Channel Strategy in CPG

Last month, I wrote about how Tesla is approaching channel strategy differently. This month, I want to apply the same thinking to a completely different industry: consumer packaged goods. We’ll see how one company, Oatly, a brand of oat milk from Sweden, is approaching its channel needs of inform, interact, transact, deliver, and service.

“…by connecting with our consumers on social media, we get closer to them and are able to involve them on a whole other level. …This allows us to build a long-term bond with our customers that are more critical to our future success than you could ever imagine.” – Sara Hansson, Social Media Manager, Oatly

You may be thinking oats don’t produce milk, but neither do almonds or soybeans. Similarly, oat milk is used as a milk substitute, especially in high end coffee.

Inform: Oatly’s US market entrance strategy was to use coffee shops as inform partners, rather than trying to reach coffee drinkers through retail such as grocery stores. Its non-traditional product, and exclusive brand, benefited from hip baristas being the cutting-edge expert recommending Oatly to their customers.

“We didn’t have a large budget, and we had to use the package as the main medium,” creative director John Schoolcraft says. “They were basically in-store billboards.”

Oatly has also experimented with urban advertising, such as building murals and wheat paste posters, which poke fun at the brand and is memorable to viewers. By appearing in uncommon environments and not depending on typical advertising for a food, Oatly can further differentiate its brand and control its messaging.

Interact: Again, originally, high-end coffee shops were the only place where customers could interact with the brand. Customers couldn’t walk into a grocery store and find Oatly on the shelf. As Vice puts it, “The move proved ingenious, as baristas became ambassadors of the oat milk gospel without feeling like sales representatives to customers.”

Transact: The grocery business is notoriously cut-throat and low margin. Avoiding that channel, and selling through coffee shops and its own website, kept Oatly’s costs down and its premium brand perception up. Purchasing Oatly felt special, namely because it wasn’t available in traditional channels.

Deliver: Delivery depended on the inventory held by coffee shops. Due to the time involved in making the product and the surge in demand, Oatly routinely was unavailable. These shortages only served to strengthen the special and unusual nature of the brand and the product. Oatly may not have intentionally contributed to these shortages, but certainly benefited from their effects.

Service: Oat milk doesn’t require service contracts and maintenance, but like any product, someone needs to provide customer service. Oatly handles that itself in its typical quirky and low-key manner. For a time, the carton print included the personal email address of John Schoolcraft, the creative director who joined in 2013. Customers could reach out directly with their questions, comments, and complaints.

Forgoing traditional channel distribution didn’t stop Oatly from a quick expansion. The New York Times reported in January 2018 that “Oatly has spread from 10 locations in New York to more than 1,000 locations nationwide,” less than a year after it landed in the U.S. 1,000 locations pales in comparison to its footprint had they  teamed up with grocery retail. But, like Tesla, Oatly doesn’t need to be everywhere to serve its chosen customers. Oatly was able to achieve its goals more efficiently on its own, and through select coffee shops.

It may seem like the right kind of traditional channel partner, such as Whole Foods, could have been workable for Oatly. But the grocery world is so competitive, it can easily take more than a year of toil just to appear on a shelf. Staying on that shelf is even harder. What kind of support your brand will get is dependent on how much you are willing to pay. Oatly decided it wasn’t worth the expense.

As of 2018, Oatly is beginning to be available in traditional retail, and it may be only a matter of time before it is available at major coffee shop chains.

But by entering the U.S. with a specific channel strategy, which eschewed these partners, Oatly was able to develop its brand, connect directly with customers, establish its presence, and be in a much better position to negotiate with channel partners down the road. Overall, it was able to capture the right kind of attention.

Who else could benefit from reassessing the role of channel partners in their industry?