When the world was still reeling from the pandemic in 2021, Oatly kicked off its public listing on the Nasdaq. The Swedish-bred company’s shares rose 20% on debut—it felt there was no stopping it from conquering the plant-based drink revolution.

That moment was long in the making: Oatly was born in 1994 in traditionally dairy-loving Sweden when food chemistry professor Rickard Öste and his brother Björn Öste joined forces to bring an oat-based milk alternative to life. The first products hit stores six years later.

Rickard had been studying lactose intolerance during his academic career at Lund University for years. While awareness of the subject was limited at the time, an estimated 68% of the world’s population faces it in varying degrees—and one that partly fueled much of Oatly’s endeavors.

Still, milk (or some version of it) made from oats was unheard of in the 1990s and, arguably, even into the 2000s.

Slowly but surely, as more people began thinking about sustainability and dairy alternatives like almond, soy, and coconut milk became mainstream, Oatly grew from a small Malmö-based operation to a $2 billion global brand in 2020. The drink’s smooth texture made it easy for people to adopt and for baristas to froth up trendy flat white coffees.

“Oatly and oat milk have become the change agent of a category that was much more of a specialist category to something that is much more appealing for all,” Oatly’s global president and COO Daniel Ordoñez told Fortune.

The growth of oat-based milk was unprecedented—for instance, in 2020, a whopping £146 million was spent on the drink, according to data firm Mintel, up 100% from a year earlier.

Oatly’s revenues nearly doubled every year from 2015 to 2020, Flatin noted. It had successfully begun to “convert traditional dairy users to plant-based milk consumers,” it said in an earnings report.

a child looking at Oatly cartons in a Paris supermarket. — Oatly cartons in a Paris supermarket.

But like everything that gets too big too fast, the mood music around Oatly has since changed.

The Swedish company’s share price has plummeted 97% in the years following its 2021 IPO. Simultaneously, dairy milk is making a comeback with Europe’s younger generation, and its consumption is also ticking up in the U.S.

A new crop of competitors, such as Danone-owned Alpro, U.K.’s Rude Health and America’s Califia Farms, further threatens to snatch Oatly’s market share. The Swedish company has also tussled with regulators and Big Dairy about calling its drinks “milk” in some markets, with naysayers arguing that it misleads consumers.

Being the poster child for a whole new product category is hard work. Despite the setbacks, Oatly has kept itself interesting, especially as plant-based foods continue to grow in popularity.

“[It] is very different to develop a mission alongside versus to be born with a very specific mission. So, hopefully, we exist to make it easier for people to live a healthier life and better life without recklessly taxing the planet,” Oatly CEO Jean-Christophe Flatin told Fortune.

“As much as we would like that, a business cannot double every year forever,” he added. As climate is at the heart of what Oatly does, Flatin believes “the more we go, the more impact we have on the world.”

Fight for the daily drinks: Control, alt, shift

Milk alternatives have been around for a long time—almond milk dates back over 1,000 years, and soy milk, an integral part of Chinese culture, has been used since well before that.

On the other hand, oat-based drinks are a relative newcomer to the dairy alternative world, having only been around for over 30 years.

This boom has been helped by a confluence of factors beyond lactose intolerance, including the search for drinks with less saturated fats and better alternatives for the environment (and for cows). This was especially true in Europe, where consumers turned to a so-called “flexitarian” lifestyle that helped them balance their traditional dairy reliance while adopting alternatives at other times.

Today, everything with potential has been milked (quite literally), such as peas, peanuts, flaxseed, and hemp.

For the first several years of its existence, Oatly went unnoticed. At its core, it was a drink made of two unassuming ingredients that didn’t scream inventive: oats and water.

No one took to oat-based milk alternatives as its soy counterpart prevailed, and people were convinced to buy an experimental drink that claimed to be at a moral high ground from milk, which was not going to be simple.

A big makeover under Oatly’s former CEO, Toni Petersson, in the mid-2010s made all the difference. Oatly’s packaging turned from stoic to quirky, and the brand’s style of mixing quirkiness and sarcasm in its ad campaigns resonated with the audience.

Sassy marketing involving subtle jabs at dairy and self-deprecating humor, among other things, helped Oatly grab people’s attention. (Its website jokes about people mistaking oat milk as simply goat milk but without the “g.”) As Flatin put it, Oatly has never shied away from having a point of view or from provoking people to think beyond age-old dairy consumption patterns.

One of Oatly's ad campaigns in Stockholm. — One of Oatly’s ad campaigns in Stockholm.

The company’s marketing mastery redefined its success—but to this day, it doesn’t have a marketing team or hire agencies to get the word out.

The Swedish company got its messaging spot-on, attracting A-list investors like Oprah Winfrey, Jay-Z, and former Starbucks CEO Howard Schultz amid a trendy plant milk movement.

Oatly highlighted that it was better for the planet every chance it got, even if that occasionally caused the Swedish company to get in trouble with ad watchdogs. The company also skillfully targeted coffee shops rather than grocery stores to increase people’s exposure to its drinks, winning the support of baristas for its foamy texture.

Oatly’s meteoric rise made it something of a cult brand. A glimpse of just how deeply Oatly had penetrated the rigid dairy digest was in 2018, when a shortage of the drink in New York left many bereft, spawning an online black market for it. Similar episodes had occurred in Sweden and the U.K., too.

Big dairy brawl

The growing presence of Oatly and other dairy alternative brands began to stoke a new battle: for the “milk” title. It set off a long battle in the U.S. and Europe on whether an oat-based drink should be classified as “milk” if it wasn’t a “mammary secretion,” as per EU regulations.

Naysayers argued that the term “milk” only confused consumers about the properties of dairy alternatives since it doesn’t offer the essential nutrients in cow’s milk.

Flatin lamented these changes, pointing out that if the same degree of rules applied to products, non-alcoholic beer would not be considered beer, nor would electric cars count for cars.

By the time such issues sprung up in the 2010s, they were all too familiar as similar battles had occurred around European cheeses and how their names must adhere to their provenance.

In the world of dairy alternatives, Oatly was on the front line of a wave of regulatory changes. These have continued to chase the company through the years. In December, a U.K. court ruled in favor of the country’s dairy lobby that Oatly couldn’t market its drink with the slogan “Post Milk Generation” because they didn’t constitute milk.

Meanwhile, the EU has had tight regulations around when “milk” can be used with a drink for over a decade. Britain’s ad watchdog has previously frowned upon some of Oatly’s green claims that bash dairy’s carbon footprint compared to its own.

“The bigger dairy companies have been fence-sitters for quite some time and decided to be in on the action when dairy alternatives had proven [themselves] on the market,” Tom Booijink, senior dairy specialist for Europe and Africa at Rabobank, told Fortune. “This is 20+ years after the likes of Oatly started in the market and the wild double-digit growth years in the US and Europe were almost over.”

“The bigger dairy companies have been fence-sitters for quite some time and decided to be in on the action when dairy alternatives had proven [themselves]”
Tom Booijink, senior dairy specialist, Rabobank

For Oatly, the battle has been uphill in every sense—first, gaining traction, and then regulatory changes that pit it against Big Dairy in some countries. It’s a battle much larger than itself as Oatly controls a tiny sliver of the dairy alternatives market, which has about 40 times lower per capita consumption in Europe than anything dairy-based.

Plant-based milk sales make up only about 11% of Europe’s total milk sales, NielsenIQ data compiled by the think tank Good Food Institute show. They also sell at a premium against dairy, driven by a mix of factors from the crop yield to labor costs in their manufacturing.

Still, there’s no denying that demand for plant-based drinks is alive and well and that the products cater to a very real nutritional need. The various oat drink brands compete by “developing products free from added sugars and fortifying their products with micronutrients such as B12, calcium, and iodine that are missing from many European diets,” said Helen Breewood, research and resource manager at the Good Food Institute Europe.

Major dairy companies have noticed the popularity of plant-based products and expressed confidence by foraying into them.

Danone, the French milk and yogurt maker giant, owns the brands Alpro and Silk, which specialize in dairy alternatives. The Paris-based company has bet on the boom of this segment by converting one of its key yogurt factories to make plant-based drinks and spending another €16.5 million on an Alpro plant in eastern France.

“Consumers are increasingly health-conscious, and in fact health is now the number one purchase driver for plant-based products,” a Danone spokesperson told Fortune. The company is spending its resources on making “naturally low in saturated fat and fortified with essential vitamins and minerals, whilst maintaining great taste and texture, which has been seen as a barrier to the adoption of plant-based in the past.”

Don’t cry over spilt milk

Oatly became a first-mover in a market before it existed, developed it, and experienced the industry’s crests and troughs in lockstep. There’s still much headway for innovation since plant-based yogurt and cheese products are “still in their infancy,” Booijink said.

Now, some pillars that have held it up over the decades and propelled its growth are facing a reckoning.

In a food segment filled with endless choices, Oatly has to convince its shoppers that its drinks are more than a nutrition fad that won’t fizzle out like its plant-based meat counterparts. Plus, how much healthier oat-based drinks are compared to dairy or its substitutes is still disputable.

Oatly will also have to assure investors of its path forward as it restructures its business.

The oat drink maker reported $824 million in revenue last year, up 5% from a year earlier, and has slashed losses year after year. In 2024, it expanded into nine new countries, bringing its grand total to 50 countries.

The Swedish company closed a manufacturing plant in Singapore last year to streamline its supply chain and announced a reverse stock split in February. Its drinks are made in five other locations—two in Europe, two in the States, and one in China.

Oatly’s CEO knows the company has a long way to go. He sees the brand as unique and argues it’s currently undergoing a “recalibration” to prepare it for the future.

“Yes, we had a fantastic past 12 years, whereas we are defying a consumption that is centuries old and an industry that is giant,” Flatin said. “But let’s be honest, this is just the beginning.”

The company is also working on ways to reach people in coffee shops and homes worldwide, from Mexico City to Dubai, while lowering the cost of doing so. But Flatin said he prioritizes doing so after solidifying Oatly’s fundamentals first.

“It’s very, very different to be a startup… to be a publicly listed company in the NASDAQ in New York, and at the same time becoming profitable. I believe that we’re managing that pretty well,” COO Ordoñez said.

Oatly was a pioneer in the world of oat-based dairy challengers. As milk makes a comeback, it has to prove its drinks are more than a fad