Dive Brief:
- Oatly is selling much of its manufacturing capacity in Ogden, Utah and Fort Worth, Texas to contract manufacturer Ya YA Foods Corporation for $98.1 million. Oatly will manufacture its oat base, and Ya YA Foods will take control of manufacturing and packaging Oatly’s consumer products, including oat milk and ice cream.
- As part of the deal, Ya YA Foods will acquire the majority of the assets — including mixing and filling equipment — it uses. The company also will assume Oatly’s property leases at both facilities and take responsibility to complete construction in Texas.
- Operational challenges and sales slowdowns in international markets have hampered Oatly’s revenues in the last year. In its most recent quarter, the publicly traded oat milk maker missed its revenue outlook by $28 million and posted an operating loss of $104.4 million.
Dive Insight:
In response to its poor quarterly results in November, Oatly committed to two courses of action: layoffs in its Europe, Middle East and Asia divisions, and a commitment to pursue a more “asset-light” strategy for its manufacturing and supply chain.
In the earnings call in November, Oatly CEO Toni Petersson said a manufacturing agreement, such as the one it announced this week, can help drive profitability by focusing the company’s efforts on its greatest strength: Its proprietary oat base technology.
As part of the deal with Ya YA, Oatly will retain full ownership and operation of its oat base production lines at both of the facilities, and create the core ingredient of its products. Ya YA, a co-manufacturer with expertise in aseptic food and beverage production, will now take on the manufacturing facilities.
As a far-reaching global company, Oatly has seen diverse challenges across the globe in the last year. In the U.S., manufacturing difficulties hindered its ability to supply to a growing market and cost the company, both in money spent to fix problems and negative publicity.
The Wall Street Journal detailed many of Oatly’s problems last March, zeroing in on infrastructure issues at the company, including drainage and equipment installation at its U.S. manufacturing facilities.
Manufacturing obstacles continued throughout the year, with one of the oat base lines at the Utah facility out of operation for about three weeks at the end of August and September, Petersson said on the most recent earnings call.
Ya YA Foods is based in Toronto and owned by Entrepreneurial Equity Partners. While it is one of the largest co-manufacturers in North America, with a more than 800,000-square-foot facility in the Canadian city, this deal will provide its first manufacturing presence in the U.S.
This transaction, which is expected to be completed in the first quarter, could give both parties a clear way forward. Oatly could focus on its oat base, creating new products, marketing and distribution — all areas in which its shown strength in the past.
Meanwhile, Ya YA gets a large entry point to the U.S. market. The company could expand operations at the former Oatly facilities to work with other companies. In the statement announcing the deal, Ya YA CEO Yahya Abbas said that the deal is “highly strategic,” giving them geographic access to serving most companies in the U.S. and Canada.
Investors appeared to support the deal. Oatly’s shares were up as much as 19.8% on Tuesday following the announcement.
