Swedish oat milk giant Oatly has announced the closure of its production facility in Singapore, a move that will see a total of 59 workers laid off.
In its latest move to streamline operations and reach profitability, Oatly has shuttered its $22M oat milk factory in Senoko, Singapore after three years in operation.
The closure will impact the jobs of 34 Oatly employees, plus 25 others who were contracted to local food producer Yeo Hiap Seng, which ran the facility in partnership with Oatly.
As a result of the contractual termination, Yeo’s will receive a compensation package worth S$32M ($23M) from Oatly in instalments, set to be paid in full by January 2027, according to CNA.
The decision supports Oatly’s “asset-light strategy”, which was initiated in the US in 2022 and globally in 2023, when the oat milk giant racked up $417M in losses, a 6% increase from the previous year. This was driven by slowing sales, higher manufacturing costs and supply chain difficulties in the post-Covid period and in the wake of Russia’s war on Ukraine.
When announcing its Q1 earnings this year, Oatly revealed that it was separating its Greater China business from the Asia segment, bundling the latter in a new Europe & International category. With the closure of the Singapore plant, the market will now be supported by the company’s facilities in Europe.
“Over the past two years, our supply chain teams have done a good job at improving utilisation, efficiency, and reliability while also finding solutions to enable us to gradually expand capacity when needed to support our growing business,” said Oatly CEO Jean-Christophe Flatin. “These actions have led to strong service rates and improved gross margins.”
Closure improves cost structure and reduces capex needs
The shutdown of the Singapore facility, which could produce 60 million litres of oat milk every year, comes a year after Oatly abandoned the construction of factories in the US, the UK, and China. And in early 2023, it sold two of its US plants as part of a hybrid manufacturing partnership with Ya Ya Foods Corporation.
But these decisions left a hefty mark on Oatly’s bottom line. The cancellation of the three facilities left impairment charges of $172.6M and restructuring and exit costs of $29M.
Now, the Singapore closure is expected to incur non-cash impairment charges of $20-25 in the final quarter of 2024, with a further $25-30M in restructuring and exit costs impacting net cash outflows through 2027, after taking into account the proceeds from equipment sales.
But the company insists that the move will improve its future cost structure and reduce capital expenditure needs, while increasing the capacity utilisation of the European factories.
“We expect that the action we are announcing today will capitalise on those collective improvements and further strengthen our ability to ensure that we have the right amount of capacity, when we need it, while being efficient with our capital and costs,” said Flatin.
“We also expect the continued simplification of our operations to enable us to sharpen our focus on execution as we drive toward consistent, structural profitable growth and ultimately deliver on our Company’s mission.”
Oatly recorded an 11% growth in the latest quarter, compared to the same period a year ago. And in the first nine months of this year, its total losses shrunk by 6% versus the January-September period in 2023.
Greater China business to gain from Singapore exit
Moving oat milk production away from Singapore also allows Oatly to double down on China, where its Ma’anshan facility boasts a much larger annual production capacity of 150 million litres.
After withdrawing low-margin SKUs on the back of disappointing sales, Oatly upped its foodservice focus in China – the only market where this trumps its retail opportunity – introducing ice creams in collaboration with KFC China and hotpot giant Haidilao.
China’s market for dairy alternatives is set to reach $42B next year, and is populated by over 5,000 companies. But it’s led by local producers like Yangyuan, Coconut Palm, Viee, and Yinlu.
“These brands have become synonymous with their categories and hold dominant positions in their respective markets. With the emergence of numerous new brands as mentioned earlier, international brands like Oatly entering the Chinese market face significant competition,” Wan Lin, research lead at Toronto-based Dao Foods International, told Green Queen earlier this year.
In 2023, Oatly’s Asian revenue decreased by 19%, with China alone making up 93% of the market. But the separation of Greater China, a segment that includes Oatly’s performance in Hong Kong and Taiwan, has delivered significant wins for the business, with year-on-year sales growing by 14% in Q3, reaching $29M.
“Our prior decision to separate our Greater China business from the rest of the Asian business has enabled us to increase our local focus and competitiveness, which has led to significant improvements in the health of our Greater China segment,” noted Flatin.
That said, the decision to close the Singapore factory affects the jobs of dozens of workers, a process that would undergo “a phased approach over the coming months”, a spokesperson told CNA: “We are committed to supporting all impacted employees and ensuring they are treated with respect and care in line with the company’s values; this includes offering outplacement assistance and training.”
In his statement, Flatin said: “On behalf of the entire Oatly team, I want to express my deep gratitude to the team at the Singapore plant for the work they have done over the years.”
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