Oatly Reboots Growth Strategy as North America Revenue Slides; Considers China Business Carve-Out

A double-digit revenue jump in Oatly’s International & Europe segment helped offset soft consumer demand in North America during the second quarter, the company reported on Wednesday.

In the quarter ending June 30, revenue fell 6.8% to $63.2 million, while sold finished goods volume dropped 7.5% due to a reduction in sales from Oatly’s largest foodservice customer. Comparatively, revenue was up 12% in the company’s Europe & International division.

During a call with shareholders and analysts, CEO Jean-Christophe Flatin said the company is in the early stages of implementing a refreshed growth playbook in North America while combating headwinds like a customer sourcing strategy shift and a previously announced frozen SKU rationalization.

Despite the weaker-than-expected results, Oatly achieved an all-time high in quarterly retail revenue. Approximately 59% of the segment’s revenue came from the retail channel, versus 52% in the prior-year period.

To gain traction in the U.S., Oatly has taken a page from its Europe playbook by running campaigns in high-impact areas to tackle the main barriers to conversion: taste and price point. Additionally, the company is rolling out a “Look Book” with unique recipe ideas aimed at changing the way consumers view oat milk – as a canvas to enjoy their beverage rather than a dairy alternative.

“There is a taste and flavor bonanza going on in coffee shops around the world, with Gen Z leading the way. Our unique team of barista market developers is working hand-in-hand with our foodservice customers to revitalize their offerings,” said Flatin, adding that the way coffee is developing in Europe and North America is “nearly identical.”

Oatly sees a significant opportunity to expand U.S. distribution in all channels, not just foodservice. Flatin said the company has “exciting” upcoming tests with new customers, but did not share specifics.

“We had higher expectations given the success we’ve seen in Europe and internationally using the same playbook. We know what’s possible, and we remain committed to applying these lessons to drive the consistent performance that we expect from our North American business,” said Flatin.

He continued, “We’re being even more thoughtful, deliberate and disciplined in executing our strategy to accelerate demand. At the same time, we continue to solidify the operational fundamentals that will generate the muscle to increase investment while we step up execution.”

Despite confidence in its revamped playbook, Oatly does not expect to see significant growth in North America until the full playbook has been heavily deployed with sufficient resources for a prolonged period.

Oatly’s Greater China segment was also a point of concern during the quarter, with revenue declining 6.4%. According to Flatin, the company is conducting a “strategic review” of the business with the goal of accelerating growth and maximizing shareholder value.

After the segment’s reset in 2023 and 2024, Oatly believes Greater China is leaner and stronger. The company is considering a range of options, including a potential carve-out of the business. Oatly will continue to operate in the region, including its facility in Ma’anshan, during the review process.

“Our greater China business has improved over the past few years and is much stronger now. It has been a strong contributor, delivered better results, and is now well-positioned for the future,” said Flatin. “I must note, there are no assurances [this review] will result in any transaction or strategic change.”