World Reimagined: Investing in Dairy Alternatives

Glass of soy milk next to soy beans
Credit: HandmadePictures -

With the recent IPO of Oatly (OTLY), a look at the global dairy alternatives market, which was valued at $20.5 billion in 2020 and is expected to expand at a compound annual growth rate (CAGR) 12.5% from 2021 to 2028, felt timely. As we see in our Cleaner Living investment theme, consumers’ preference for products that are not only better for our bodies but also for the environment is accelerating, as are cases of milk allergies and lactose intolerance, which also drive demand for alternatives. Concerns over the use of hormones, pesticides, and antibiotics in cows are also driving demand for dairy alternatives, as is the desire to reduce sugar intake.

Growing up, many of us “Got Milk,” so why is dairy milk problematic to the environment?

There are an estimated 278 million dairy cows in the world, with 9.3 million of those in the U.S. In 2017, about 909 million tons of milk were produced by those cows, with 12% of that produced in the U.S. Here’s the thing, it takes an estimated 144 gallons of water to produce just 1 gallon of milk in the U.S., with over 93% of that water used to grow the feed for dairy cattle, because just one dairy cow eats around 100 pounds of feed a day.

Simply put, dairy milk is not a resource-efficient beverage.

The degree to which any of the dairy alternatives are better for the environment may be up for debate, and we won’t go into them here. Regardless of one’s preferences, there is room for improvement when it comes to dairy.

According to the recently published “Cashew Milk Market” report by Verified Market Research, there were approximately 79 million vegans worldwide, and about 68% of the global population has lactose malabsorption. That’s a big market. According to Cédric Boehm (Head of dairy for Nestlé Europe, Middle East, and North Africa), in Europe, at least four in ten shoppers are already choosing some form of dairy alternative. So, what are the main alternatives?

  • Soy milk is particularly attractive to women and the elderly as its isoflavones are associated with lower risks of heart diseases and breast cancer, and its phytoestrogens are viewed as an alternative estrogen supplement.
  • Almond milk is an attractive alternative for those following ketogenic or vegan diets and is rich in lipids, fiber, and protein. It is also associated with improved blood pressure regulation, and since it is rich in vitamin E and manganese, it is viewed as beneficial for the skin and to protect against cancer.
  • Coconut milk, and here we are not talking about the canned type found on the grocery shelf used for cooking but rather the stuff you get in the refrigerated section with the other milk alternatives, has little to no protein, is low in calories, but is high in fat.
  • Cashew milk is loaded with vitamin E and is low in calories, cholesterol, and sugar.
  • Oat milk comes from straining the liquid out of oats. It is high in protein, low in fat, and free of gluten, lactose, nuts, and eggs, which can be allergens for some. It can have more carbohydrates and calories than other non-dairy alternatives.
  • Rice milk has a sweeter taste than other alternatives but can be high in carbohydrates and calories and has little protein and fiber.
  • Hemp milk is loaded with heart-healthy omega-3 fatty acids and has fewer calories than whole dairy milk.
  • Recently Nestlé launched Wunda, a new pea-based beverage that the company markets as “epic in everything” that would otherwise use daily milk. The brand is being launched first in France, the Netherlands, and Portugal. It will soon enter other European markets. The company reports that the product is made from yellow peas, providing a high-quality source of protein, high in fiber, low in sugar, enriched with calcium, and is carbon neutral and is certified by the Carbon Trust. And despite what you might think upon hearing yellow peas, Nestlé says Wunda has a “neutral taste.” The product was initially developed as part of Nestlé’s R&D Accelerator initiative.

According to Allied Market Research, Soy milk, almond milk, and rice milk are the three most popular alternatives, in that order descending. According to reports available at Research and Markets, Asia Pacific dominated the market in 2020, accounting for more than 44.0% share of the global revenue driven in large part by a higher preponderance of veganism. Looking forward, the growing population and rising disposable incomes in emerging countries, such as India, China, and Japan, are expected to augment the demand for non-dairy alternatives in the Asia Pacific region.

While Asia-Pacific drives the largest portion of revenue, Europe is projected to be the fastest-growing market through 2026 due to the increasing demand for dairy alternatives, mostly by the flexitarian population. The rising health awareness among European consumers, along with environmental concerns and sustainability factors, is driving the growth of the European dairy alternatives market.

Manufacturers of dairy alternatives are typically vertically integrated through established processes which means that many of these companies manufacture food products containing dairy alternatives as well as beverages that utilize alternatives, such as almond milk or soy milk. The process involved in the manufacturing of dairy alternatives does not involve complex or prohibitively costly technology, which means there are no major barriers to entry. This makes for a highly competitive market. Some prominent players and their stock performance over the past year include:

  • The Hain Celestial Group, Inc. (HAIN), up 38.6%
  • SunOpta Inc. (STKL), up 246.6%
  • Danone (DANOY), up 9.1%
  • Oatly Group (OTLY), recently IPO’d at $17 a share and is up over 8% since then
  • Vitasoy International Holdings Limited (VTSYF) down 3.0%

Looking at the number of private companies active in the space tells us that there are not only opportunities for new entrants but also points to future opportunities for investors as well with names such as:

  • Melt Organic
  • Living Harvest Foods Inc.
  • Ripple Foods
  • Earth’s Own Food Company Inc.
  • The Whitewave Foods Company
  • Eden Foods, Inc.
  • Nutriops, S.L.
  • Freedom Foods Group Ltd.
  • Blue Diamond Growers
  • Organic Valley Family of Farms

The bottom line is that in the coming years, we are likely to see milk alternatives gain market share over traditional dairy and less healthy beverage alternatives. As consumers embrace these alternatives, we expect to see further development in other dairy-related markets such as yogurt and ice cream. And we’ve already broken out our spoons to do some due diligence on Ben & Jerry’s Non-Dairy Pints.

And while we enjoy that homework, odds are we’ll see larger beverage companies such as Coca-Cola and PepsiCo enter the fray by either introducing new products or buy their way into the category. The odds are many of those potential acquisitions would be judged against the $12.5 billion Danone paid for WhiteWave in 2016.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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