and beverage-focused co-manufacturer will also be tasked with completing construction of the Fort Worth plant and taking over the facility’s lease. Oatly will retain full ownership of the production lines and processes for its oat-base in each facility.

The deal, which is expected to close in Q1 2023, comes after the Swedish brand incurred significant costs from its U.S. facilities over the past year. After a fire broke out at the Ogden facility over the summer, halting production for nearly three weeks, the company faced out-of-stocks and further strains on its supply chain. Oatly has routinely suffered supply issues since its U.S. launch in 2017 due to heightened demand and has increasingly supplemented its own production with co-manufacturers. In August, the company announced a recall on its Oat Milk Barista Edition product, citing potential microbial contamination at a co-packer facility in Wisconsin.

During its Q3 earnings call in November, CEO Toni Petersson announced plans for a shift toward a hybrid production model in North America. Alongside announcing the production changes, Oatly reported a net loss of $107.9 million, falling revenue growth, and began a round of layoffs that would cut costs by up to $25 million annually.

“We believe an increased focus on our oat base technology, innovation, branding and commercial execution will better position Oatly to drive profitable growth, while reducing the capital intensity of our future facilities, and ultimately convert more consumers to plant-based and create more products that are healthy for people and the planet,” said Petersson in a release.

The move to hybrid production will also improve Oatly’s cash flow, according to Petersson. During the November earnings call, Petersson said the company was also seeking a manufacturing partner for its Peterborough, U.K. facility which is currently under construction. Oatly continues to operate manufacturing facilities in Europe and Asia.

The partnership marks Ya YA Foods’ entry into the U.S. manufacturing market. Ya YA currently operates a single 800,000 sq. ft. manufacturing plant in Toronto where it offers services including package design, bottle blow molding, recipe development, manufacturing, quality inspection, warehousing and shipping.

Yahya Abbas, CEO of Ya YA Foods, said the deal will position the company to become the leading aseptic beverage manufacturer in North America, specializing in producing plant-based and high protein beverages, fruit juices, sports drinks, and broths.

“We are pleased that Oatly recognizes our top-tier food safety track record and unique capabilities and has confidence in our ability to meet their high standards,” said Abbas, in a press release. “We expect this transaction to enhance our growth and further strengthen our capabilities: the two properties we are acquiring will increase our geographic profile and scale, allowing us to serve the vast majority of the United States and Canada.”