Boring Oat Milk: Case Study

Purpose of the Workshop Exercise

This case study exercise will:

• Focus on the simple understanding of an integrated marketing campaign, and a pricing exercise.
• Provide you with an opportunity to apply your knowledge to a real case/business entity.
• Encourage you to demonstrate awareness of ethical decision-making issues.

Assessment criteria

In the workshop exercises, you will be assessed on your:

• Explanation of the concepts you are being asked about.
• Analysis and application of the concepts to the case/business entity.
• Ability to structure your answers to convey concepts and ideas clearly.
• Attempt to see all sides to an ethical dilemma or situation in marketing.

Tasks

• Complete your study of Weeks 7-10 (read textbook chapters 7-11) and watch the corresponding lecture recordings.
• Read the “Boring Oats” case carefully.
• Do a SWOT analysis of the information found within the case as your individual homework before meeting with your group in the in-class workshop.

Fill out the “Answer sheet” with your group and upload it to Stream by 16 May 2023, 1pm (NZT).

Boring Oat Milk

Entrepreneur Morgan Maw is a woman on a mission: to produce New Zealand’s first commercially made plant based oat milk, right here in Aotearoa. The choice of oat milk made sense to Maw. New Zealand produces oats, yet looking at the packaging of existing brands, none of the oat milks that she looked at were produced here. Most of the oat milks she looked at were manufactured in Sweden, which emerged as an oats production mecca in the 1990s with the founding of the company Oatly, a company that in 2021 was valued at over US$10 billion (Kilgore, 2021). To this day, Sweden is still one of the primary sources of oat milk with the company selling to over 20 countries. Keen to establish a Kiwi alternative, Maw travelled to Sweden to check out the process and spoke to local food manufacturers who warned her that it couldn’t be done as New Zealand did not have the right equipment (Thornton, 2021). Maw was determined to prove them wrong, and after three years of trial and error in developing and processing product, finally launched Boring Oat Milk. The launch coincided with Auckland’s longest lockdown in August 2021, but the product was an instant hit with consumers and supply briefly outstripped demand (Webb-Liddall, 2022).

Maw’s interest in oats came from her time living in the Scotland, where oats are a staple product. Returning to New Zealand, she set out to create a gourmet oat cookie business called Bonnie Goods (Denizen, 2022). However, she soon realised that the market for these cookies was limited as they were only likely to be bought as an occasional good (Thornton, 2021). Looking at the global growth of the plant milk market – worth US$31 billion in 2021 – Maw saw oat milk as a sustainable alternative (Starostinetskaya, 2023). Producing and consuming oats within New Zealand lessens the environmental impact of its use, shortening the supply chain. She applied for a Callaghan Innovation Research and Innovation grant that allowed her the capital to investigate solutions to the oat milk production problem (Denizen, 2022). While many of her early attempts at creating product were unsuccessful, she had a breakthrough in development when she found Hawke’s Bay orchardists The Apple Press (Thornton, 2022). They had the ability to process liquid oat base at scale, as well as a PET factory (polyethylene terephthalate) that allowed her to create packaging that was distinguishable on the shelf from other Tetra-Pak plant based milk. The oats are grown in Southland and Otago and converted into a liquid base in Napier, before being processed at The Apple Press, where the milk is fortified with calcium and B12 (Thornton, 2022). Sunflower oil is added to provide the froth essential for making great coffees, and the leftover solids are distributed to local farms as pig feed.

An important part of Boring Oat Milk’s success has been the design and branding that sets it apart from other plant based milks on the shelf. Maw named her company “Boring” as she wanted to highlight how milk complements other foods.  “Milk is like a supporting actor. It’s not the star. It’s the coffee that’s exciting, it’s the cereal that’s exciting. Milk’s something that you just want to be reliable and consistent, but not shine out. Milk’s actually really boring”, Maw explains (Webb-Liddall, 2022). She worked together with DDMMYY agency to create an identity that was distinct from other brands, settling on a simple green and white design using PET recyclable bottles. The design won DDMMYY a Best Award for Colour Graphics in 2022 (Designers Institute of New Zealand, 2022). The company’s unusual name, packaging and departure from the usual emphasis on organic products and health in the plant-based milk category meant that it stood out on the shelf, and sales grew extraordinarily quickly. By May 2022, Boring Oat Milk was the third best-selling oat milk in the New Zealand market behind So Good and Vitasoy (Foodticker, 2022). Their distribution channels also grew rapidly, with the company establishing a presence in cafes, boutique and mainstream supermarkets. Boring Oat Milk is available at Coffee Supreme cafes, Farro Fresh, Moore Wilson’s, Fruitworld, Countdown and New World (Food Technology, 2021).

The success of the launch was something that took Maw by surprise, as she had estimated that her sales would be a percentage of the existing market and they were double her projections (Jack, 2022). The rapid need for more supply caused the business some initial teething problems, as they had to incrementally increase supply or risk failing the business at the same time as dealing with customer pressure over shortages. As Maw states, the science needs to be right for producing the milk, “We can’t just triple it. It’s like when you bake a cake. Sometimes you’ll [think] ‘I’m just going to double the recipe because I’ve got a big party,’ and it just fails,” she says. “It’s like that but times a hundred” (Jack, 2022). Through careful management the company has now resolved these production issues.

Boring Oat Milk’s marketing extends beyond just branding. The company has a strong presence on social media, with over 9,000 followers on Instagram and 3,800 on Facebook. Their social media posts highlight other entrepreneurs and cafes that are using their milk, the sustainability of their milk, and coffee cart activations around New Zealand where people can come and try their milk for free. In 2022, the company launched their first television commercial shot by creative agency OK Studio. The commercial is a complete departure from the predominant aesthetic for television commercials with a 1980s cheesy aesthetic with a “housewife on Valium” feel (StopPress, 2022). This bold creative choice allows for the company to stand out in comparison to other companies. Awareness has also been driven by Maw’s ability to sell her story through public relations, and the company has been profiled in publications like The New Zealand Herald, Radio New Zealand, The Spinoff and Denizen. Boring Oat Milk has also engaged in media integrations, partnering with The Spinoff to sponsor their new recipe and food weekly newsletter called The Boil Up (The Spinoff, 2022). The company has also partnered with New Zealand-based hemp clothing company Buddy to produce long sleeved sweaters and tote bags featuring the ‘Boring’ logo that are available for purchase on their website. Continuing its emphasis on innovation, in July 2022, Boring Oat Milk partnered with Wellington Brewery Parrotdog to produce an oat beer: Oat Milk Hazy IPA (Templeton, 2022).

The demand for oat milk in New Zealand continues to rise. Sales of oat milk in New Zealand have a 170% year on year growth (Thornton, 2022). In the United States, oat milk was the largest growth category in plant based milk, driving over 50% of the rise in consumption (Starostinetskaya, 2023). Part of the reason for this exponential growth is a growing consumer demand for sustainable products. As some consumers turn away from dairy and look for more sustainable solutions, oat milk is emerging as a star as it requires less water than other alternatives and has less issues with practices around its production (McGivney, 2020). Ninety percent of the oats grown globally still go to animal feed, meaning there are production practices in place that can be easily diverted to creating more milk (McGivney, 2020). For the moment, Maw has no plans to engage in line extensions by creating new flavours. Her plan instead is to educate New Zealand consumers on sustainability in farming (Denizen, 2022). She also sees exports as part of the future of the company, with an eye to targeting the Chinese market (Nine to Noon, 2021). Although Boring Oats Milk was the first New Zealand commercially produced oat milk on the market, it is not the only Kiwi player in this space. Otis Oat Milk began development around the same time, but had to send their milk to Sweden for processing. They are now in the process of building their own factory, meaning they are a serious competitor. However, Maw welcomes this, seeing it as an opportunity to build the New Zealand story further. “I think we should be working together to build up the New Zealand oat milk brand, which is currently non-existent,” she says, “so that we can have a really good export story and be able to sell across the world. I think the world’s a big place why can’t we be the Southern Hemisphere version of Sweden?”

Scenario

Imagine that you work for Boring Oat Milk and decide to trial sell a newly developed chocolate oat milk to gauge demand and an appropriate price point for this new product.

Fixed Costs

You need to cover the costs of the factory as well as staff. For the sake of this exercise, let us assume that you pay $14,000 per month to run the factory including all the equipment and utilities. In addition, you pay $12,000 per month in wages to your staff. Those costs are not going to change no matter how many bottles of chocolate oat milk you sell. If you did not sell any chocolate oat milk, you would still need to pay $14,000 per month for the factory and $12,000 per month in wages. Those are your fixed costs. Fixed costs do not change as the level of production goes up or down.
Your fixed costs are $_________ per month.

Variable Costs

Now you need to buy ingredients for the chocolate milk. Once you add up the costs of the ingredients and packaging for the chocolate oat milk, you find that it is a total of $130 for 100 chocolate oat milks. Hence, each chocolate oat milk costs $___.___ in ingredients and packaging. (Calculate to two decimal points).
i.e. ($130 / 100_ chocolate oat milks = $____.___) (calculate to two decimal points) In other words, chocolate oat milk you sell is going to have a variable cost of $_____.__ Variable costs do change, as production is increased or decreased.

Break-even

Now let’s assume that you have set your price and you need to know your break-even quantity (or volume). You are an exceptional marketing student, so you have talked to the people who are likely buyers for your chocolate oat milk, and you understand what a bargain price is and what price is too expensive. You have compared the price with competitor prices. Also, you have considered the price of your chocolate oat milk compared to the price of dairy chocolate milks and other plant based products (which are “substitutes” for your product).

All of this analysis has led you to set a price of $9 per chocolate oat milk bottle, but you want to make sure that you don’t lose money on your business: you need to calculate the break-even quantity (or volume). The formula to do that is as follows:

What is your break-even volume (or quantity)?
Break-even volume = $_____ / ($__ – $_.___)
Break-even volume = $_. / $__.__
Break-even volume = ______.__ chocolate oat milks per month (calculate to two decimal points).

Promotion and other costs

So, let’s round-up and just call the break-even quantity 3377 chocolate oat milks. Does that mean that you keep the full $9 as profit for every chocolate oat milk after 3377? Sadly, no.

First, you have to cover the variable cost for each chocolate oat milk ($___.___ per chocolate oat milk), which means you make just:
$9 - $___.___ = $__.__ per chocolate oat milk you sell (after you’ve surpassed the break-even point).

Second, our simple break-even example did not include all of the costs. For example, the IRD will want their tax. After you’ve locked down the production costs and the pricing, you will need to invest in promotion and distribution of the chocolate oat milks. You’ll also probably want to cover your time (i.e., pay yourself) and add some profit into the total fixed costs. For instance, if you wanted to earn a profit of $600 each week, then you would need to add that to the fixed costs of $_____.00 of the factory including employee wages.

Breakeven in the Marketing Strategy

Now that we have a cost example, it’s a little easier to think about the pricing objectives. If you decided to price your chocolate oat milks with a profit orientation, then you would simply add a profit ($2 per chocolate oat milk say,) to the break-even price. That approach doesn’t take the customer into account at all, though, since a profit orientation is only about the business.

What if you found that a local competitor sells chocolate milk for $5.00 each? Assuming they are comparable to your chocolate oat milk, you could use a competitor-oriented pricing approach. Therefore, you might decide to match that price and compete on that basis. The drawback is that this approach does not take into account the value your customers find in a chocolate milk with sustainably sourced oats —i.e., your chocolate oat milk.

A customer-oriented pricing approach allows you to treat the break-even data as one input to your pricing, but it goes beyond that to bring your customers’ perceptions and the full value of your product into the pricing evaluation.

Questions

1. Individually, complete the pricing calculations from the Scenario provided at the end of the WSE3 Case Study, and then complete the WSE3 ‘Break-even calculation’ quiz on the Assessments page on Stream.
2. Boring Oat Milk aims to capitalise on the domestic success of their product through launching a line extension to develop new flavoured oat milks. The company wants to generate external ideas to decide on what are the best flavours to develop. Describe TWO external idea sources, and for each source explain why this source will be useful in helping Boring Oat Milk further penetrate the domestic market for oat milk. (Textbook, 8th ed hardcopy pp. 236-238, E-text, Chapter 8, Idea generation, External idea sources). (Word count guide – 250 words approx.)

   Type your answer here

3. Following an extensive idea generation process, Boring Oat Milk have decided that the best flavour to begin with is chocolate. However, there are many competitors in this space. New Zealand competitor Otis Oat Milk sells a litre of chocolate oat milk for around $6, Californian company Blue Diamond has a litre of chocolate almond milk for $4, and Little Island sells coconut almond milk for around $8 per litre. Then there are the premium milk-based products like Lewis Road Creamery (approx. $12) that might appeal to consumers who switch between dairy and plant-based products. With this in mind, what new product pricing strategy would you recommend for Boring Oat milk? Provide justification for your reasoning. (Textbook, 8th ed hardcopy, p.274, E-text, Chapter 9, New Product Pricing Strategies) (Word count guide – 250 words approx.).
4. Boring Oat Milk has decided to enter the highly competitive UK market for oat milk and hopes to leverage New Zealand’s environmental reputation as a brand to establish a presence in this market. To do this, they must decide on a retailing distribution strategy to enter the UK market. What type of retailers do you think they should target first and why? (Note: you can choose more than one if you wish). (Textbook, 8th ed. Hardcopy, pp.314-8 E-text, Chapter 10, Types of retailers). (Word count guide – 250 words approx.).
5. One of the key criticisms of products that are marketed as sustainably produced is that sustainable practices are often selectively introduced across the organisation. What are the arguments FOR and AGAINST marketing a product as sustainably produced in New Zealad while the product is being exported overseas (and therefore creating carbon emissions?) (Word count guide – 200 -250 words approx.)