Yeo's, Oatly in S$30m tie-up to produce oat drink for Asia in Singapore

Singapore

SWEDEN'S Oatly and Singapore's food and beverage (F&B) manufacturer Yeo Hiap Seng (Yeo's) will jointly invest S$30 million in equipment and facility to produce the vegan milk producer's popular oat drink in Singapore, in what is seen as a coup for the Singapore heritage brand and the nation as a high-tech manufacturing hub.

Oatly - which raised US$200 million in July 2020 from celebrities including Oprah Winfrey, Jay Z, Natalie Portman as well as high profile investors like former Starbucks chairman and CEO Howard Schultz and private equity firm Blackstone - has chosen Yeo's as its first Asia supplier and its Senoko Way factory in Singapore as its manufacturing location after strict due diligence.

This will be the first time the Swedish company will be producing its popular oat milk brand, Oatly, outside Europe and North America.

Yeo's - which has pioneered innovations in Asian beverages and boasts of being the first in the world to package Asian drinks in Tetra Brik aseptic cartons using ultra-high heat temperature (UHT) process - will operate and maintain the new facilities.

Production will begin in the second half of this year, with the oat milk earmarked for China and subsequently for the rest of Asia.

A NEWSLETTER FOR YOU

Friday, 8.30 am

SGSME

Get updates on Singapore's SME community, along with profiles, news and tips.

Sign Up

"This strategic partnership is a testament to Yeo's unwavering commitment to manufacturing standards and high standing in the food and beverage industry in Asia," Yeo's Group chief executive officer Samuel Koh told The Business Times.

The Singapore facility will produce 60 million litres of oat milk a year at launch, and has the option to scale up further with additional investment. The oats will be sourced from Sweden.

Johnny Teo, executive director for food, healthcare and biomedical at Enterprise Singapore, said: "This collaboration between Yeo's and Oatly is an example of a strategic cross-border partnership that capitalises on complementary capabilities among different players in the food ecosystem, which we hope to see more in Singapore.

"We are also heartened by Yeo's efforts to constantly innovate and sharpen its competitive edge as a Singapore beverage manufacturer, and are glad to have been part of its journey in attaining this significant milestone."

The partnership will initially create more than 50 new jobs at Yeo's, and the investment will be funded from internal reserves.

It will be value-accretive to Yeo's business by providing it with another growth driver in the fast-growing plant-based milk alternative segment, Mr Koh said.

The partnership will complement Yeo's leading position in the soy milk segment and corporate mission to "nourish every home with natural goodness across generations".

"This strategic partnership positions both companies to tap the surging demand in this region for plant-based dairy," Mr Koh said.

"We believe that this segment will continue to grow exponentially as consumers become more aware of the impact of their food and beverage choices on their health and the environment."

Demand for dairy milk alternatives has been gaining traction globally, and oat milk is the latest trendy plant-based milk joining the ranks of almond, rice, and soy to take over supermarket shelves, cafés, and coffee shops, as consumers seek healthier beverages with environmental credentials.

Research and Markets, a Dublin-based market research company, expects the global oat milk market to grow at a 13.4 per cent compound annual growth rate from 2020 to reach US$6.8 billion by 2026. Asia is the largest market for dairy alternatives and the fastest growing region, according to Mordor Intelligence.

Yeo's will deploy state-of-the-art Tetra Pak packaging technology incorporating high speed aseptic filling, flexible packaging and stringent food safety standards that are in line with the US Food and Drug Administration (FDA) standards. Working with Tetra Pak, one of the world's leading and most sustainable packaging companies, will cement Yeo's status as a high-tech and sustainable food and beverage manufacturer in the years to come, the company said.

Mr Koh said the demand for healthier and more sustainable choices has seen its core soy milk and chrysanthemum teas business growing in the second half of last year despite the impact of the Covid-19 pandemic.

Earlier in March, Oatly - which is looking to list in the United States to fund its expansion - unveiled plans for a major plant-based dairy factory, to be based in Peterborough, England. The new factory will produce 300 million litres of oat milk a year, and has the capacity to grow to 450 million litres, making it one of the largest plant-based dairy factories in the world when it is launched in the first quarter of 2023.

Oatly - whose biggest shareholder is Belgian family-owned investment firm Verlinvest - was founded by brothers Rickard and Björn Öste in the 1990s. It uses patented enzyme technology, invented by Mr Rickard Öste when he was a food scientist at Sweden's Lund University, to turn fibre-rich oats into lactose-free products such as oat milk, oatgurt and ice cream.

Besides Verlinvest, China Resources Group was also among the earliest backers of the company, whose products are sold across Europe, the US and Asia. Oatly's sales almost doubled to US$200 million in 2019, aided by new products including ice-cream and yoghurt. Oatly was aiming to double sales again in 2020, but no official figures have been made public.

According to some estimates, the Swedish company, whose Oatly brand is available in more than 20 countries, could be valued at US$10 billion - more than the US$2 billion suggested in the investment round in July 2020. It has hired Morgan Stanley, JP Morgan and Credit Suisse as underwriters on the initial public offer.

READ MORE: Yeo Hiap Seng brewing up new recipes for F&B growth