Oatly Jumps on a Production Deal to Fix Persistent Stockpiles

(Bloomberg) — Oatly Group AB surged after announcing it will transfer leases and production capacity at two US facilities to Canadian manufacturer Ya YA Foods Corp. — a bid to fix product shortages that have plagued the Swedish oat milk maker.

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The $98.1 million co-packing agreement, expected to close in the first quarter, will last 10 years and is part of a shift to an “asset-light” supply-chain strategy, Oatly and Ya YA Foods said in a joint statement on Tuesday. Ya YA Foods will assume the leases and acquire certain assets for Oatly’s Ogden, Utah, facility and its planned production site in Fort Worth, Texas. It will also be responsible for the construction of the Texas plant.

“We expect this partnership to help streamline the focus for our organization and remove the operational complexity associated with running factories and constructing them at the very same time,” Oatly Chief Executive Officer Toni Petersson said in an interview.

Oat milk, a growing segment of the plant-based foods industry, is now the second-biggest non dairy milk category at US retailers with annual sales exceeding $522 million for 52 weeks ending Nov. 26 according to Nielsen data. It’s bested only by almond milk. Oatly’s production problems led to an increase in demand. This category was created by Oatly.

Investors haven’t taken kindly to Oatly’s growing pains; its shares have lost about three quarters of their value in the last 12 months. Oatly stock rose up to 15% in New York trading Tuesday.

Petersson indicated that Oatly could build more production sites in the near future. “We’re not saying we’re never going to build our own factories,” he said. “For now this is a prudent approach that will help us in our execution.”

Ya YA CEO Yahya Abbas said his company will end Oatly’s US shortages. Oatly “will never again miss demand,” he said.

Oatly will keep control of the Oatly proprietary oat base that is used in its products at both facilities. Ya YA Foods will have the assets to turn it into beverages and prepare them for shipping. Oatly will manage distribution.

Ya YA Foods is a contract manufacturer of beverages and liquid food. The deal represents an opportunity for Ya YA Foods to establish itself in America, something Abbas has been striving towards for the past four years.

Ya YA Foods will grow its Utah facility, and will also install more lines in Texas than originally planned. The company will use the facilities to produce products for other customers. At its Toronto facility, the company co-manufactures liquid food and beverages such as juices and broths.

Oatly’s revenue in the Americas was $179.8 million in 2021, or 28% of sales.

(Updates share trading, adds CEO quote, Americas revenue.

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