Decode the Arla vs Oatly:Milk Wars case study using PACADI framework

Abstract Arla Versus Oatly: Milk Wars Case Author: Arpita Agnihotri &Saurabh Bhattacharya company The casediscusses the competitive rivalry between two Swedish companies, Arlaand OatlyOatly) a (plant-based milk company)gained popularity after criticizing dairy milk, offered by Arla, which according ot Oatly was not environment-friendly)Globally, consumers were also shifting ot plant- based milk, due to health concerns associated with dairy milk such as lactose-intolerance. Arla retaliated by not only launching advertisements and legal wars against Oatly but also launching organic dairy milk and plant-based milk.Peter Tuborgh, CEO of Arla, needs to identify ways of remainingrelevant with Arla's differentproduct offerings. Meanwhile, Toni Peterson, CEO of Oatly, waskeen to change the milk consumption habits of consumers. Amidst this corporatewar, itwastob e seen how the future of dairy and plant-based milk was shaped. abbal shift" to PBM AatFods(henceolrht refered That's why And had t otsaAali),hetaldnigdayri barndnisweden,hasbenengagedihaa milk war against Oatly AB (henceforth referred to as Oatly), the leading plant-based milk in Sweden,s h e d since 2014 ("Fierce Dairy and Oat Milk War," 2019). There were lawsuits between Oatly and Arla, attack advertisements, and struggles over not only market share but also about what it means to be Swedish (Goldberg, 2019). In October 2019, the "Milk is milk!" (in Swedish mjlk smkar mjlk) pro- dairy milk advertisement campaign by Arla ended with the slogan "Only milk tastes like milk" (Goldberg, 2019). Given the milk consuming markets in the world (seeFigure), the increasing shift by consumers to plant-based milk sources was a cause of concern for Arla (Lewis, 2018).

Danone SA, the world's biggest dairy yogurt-maker, downplayed the rivalry between plant-based alternatives and traditional dairy. Acording ot Danone SA, "We believe that dairy and plant-based are two complementary health-focused categories and that there are growth opportunities for both." The company further said, "Dairy and plant-based products can serve diferent dietary and lifestyle p r e f e r e n c e s . M o r e i m p o r t a n t l y , n a i n c r e a s i n g n u m b e r o f c o n s u m e r s a r e s o - c a l l e d A' l e x i t a r i a n s ' w h o o p t forboth dairyandplant-based proteins, depending on whatsuits thembest ni specific occasions" (Kindelin, 2019). PeterTuborgh,CEOof Arla was faced with the chalengeof identifying ways the company couldstayrelevantwith its product oferingsni its coremarkets ("The Case 2018: Arla", 2018). Arla launched its version of oatmilkinMarch2020 (de Sousa, 2020), but several challenges remained. ToniPetersson, CEO ofOatly,was keent ochangethemilk consumption habits of c o n s u m e r s , s a y i n g , " I f we g e t o n e p e r s o n o t g i v e up c o w s' m i l k , w e v' e m a d e a d i f f e r e n c e " M a r t i n , 2019). Amidst this corporate war, the future of dairy versus plant-based milk si unclear. What strategies can Tuborgh take ot keep Arla relevant? What strategies enable Peterson ot aggressively compete against Arla? Background Arla was founded in 2000 after the merger of MD Foods of Denmark and the Swedish dairy cooperative Arla. By 2016, Arla was the fourth largest dairy company ni the world ("The Case 2018: Arla," 2018). In 2019 it had 19,174 employees. See the table for Arla's revenues. Nevertheless, with the growth in plant-basedmilkbrands, and especially Oatly, Arla'scompetitive position was threatened. Is Ellman, a graphic designer, commented, "Before Oatly, there was never any question about whether you should drink milk or serve it in schools to kids, so some people saw Oatly as somekind of condescending companytrying to manipulate theSwedish people" (Goldberg, 2019). Rosanna Hagald of theadvertisingagencykestam Holst, which produced the "Milk si milk!" ad campaign said that milk "hasbeen anatural part of Swedes' diet and culture for over acentury -it's in the Swedes' souls," adding that "new competitorsin the market have been trying to convince people to drink various beveragesrather than milk (Goldberg, 2019). Oatly was founded by Swedish food scientist Rickard ste in 1994. ste's patented milk-like formula did not receive any attention until 2014, when the company'snew CEO, Peterson, redesigned Oatly's packaging to highlight the wastefulness and adverse environmental impact of cow's milk production (Goldberg, 2019). Oatly'sredesigned packaging mentioned that humans could get most ofthe nutrients thatthey derive from cow'smilk directly from plants. In 2017, in a series of YouTube advertisements, Oatly highlighted how cow's milk was a pollutive alternative for the calories and nutrients that could be metfrom other sources (Goldberg, 2019. However, Oatly was not aprofitable company (see Table below). In 2019, Oatly had 298 employees("Oatly's Competitors, Revenue," 2020).

Table 1. Financial Data of Arla and Oatly Arla (USD billion) Oatly (USD million) Financials 2017 2018 2019 2016 2017 2018 Revenue 11.68 11.78 11.90 n/a n/a EBITDA 0.83 0.87 0.95 n/a n/a n/a n/a Profit 0.34 0.34 0.36 0.19 -1.92 -2.10 Source: "Arla: Consolidated Annual Report: 2019" (2020): Ridder (2019). Industry Background Historically, milk consumption across several European countries (see Table below), including Sweden, was considered patriotic as wel as a way of drinking a completely nutritious liquid (Baird, 2015). Nevertheless, with generationalchange, liquid milk consumption habits were changing. Astudy conducted in 2013 by the United States Department of Agriculture found "Underlying decreases in [milk] consumption are differences in the habit... [of drinking] milk between newer and older generations. Al else constant (e.g., race and income), succeeding generations of Americans born after the 1930s haveconsumed fluid milk less often than their preceding generation Baird,2015.This was furthef fueled by the negative public perceptionandsome research that had Indicated that consuming milk inlarger quantities maylead to early death (Baird, 2015). Haakan Joensso, an ethnologist at Lund University stated, "Our meal patterns have changed. Food habits changed before beverages. After a while, it wasn't as natural to drink milk with Thai curries and pasta" (Baird, 2015). Sweden Italy Netherland 372 Denmark 520 Germany 2 459 2425 367 342 518 515 of milk (million liters) 2016 2017 2018 1053 1023 1000 750 747 757 747 727 milk (inliters) 2016 2017 106 102 48 41 132 1130 49 52 2018 98 1 26 74 2018 2018 Arla Foods (Denmark/Sweden; 97 (USD 12billion) 3830 GranaroloSPA (USD 1billion) Production volume of drinking milk (1,000tons) 2016 2017 2018 785 761 754 Annual consumption volumePer capita consumption of No. ofdairy companies Leading dairy producers 2428 2 35 Unilever (Netherlands/UK; (USD 7billion) 6 1 1323 Muller (USD5billion) Globaly, milk consumption was decreasing (Starostinetskaya, 2018). nI Sweden, the per capita mkli consumption declined from 130.5 liters in 2007 to 102 liters in 2017 (Webber, 2019; see Figure 2). In contrast, the demand for plant-based drinks, especialy oat-based milk, wasincreasing. Although soy, almond, and coconut milk were already present ni the market, by 2019, oat drinks became more mainstream, a trend that is global ("Oat Drinks Market ot Reach," 2020). By February 2020, oat milk experienced a184% growth in the restaurant sector (i.e., hte number ofrestaurants using oat milk), compared ot 2019. ("Oat Drinks Market ot Reach," 2020). Furthermore, industry experts expected that between2019and2027, hte global market size of oat drinks would increase from USD 370 milion ot USD70milion,whichis acompound annualgrowthrateof82%("OatDrinksMarkettoReach". 2020). However, it was ni Sweden wherethemilkwarwasthemost competitive as Arla and Oatly were involvedin continuous competition attacking and counterattacking each other (Kibbe, 2019).

Health Claims of Milk Versus Oat Milk Oat milk, especially Oatly, contains rapeseed oil (lessthan 2%). Rapeseedoilhas been associated with heartproblems, kidney,liverdamage,andhighbloodpressure (Malicdem,2019). Moreover, unlike dairy and soy products, oatmilkdidnotprovidecompleteprotein (i.e., all nine essential nine amino acids; Bharanidharan,2019). One cup of Oatly milk offers three grams ofprotein (Freedman, 2019). In contrast, milk provides eightgramsofprotein percup. However, milk cannot be consumed by people who are lactose-intolerant, which include as much as 97% of the population in Japan and 5% of the Swedish population ("Share of People with Lactose Intolerance," 2012). The reputation of milk as a healthy food was also underthreat from consumers anxious about the use of bovine antibiotics, animal cruelty, and the industry's environmental impact, as well as increased cases of lactose intolerance (Franklin-Wallis, 2019). Consequently, in the UK, 1,000 dairy farms were closed between 2013 and 2016. Consumers from European countries such as Switzerland and France were, in general, more environmentally conscious than U.S. or Asianconsumers

EPI "provides agauge at anational scale of how close countries are toestablished environmental policy targets. The EPI offers a scorecard that highlights leaders and laggards in environmental performance and provides practical guidance for countries that aspire to move toward a sustainable future." (Wendling et al., 2020) (gOatly's Marketing Strategy Oatly was trying toappealto the consumer's environmentally conscious values. In 2019, thecompany ran an advert that encouraged consumers to take pride in self-deprivation for the sake of the environment (Goldberg, 2019). According to United Nations data, in 2019, livestock farming was responsible for 14.5% of all human induced greenhouse gas emissions, which was slightly more than greenhouse gas emissions from the world's cars (14%) and all the world's airplanes (2%; Goldberg, 2019). In 2014, Oatly launched an advertisement campaign in Sweden under the slogan (in Swedish), "Milk, but madefor humans" and "It'slike milk but made for humans." LRF Milk, the Swedish dairy lobby, sued Oatly for making adverse commentsabout cow's milk, such as theunfitness of cow's milk for humans depicted in the advertisement (Lewis, 2018). A Swedish court banned the advertisement and ordered Oatly to stop calling its product "milk" or from implying that cow's milk is either unhealthy or not fit for human consumption. Oatly was also fined USD 126,000 (Lewis, 2018). The company capitalized on the lawsuit opportunity and published the lawsuit text, positioning LRF Mlk as bullying Oatly, as a small company. After this, Oatly's sales soared by more than 45% (Lewis, 2018; Webber, 2019). In 2015, Oatly sponsored a music festival in Gothenburg where it challenged attendees to go milk-free for 72 hours. Itused sloganssuch as "It's like milk but made for humans" and "Wow, 90 80 70 84 no cow!" (Goldberg, 2019).

nI 2018, when Oatly expanded ot the UK, ti used the same controversial advertisement tag line that hadbeen banned ni Sweden. Overal, the company spent USD 880,000 on advertisements ni hte UK (Webber, 2019). By 2019, Oatly had a factory ni New Jersey, and distribution acros China. Its sales revenue increased by USD 10 milion ni 2018 and was expected ot double ni 2019, making ti the indisputable world leader of dairy substitutes (Goldberg, 2019). Milk Lovers' Response to Oatly Within Sweden, Oatly continued to atack the dairy industry with campaigns such as "Flush the milk" a- reference ot a long-running Swedish public service advertisement, "Flush the brandy," ot reduce alcohol consumption (Goldberg, 2019). The "Flush the milk" campaign was launched ni 2019. For dairy lovers, comparing milk to brandy was crossing the line, and many fans responded with tag lines like "Flush Oatly" (Biling, 2019). On being criticized for the campaign, Oatly issued astatement explaining what it meant by the tagline. It said, "We obviously don't want people ot literally flush out the milk, that wouldn't be sustainable. The campaignis awink tothe old information commercial with a purpose to moderate people's alcoholconsumption. In a similar way, we want to achieve moderation when it comes t o drinking milk" (Billing, 2019). Oatly was also criticized for "hypocrisy" after it sold a stake of the company in 2016, to aChinese state-ownedconglomerate. ASwedish newspaper editorial stated, "[China] is the world's single largest polluter, with coal plants spewing large amounts of greenhouse gases into the atmosphere. Had Oatly pointed this out, it would have undoubtedly been harder to present itself as a 'climate-friendly'alternative tomilk" (Goldberg, 2019). Arla also attacked Oatly by using the made-up words pjlk, brlk, slk, and trlk as a means of implying that oat-based milk was anythingbut mjlk- the Swedish word for milk (Goldberg,2019). Oatly, in turn, got all these words patented, and then printed them on its packaging (Goldberg, 2019). Arla promptly filed an objection with the Swedish Patent and Registration Office, claiming the registration of the phrases by Oatly was in bad faith (Goldberg, 2019). Global Fight Over Milk Name In 2017 the European Court of Justice ruled that purely plant-based products cannot be categorized or marketed as "milk," "cream," "butter,""cheese," or "yogurt," which the European Union reserved for animal products only ("Global Organic Milk Production," 2018). In the United States, in 2018, milk producersfoughtlegal battles against plant-based milk companies over the use of the term "milk" in plant-based drinks(Irfan, 2018). Milk producers were worried about consumers getting confused over aname that included the word "milk." According ot the milk producers, consumers could buy soymilk, assuming they were purchasing"bovinelacteal secretions" (part of the official definitionof milk; Colb, 2019). According ot U.S. Food and Drug Administration Commissioner Scot Gottlieb, "An almond doesn't lactate, Iwil confess" (Irfan, 2018). Critics said that this scenario was unlikely as (a) the word soy was mentioned before theword milk on the label, and (b) those who consume soy milk are intentionally doing so (Colb, 2019). The U.S. Court of Appealsfor the Ninth Circuit, in 2018, also ruled that "calling almond milk "milk" isnot deceptive" (Irfan, 2018). nI 2018, hte International Food Information Council Foundation, anon-profit organization, surveyed 1,000 US. . consumers on their understanding of plant based milk, as part of a wider study. They found that the public, ni general, was aware that plant-based milk was not dairy milk (Splitter, 2018). When consumers were asked about plant-based milk, such as almond, soy, and rice, "a significant majority. between 72 and 75%" correctly identified that these were non-dairy (Splitter, 2018). However, the study emphasized that it was important ot try ot educate consumers who may be confused or believe information that isinaccurate.Alexandra Lewin-Zwerdling, one ofthe researchers conducting the study, said, "So the majority of the population si clear, but it's important ot capture those consumers who might not be correct". In contrast to the US.. Court of Appeals for the Ninth Circuit and the International Fod Information Council Foundation, farmers thought that usingmilk as a name for a plant-based milk was deceptive. Timothy Demeree, an organic dairy farmer in New York, said, "It's a terrible deception that the retail industry si playing on the consumer. It's not milk; it's juice. It's almond juice. It's coconut juice. It's soy juice. It's not milk. And it shouldn't eb sold ni the dairy aisle. And it shouldn't be labeled as milk" (Altschul, 2019). Farmers were, however, accused of beinglobbyists when they spoke in favor of cow's milk. Demeree said, "it'ssortoflikea double-edged sword. You're damned fi you do, and damned if you don't" (Altschul, 2019). Arla Growth Strategies Between2016 and 2018, globally, the revenue from Arla-branded milk was constant (see Table above). In 2018, Arla acquired Yeo Valley Dairies, a subsidiary of the Yeo Valley Group, to enhance its organic dairy business in the UK. With this acquisition, Arla obtained the right to use the Yeo Valley brand name in the UK dairy market (" Arla Acquires Part of Yeo," 2018). Peter Giortz-Carlsen, Arla's head of Europe, said, "The potential for organic dairy products in the UK is significant, and our investment in range through this licensing agreement with Yeo Valley provides a significant opportunity to offer a greater choice to consumers at attractive prices" ("Arla Acquires Part of Yeo," 2018). nI March 2020, Tuborgh also diversified Arla into oat drinks and introduced three oat drinks under the brand name Jord, which was first made available for sale in Denmark, the UK,and Sweden (deSousa, 2020). Oat drinks by Arla were made with organic ingredients and contained as much as 50% more oats than market leaderssuch as Oatly (de Sousa, 2020). Hanne Sendergaard, executive vice president for global marketing and innovation at Arla, said, "More and more European consumers are looking towards plant-based products. And we know that consumers are enjoying dairy and plant-based drinks side by side" (Chiorando, 2020). Chris Walkland, a dairy expert, commenting on the marketing challenges for Arla said, "Arla needs to learn how to market dairy alongside plant-based companion products" (Chiorando, 2020).

The Road Ahead Commenting on the growth of substitute milk, Oatly's Peterson said, "what's driving ti si young people. It's a true concern about climate change, animal welfare, ethical food production - thoseare huge topics. Because (young people] know that they are going toinherit al the shit we're going to give them" (Lewis, 2018). nI 2019, when Insider, abusiness magazine, conducted ablind tastetest between dairy and non-dairy milk substitutes, including soy, almond, and oat, full-fat dairy milk was considered the best in taste, while oat milk stood last among blind tasters (Askinasi, 2019). Furthermore, the global production of organic milk was also increasing though in Sweden it was showing adeclining trend ("Global Organic Milk Production," 2018). As Oatly criticized dairy milk on the grounds of sustainability, Jan T. Norgaard, Chairman of Arla, mentioned that Arla was working on sustainability, especially to combat climate change ("Creating a Sustainable Future," n.d.). Arla's climate ambitions were developed in alliance with university researchers and NGOs in Sweden, Denmark, Germany, and the UK. Arla aimed to contribute to science-based targets, which was to keep the human-induced increase in global temperature below 2C ("Creating a Sustainable Future," n.d.). Tuborgh stated, "throughout the organization, we have made sustainable changes to the way we work, spend, and invest in our business" ("Arla Foods Sales Up," 2019). Further Reading Hopwood, C. J., & Bleidorn, W. (2019). Psychological profiles of people who justify eating meat as natural, necessary, normal, or nice. Food Quality and Preference, 75, 10-14. How companies use (and abuse) law for competitive gains. (2004, May 19). Knowledge @Wharton. https://knowledge.wharton.upenn.edu/article/how-companies-use-and-abuse-law-for-competitive- gains Morgan, N. A., &Rego, L. L. (2009). Brand portfolio strategy and firm performance. Journal of Marketing, 73(1), 59-74. Zhang, Y., &Schweitzer, F. (2019). The interdependence of corporate reputation and ownership: a network approach to quantify reputation.Royal Society Open Science, 6(10), 190570.