Oatly Group AB (OTLY) Earnings Call Transcript & Summary

Terrific. Thank you very much, everyone, for joining us. This is Wendy Nicholson from Citi. It's my pleasure to be hosting this fireside chat with the management team of Oatly. We have Toni, CEO; and Christian, CFO. Toni is calling in from Sweden, and Christian, is actually, I understand in Utah, at the Ogden facility, so we can ask him a couple questions about that when we get there. But for now, thank you, guys, very much. I appreciate you joining me today. And just for the investors on the line, if you have any questions, please send them to me. I know there's a question box and then the questions will come straight to me or just e-mail me at [email protected], and I'll make sure I ask management your question.

But maybe just to start off, Toni. Just taking a step back, some of the folks probably listening in are less familiar with the category and with your story in particular. Can we just maybe start sort of sizing the prize, if you will, what's the opportunity? How do you frame the opportunity for oatmilk as a category? Maybe let's start first on a global basis.

I mean that -- yes, I think that's a great starting point, first of all. So if you look at the dairy universe, including yogurt, cheese and all that, it's USD 600 billion. And you have in retail, and you have to put food service on top of that, right? Now milk is the #1 volume item and representing around 30% of the universe that I talked about, but is the #1 volume item globally in retail channel. And we know that the penetration of plant-based milk is around 9%, 11% on a global basis, but only 1% with non-milk items. So there's a massive runway and white space everywhere, basically. But the important thing to understand now is that the key driver is conversion from cow's milk into plant-based and predominantly oatmilk. Unlike the almond and soy, which were more -- soy was lactose intolerance, it's the key driver; almond was more of a healthy concept of low-calorie product. Now that is something that has changed, and that's why the opportunity is extremely big. And we know that 60% to 70% of the current users in our 5 key markets, joined plant-based milk only 2 years ago, a majority only a year ago, and we know that 40% of the growth is driven by new users. And also, over the last 3 years, 32% of the population in the U.S. reduced the dairy. And we know that around 2/3 of those people now shifted at least part of their dairy consumption to plant-based milk. So we expect around 20% growth in all key markets for the category, but oat, it's going to outgrow it by far, I would say. And then if you look at the oats itself, I mean, we've been around for 30 years, and we've been scanning actively, basically the whole world for various crops. And we just think that oat is the premium crop because of the macro nutritional proposition that has included fibers that we uniquely keep in our production process. And beyond the macro nutrients, you have the accessibility. You grow oats everywhere in the world. You don't have to ship it around everywhere. And people are accustomed to the health benefits and the flavor of boats, which is a massive win. So that is the -- what people should know is that this is a conversion from the biggest volume item that exists in retail. And the magnitude of that has not been seen before.

And do you find that the primary focus -- I mean, everyone I talk to you says, "Oh, I tried oat milk first because I got it at Starbucks and it frost better in my latte or my cappuccino. " But do you find that it's really principally a taste issue? Is it a health and wellness issue? I mean obviously, sustainability is a critical part of the story. But at the end of the day, do you find that consumers care all that much about the sustainability angle? Or is it more sort of what does it do for me, either in terms of taste or frothability?

I mean you can't sell products that doesn't taste well, right? And we would never achieve our success without the world-class product that we have. But I would say this that the emotional connections with people and sustainability with the credentials are becoming some of the key components in deciding how to consume. So that is something that has changed over the last couple of years. But you're right. I mean health and taste is definitely -- I would say, you can't do it without it, right? But then put the emotional connection and sustainability on top of that. And then you have more holistic perspective in how consumers think about this.

Fair enough. And then again, also sort of just in terms of starting at a big picture on sizing the price. When you go to bed at night, do you think about milk and just milk? Or do you think about butter and cheese and frozen dessert and hey, this huge opportunity? I did just see that you launched the frozen dessert on a stick. And my question is first is how important are all of those other non-milk dairy categories for you either today or over the long term? And then what do you say to people who say, "Oh, my gosh, the company is having a handful of execution issues." We'll get to those in a minute. But they really just should focus on one thing and do it well as opposed to be in all these different categories.

No. No. That is not our approach, but I would say this, that milk is our focus, okay? We want to win that because that's what's driving conversion. That's what drives people into the category. And we know that we are world-class, and we are over-indexing heavily versus competition in driving people into the category. That's why we've been driving the categories in so many different countries over the last couple of years. But yes, but we've also been around for 30 years. So we have a library -- a full library of different products that we can launch whenever we want, when we think is right. So Sweden, we have the full range and Finland. Those are the 2 countries where we have the full range of products. We have ice creams, we have cooking cream, we have whipping cream, we have vanilla custard. We have spreads and all those things, right? But we're going to be very mindful in how we are launching those in the different markets. U.S., I'm happy they're bringing ice cream up because it's the #1 performing brand in terms of [ velocity ] in lost plant-based milk. And we have secured a lot of accounts entering 2022. So we're extremely excited about that. And just if you haven't tried it, try it. Just give it a try, and you'll understand why we're excited about.

Same thing on the Oatgurt side, the Oatgurt is delicious, and that's a nice alternative, too. So good for you on that. But in terms of what -- if I think about the different markets, obviously, I sit in the U.S., and so I know how U.S. consumers act. And obviously, having a bowl of cereal with milk in the morning is a popular breakfast item. But is that the same -- for example, in China, is that still the same opportunity? Or do you look at each market differently in terms of saying, "Okay, maybe this is more of a product that people will put with their coffee in China, whereas in the U.S., we'll put it in their cereal." How do you think about the opportunity for consumer behavior to change and oatmilk adoption, if you will, maybe Europe versus U.S. versus China?

I mean intuitively, people understand what this is. So you use it as a milk, which is why we honor that world being liquid food with all the macronutrients, right? And you should be able to use it in baking, cooking, pancakes, whatever. That's how we have designed our products. There's a discovery journey for sure. So if you look at China, we did the success we created is with 1 SKU and is based on coffee shops, mainly, right? But then there is a discovery journey there. And maybe you -- first time maybe you buy it for coffee, but then you realize that I can actually drink it, and I can actually put it on cereal, but there's an educational part that we can provide as well, right? And remember, we haven't done anything in terms of branding for the last 9 months because of the supply constraints. So we have a massive opportunity to educate people across all these regions going forward. But because it is a journey. But the important thing, it starts somewhere, and it starts with milk.

Yes, absolutely. So if we take as a granted or given that oatmilk is the future and the category appeal is obvious, there are a lot of players in the category. And one of the biggest concerns I hear from investors is maybe Oatly was the first, but why are they the best? And so let's just start with from a competitive advantage perspective, do you think you've got a unique processing capability? Is your taste better maybe than some of the other oatmilk categories -- oatmilk milk products or brands on the market? Sort of why is oatmilk -- Oatly going to be the winner in this category?

That's a great question. So you might note this, that we are commercially successful across 3 continents, including the most significant markets like China and U.S., the most important markets as well, in multiple channels and segments. And I think that multiple channel strategy that we have launched so successfully in all this region is a huge part of our success, where you can try our products in various places, in different forms. And the way we are positioned ourselves, the way we're generating demand, building organization, creating innovation and create creativity power across all these regions, together with the successful commercial plans, backed up with the supply footprint, like we are positioned to take a global need. And I don't see other companies taking that position. And all of that is based on the solid, extreme solid performance data that you can track in measured channels, but that we also can see in the other channels. And we do believe that we have become one of the strongest voices. This stands for what consumers really, really care about, which is sustainability, health and trust. And you mentioned them before, Wendy, four elements that manage the people today according to our insights that we have is taste, nutrition, where we are over-indexing versus competition. But we are over indexing greatly in terms of sustainability credentials and emotional connection with brand. Now all four matters. So it's a very holistic approach. Now then you look at -- and branding, we have a extreme strong branding power, but the innovation that we have and the research we do in old fractions where we determine only that is good for you, but what it does to your body. We conduct clinical studies on human health. We have the access to the complete library of [indiscernible] 10,000, 15,000 varieties of oats with different properties. And we have scanned around 8,000 of them. So you're going to see some oats that are linked directly with Oatly in the future. So we are also positioned to lead the evolution of this plant-based category going forward. And then on top of that, we have a unique process, where we start with the kernel of oats and we liquefy the oats with an enzymatic process. We keep the goodness of oats, including the betaglucans and the fibers, without adding anything, and that is truly unique. And you can just track the velocity data and you'll see the proof there. So it's a combination of all those things, and I think that makes us really unique.

Do you think, first, that there will be a shakeout, if you will, in the category in terms of the number of brands in the marketplace? And then one of the things, obviously, you suffered with this year -- are sort of some supply chain constraints. Can you just talk about your relationships, maybe broadly with retailers? We'll talk about foodservice separately in a minute. But just with your retailers, are there retailers who are frustrated and are you losing shelf space anywhere? Just kind of how do you see that playing out maybe over the next 3 to 6 to 9 months, if you will?

Great. So we didn't lose any shelf space, first of all, but we didn't get the shelf space that we deserve because last year, we were also in heavy supply constraints. So we sat there negotiating with this retailer, and we couldn't get the shelf space that we wanted. And now you see U.K. in one of the biggest retailers, we're driving 1/3 of the sales of the whole category from 7% shelf space. And the other big player, we will drive 25% of the sales from 14% shelf space. And none of that makes any sense, not for us, and not for them. And when we were in supply shortage, a lot of small different brands -- not small, small and big brands came in, not performing. So we expect in some of the markets that is going to be consolidated. And also, we do expect in the reset that happens in Europe, first half of next year, that there's going to be development for us there because we are bringing so much growth and so much value into the retailers. We didn't get the shelf space we wanted last year, but they didn't throw us out, right, because we are bringing value for them and dollars. So that's what we see. So we set first half of this year and then when once we have better shelf space, we have more to work out of, and we get better tractions in everything that we did because of the disability in the stores.

Got it. And can you talk about the U.S. maybe in terms of shelf space? I mean I see you where I shop, but do you still see an opportunity to expand your ACV or your distribution, again, just at retail in the U.S.?

Oh my God, yes. Yes, 34% ACV. I mean I think we drive -- if you look at the 12-month period of time, we're driving around 22% of the growth from 34% ACV. In an average, 67% fill rate. So we have a massive opportunity to go for there. So there's so much we can do. And our main focus in the U.S. is actually to stay where we are. And because we see velocity is increasing as well, right? So as demand and velocity is increasing, we're going to try to close the fill rate gap, but there's a massive opportunity within the partners we have to be distributed further.

And how does pricing play a role in that? I guess -- and first of all, do you think there's price sensitivity in the category? Or obviously, you could argue the product is worth a premium price point, but do you see an elasticity of demand in terms of who you're trying to sell to and some demographics are more easy to sell a premium-priced product to than others?

I mean we have industry-leading velocity in terms of dollars per store per week, right, including milk. We're the #1, which is incredible, to be honest. And our -- we have 2 of our SKUs are the top velocity performers within plant-based dairy. And we do that, as you said, premium price point, less promotion, increased velocity that is driven mainly organically. And that is absolutely unique. And if you look at the promotional levels of U.S., for instance, during 24 weeks ending mid-October, if we look at our main competitors, they drove 35% and 48% of the sales on deal, 35% and 48% on deal, and we did 18%. And they had a lower starting price point to start with, right? So there is something uniquely linked with Oatly that is hard to describe and hard to understand, but is that -- the result of the efforts that I mentioned earlier so I don't see -- we see competition, specifically in the U.S. cluster in a certain price range and where somewhere else and our velocity looks very different.

Got it. Got it. And how about on the -- let's switch gears and talk about foodservice for a little bit. I know prior to the pandemic, foodservice was kind of maybe 25% or so of your sales. It's much bigger now, closing in on, I think, 40% of your revenues. What's your target for the exposure to foodservice? And how are you doing on that front?

So it's always going to be about balance in how we're generating demand. So it's a demand generating system that we are balancing basically on a daily basis. I think we have a pretty good balance in the U.S., but 50% comes from food service and 50% from retail. And I do expect, though, that, that's going to -- over time, that retail share is going to increase a little bit over time. In Europe, it looks very different. 80% of our sales comes from retail. So we need to develop the foodservice side, but we couldn't approach any QSRs or foodservice partners because of the supply situation we've been for the couple of years. We've been catching up for many years now. China is also different. 70% of the sales from foodservice and 25% or so from e-commerce and only 5% from retail. And there, you can expect more from retail and e-commerce kind of in the coming years. So the dynamic looks different, but it's how we balance all the different channels. And that is actually how we created the success of the brand.

And in a market like China, the retail opportunity, is that -- has that been a challenge from a supply chain perspective? Or have retailers been less interested in taking the product? Or why is retail still so small? And when do you think we see that ramp?

No. That's a great question. And it also gives me the opportunity to just express that the opportunity in China is absolutely massive. The trajectory is actually higher. The curve is steeper in China versus U.S. We started in China a year later, right? And already have all these QSR that we work with the partnerships and the unique partnership we have with the team [indiscernible] for instance. That is, to your question, when it is supplier-driven. So we created the success in China basically with one SKU. That is called Barista edition. So it's very much linked to coffee, right? What we can do now with localized production is that we can expand, we can have new formats, other channels. So that is the reason. That is the reason why we can really, really attack retail and also e-commerce and reach consumers directly in a way that we couldn't do before. But I also want to say this, China is different. We are working with all the bigger brands, Starbucks, McDonald's, KFC, Burger King, the tea shop change that we have that is around, I would guess, around 6x bigger than the coffee shop channel in China, right? And with those players, we are actually creating specific products like [indiscernible], we start with Hong Kong, ice creams with Burger King and KFC. We do oat topping for the tea, Nayuki, the tea shop chain. So it's a massive opportunity. You need to be on your toes, and that's where we have this innovation power that we actually can create this together with our most important partners.

How important is it to you at foodservice that the Oatly brand is featured? Because I think at some foodservice accounts, you know that the oatmilk brand -- the oatmilk is an Oatly brand, some you don't necessarily. And I'm just wondering, I mean, the good news is you're helping to grow the oatmilk category by being so successful in foodservice. But I want to make sure that the benefits of that growth accrue to Oatly as a company and Oatly as a brand, if you will.

Absolutely. So first of all, we would not do this collaboration without having our branded product behind the desk. That is really important. And often, there are -- you see them on menu board, and sometimes you don't, right? We created the success in the U.S. with independent coffee shops and it was behind the bar, but it was branded. So some people know it and some others don't. But it really doesn't matter because eventually, people will know. And that's our approach going forward as well. And what I -- the things I spoke about regarding China, for instance, it's not even our product, but it's just Oatly inside, branded in the cups, on the menu and stuff like that, right? So yes, it has to be branded for us to generate a value for us.

Got it. And can you talk about the relative profitability of foodservice versus the retail business, just at a high level, which is more profitable for you on the gross margin side?

Yes. Foodservice is pretty wide depending on what part and you look like, you work with, right? But in general, today, retail is a little bit more profitable. That's how I would phrase it.

Yes. Fair enough, fair enough. And just in terms of new product development, I know you pride yourself on R&D. So what's next? Again, I just saw the frozen desert on a stick, which is exciting for me, but maybe pretty straightforward. But on the core milk side, is it different flavors? Is it different packaging? What's next from an innovation perspective?

No, there's so much to do. And thank you for mentioning the ice cream. It's an enormous success. Try it. Have you tried it?

Delicious. It's delicious. Yes.

On a stick?

No, I haven't seen to stick yet. I saw the ad for it, but I haven't seen it in the store, but I have the pipe.

Probably the best product we have ever created. So just try it. There's so much to do on milk. So 30 years ago, we set out to do the best milk, period. We didn't mimic cow's milk. Remember that. We don't need that amount of proteins in our diet. We are overconsuming proteins, but we don't have enough fibers, for instance, and it's about the quality of the macronutrients. Going forward, we speak a lot about sustainability. But I would say that health is one of the best kept secrets of our company. And as I said, we conduct clinical studies on human health, and we're going to continue to do that. And we got this space, better milk, not plant-based necessarily, but best milk space has to address the noncommunicable diseases that is putting enormous pressure on society in terms of human health and costs. You have heart health diseases, you have obesity, you have diabetes, increased on epidemic level, right? So it has to be sustainable, but it has to be healthy in a very direct way. And I think that's where it's going. That's why we're having this research. So milk itself is going to develop, to be -- to generate even more value for people going forward. And then you have all the other stuff, I said like milk is only 30% is the biggest item, but it's only 30%. You have yogurt, you have cheese. You have the frozen items, and we're going to continue to develop there. And the technology that exists today in order to create that is not necessarily how we think about it, but we think you have to be -- it has to be clean label, it has to have the mouth feel and the texture. So when we launch anything, the next level or the next revolutionary step for us will be creating those products from a core technology in the enzymatic process that we have, and that is something that we're focusing on as well.

Got it. Fair enough. Maybe now if we could shift and talk about capacity because clearly, for the last few quarters, capacity has been one of the biggest -- it's the biggest constraint to your growth. Can you talk -- maybe give us an update kind of where you are in each of Europe, the U.S. and China with regard to meeting demand and maybe an update from a capacity build-out perspective?

Yes. So all the factories that we have mentioned, Singapore, [ Maanshan ] all of them previously in our earnings call, are ramping up at a steady pace. And I think that if you look, we're basically at the last phase, where we're entering the last phase in quarter 1 for Ogden, where we're going to reach full capacity, I would say beginning of Q2 or somewhere in Q2, and it's progressing. We see month-by-month improvements. And the same thing goes for Singapore and for Maanshan, China, where we already are producing, producing commercial products, which is remarkable. We had delays in Ogden that was related to COVID-19 and automization problems that we had and mechanical issues, and we couldn't get the spare part or expertise that we wanted. But now it's a steady ramp up, and we expect to be where we want to be during Q2 because the ramp-up phase. it takes around 9 to 12 months to ramp up a factory to full capacity, which is important to understand. But I also want to mention Maanshan because when things are going the right way, Maanshan, 1 year ago, was a paper product. It is now today, producing commercial products. So we know how to build factories. We have expertise. We have organization across the regions to do this. We can't control COVID-19, but we do feel we have -- we learned a lot, and we are trying to offset as much as we can.

And can you broadly say how much of the capacity issues, the build-out complications, if you will, how much of that is related to the pandemic? "Hey, we couldn't get the pieces or it's a labor or supply issue." Are there any bigger picture things where you say, "Wow, we don't have the right processes or we need to do more R&D on the actual production side," sort of bigger picture challenges on production? Or is it all kind of just this terrible near-term environment we're living in?

It is actually pandemic. The pandemic is the thing here. Because if you think about it, we are building a lot of factories. We have a cookbook of how to build factories. And we have experience in how to produce our products. So we have solid processes in place. So -- and I mean, to start-up three factories, throughout 12-month period and doubling the capacity of our biggest facility like the one in Vlissingen during 1 year, is a remarkable thing to do under normal conditions. We did that during pandemic. And I think it says a little bit about our systems. Yes, we could -- we wanted to do more. But in terms of systems and processes and people, they don't think that we can. It's like to ship people around on the world that we used to, but also we used technology in a very different way so that you have -- so that we can actually remotely help regional teams to start-up factories. And that is great because it actually is more efficient even for us to do so.

Got it. And so some of the issues you talked about on the third quarter call, labor, I think there was a truck driver shortage in the U.K. I mean how much visibility do you have on that stuff, not just the building of the actual production facility, but all of that stuff?

Yes. Yes. I mean, yes, the truck situation recently got solved in the U.K.. And that is also, remember one thing, when we make these plans, the word pandemic didn't exist in our vocabulary, right? And all this happened, and we're navigating, and we did great last year, 100% growth, more than budgeted, and we're entering this that industry-leading world. So we're pretty happy. We wanted to do more, but we're also glad to be where we are. Trucking situation in U.K., we -- I mean, the market share developed in the U.K. has been stable over the last couple of months because we couldn't get our chilled products into the U.K. because there was not enough truck drivers in U.K.. You faced it in the U.S. before. And we obviously, we still have -- the problem -- I mean, it's not completely solved, right? We're facing that in Europe now. So that is also something we didn't expect. The other part was actually that during last earnings call, we did fantastically well in China, but a couple of weeks later, the government shut down regions and cities. And since we have 70% of foodservice there -- foodservice business is 70% of our sales in China, we got hit. Last year, we could actually redirect sales into e-commerce in a very successful way. But because we have one SKU and one format in China, we couldn't do that as quickly today this time, but we will be able to do that in the future. So yes, visibility when be in terms of pandemic, I mean I think we've done pretty good given the circumstances. But -- and we try to navigate, and we are going to apply conservatism in our projections going forward. And that's probably the biggest learning that we have.

Yes. Fair enough. Fair enough. I think a lot of companies are in the same boat. So no big deal there. But I think you've put out a target in terms of your sort of production base of kind of half, a little bit more than half being self manufacturing, 30% to 40% being this hybrid model and then a relatively small piece, 10% to 20% from co-packing. Why is that the right mix? And it's got to be awfully hard to have that target or have a lot of confidence in that target when the category is evolving so quickly, there's so many differences region by region. So why is that the right mix? And how do you get to that mix?

From co-manufacturing to self-manufacturing, that whole link. You know what? There are so many reasons for that, Wendy. It creates better economics for us. And remember, before we started this growth journey prior to 2018, we came up -- we had margins at mid-40s and we did that and we serve the Nordic markets. And from a very old factory, very inefficient, the pipes, their curves and their corners and all that. So we know -- so what we set out to do is not a fantasy. We have done it, and we know what it takes. And do you need self manufacturing, first of all, to localize production. We're shipping things across U.S. today. We're shipping things from Europe into China, but we want to have better control. We have a unique way of producing our products. We have high -- actually higher quality standards across our systems. We need to be more flexible. Like you said, yes, things are changing. But you know what, self-manufacturing allows better flexibility as well. And also, if you look at the -- in global inventory of factories today, they are actually based on how you produce in the '90s, not how you should produce in the future. So we're building these new plants, higher level of automization, optimization, flexibility, and that will get us to become more competitive in terms of production as well.

And you raised the issue of food safety. I know there was a small issue in EMEA. Can you talk about specifically what that was? Maybe let's start there.

Yes. It was a self-identified recall that we did and we discovered during a maintenance. And eventually, it ended up with being 500 units of a very minor item that vanilla sauce in 1 store in Sweden. So we have extremely well built-up quality system that we trust, and we have full traceability, which is why we could act so quickly and really, really contain the damage. So -- and these things happen when you make food, hopefully not too regularly, but these things happen. But the important thing is that you have the quality system there, and that's what we have at this time as well.

And order of magnitude in terms of any consumer backlash. If I saw a Swedish newspaper, there was nothing material in terms of impairment to your brand or anything like that.

No. Because these things happens and people use it. So recall happens. It shouldn't happen too often, though.

Right. Absolutely. What about the regulatory environment in China? It can be difficult across food and beverage. Can you talk about sort of where you stand and the confidence that you have that your business will be, there'll be consistency or continuity in your business and no regulatory challenges along the way?

Yes. I mean, we put ourself at the highest standards, like just normal isn't good enough for us when it comes to quality and food safety, and you're raising a good point, food safety in China, as you know, has the highest attention among population there. So to have your production, clean factories, the protocols in place and the systems is extremely important for us. We're not going to -- we're going to probably get better -- even better over the years as we are building these new factories. So no, there are differences in terms of how you enrich, how you fortify the different products. And that is like we have compliances team. We have quality teams, regional and global that is taking care of that.

Got it. Can we switch gears and talk about gross margin. And I've kind of left this towards the end because I feel like, to a certain extent, it will be what it will be because there are an awful lot of variables I know that impact gross margin. But specifically, if I look at the consensus forecast for next year, there is a large step-up in gross margin embedded in consensus estimates, I think, 400, 500 basis points. That seems really aggressive to me, given not just commodities, but the delays you've had in some of your ramping up production. Can you talk about sort of how you feel about that number and maybe the moving pieces, what you're seeing in terms of input prices for oats and rapeseed oil? And how you're going to get to gross margin expansion in 2022?

Yes. I've got to let that to Christian, but let me just start off by saying that the inflation hit to our total cost. We expect to be in the range of 5% to 6% in 2022 versus 2021. And we expect the increase from input material inflation to be around 3%, 4%. And freight, adding another 1%, and the remaining costs, including labor, another 1%. So we're going to offset a major portion of that in EMEA and U.S., for sure. And we are -- so that's a way to compensate inflation. You're going to see across the industry, across the different regions. And I just want to highlight that the gross margin is expected to improve quarter-by-quarter in 2022 as we are ramping up our factories, despite the inflation headwinds. But bringing up these factories up to speed is going to do -- it's going to offset things that is happening up there today. And we feel very confident about the long-term goal of 40% gross margin. And that is, as you said, Wendy, driven by hybrid, more leaning towards hybrid and self-manufacturing and localizing the products. Yes. Christian, is there anything you want to add to that?

I think you highlighted what will be the key driver for gross margin improvement next year. I mean we will -- we have 3 quarters behind us, we will be around 26% on a full year basis, I would say, for 2021. And next year, it is the localization of production. We are shifting a lot more to self manufacturing actually compared to where we are in 2021 and also hybrids. That will drive the localization and the shifting more of the production in-house.

Got it. And Christian, since you're in Ogden, can you tell us your take? How does it look? How is it -- how is it going?

It's a piece of art. You should come and see it actually. It's highly automated. You don't see people on the floor. They sit in control rooms and monitoring screens. No, it's a piece of art and it's the state-of-the-art equipment, tetra pack equipment, I mean, equipment that you have for the -- from the major suppliers. So if we have a Capital Markets Day at some point, we should have to close the 2 facilities, you actually going to see what it looks like.

Fantastic. That'd be awesome. I would definitely love to see that. And can you talk about kind of just sitting here in the U.S., we keep hearing about labor issues and transportation issues. Are you having any challenges in getting either people or product? Are you getting enough oats to the facility? Are you having any trouble getting product out of the facility? Any of that? Or is that beginning to feel a little bit more seamless?

No. I think the team is doing a great job. Obviously, we've secured supply in terms of ingredients, including oats. And I think we all have read about that in the news. But we have a long-term relationship with the miller. And in terms of labor, the same thing, I mean, in terms of Ogden specifically, we have the people that we need on the ground to run the plant. It's a tight labor market in Utah., for sure. I mean, on an employment rate of, I think, around 2%, but we have the people that we need to run the facility 24/7.

Got it. Terrific. And in terms of the gross margin of 40%, I mean that's -- that would be awesome. But -- and I know it's so hard even to forecast gross margin next quarter, let alone longer term. But kind of what's the time frame? Is that three years? Is that five years? Is that 10 years? When do you think we get to a 40% gross margin?

Yes, it's not next year, for sure. It's a few years out as we are sort of ramping up the facilities over time. So I would say it's more 3 to 5 years horizon, but may be closer to 3 than 5, but -- and I think we all have to also remember that as we are ramping up facilities, we are not really able to work on operational effectiveness and efficiency. And that's a big component. And I can see that when I visited the Ogden plant, it's all about ramping up that plant. They are still in that stage. It's been ramping up for 6 months. It will take another quarter or 2. And then -- but they know that there are opportunities where they can have some efficiency gains. But now the focus is purely on ramping up the facility. So -- and I know the supply chain has done the work that we know the areas where we need to do, where we have opportunities to improve our cost of goods sold.

And obviously, you don't disclose gross margin by region, but can you give us any color on -- I mean, maybe Western Europe or EMEA, where you're more well-developed and supply chain is a little bit more, well-developed, for lack of a better word. But any sense for direction in terms of how strong your gross margin is there, what gives you confidence that 40% is, in fact, the right number?

I mean I think Toni alluded to it. I mean if you look historically at all facility, we were at over 40%. Since then, in EMEA, we are ramping up facilities as well. And using co-packers to meet the supply. So actually, the production mix is different from what it was a few years ago. But that is sort of -- so we know we can do the 40%. So EMEA is the best region in terms of gross margin, and then you have Asia and Americas in sort of in that order. But that will shift next year. Americas will have a great improvement year next year.

Wendy, I think it's worth mentioning that the price point is higher in U.S. and Asia versus Europe. When I spoke about mid-40 gross margin, that was in Europe. Now we have higher price points in North America, and that also is a factor.

And your confidence in the price premium for Oatly product, I mean -- and again, I'm not thinking so much about any price increases you need to take to offset inflation, but just where Oatly pricing is relative to other oatmilk competitors, relative to cow's milk, et cetera, et cetera? You're confident that, that premium price point is justified and supported, obviously, by what you're seeing in the marketplace in terms of consumer receptivity.

Yes. We don't see any reason to change near-term for sure. As you said, Wendy, our ability to outperform the competition where we're in shelf speaks for itself. You can see that in data. And what you probably can't see is the performance in the other channels that we are -- we can actually -- we have not full visibility, but we have good visibility into. So we see what's happening there. So no manages changes in terms of price positioning. Now if you look 3, 5 years down to the road here or maybe 5, 10 years down the road more, yes, I mean, we're going to reach a tipping point at some point. We believe that in terms of volumes, around 14% to 18% in various markets, when you have the opportunity to take the market into a massive acceleration at a great scale. And we think that the last hurdle is going to be priced. So we know, like Christian said, actually, for the last 5 years, there's been no focus on optimizing, no procurement gains whatsoever. It's been about producing as much as we possibly can, no matter what. So we know and we feel confident with the new factories that we have and the programs that we can offer because there are so many low-hanging fruits for us, that we can really achieve that. So great comfort in doing that. So again, a lot of these things that we say isn't just the fantasy or green. We've actually done things before. So we have things to refer -- like we've been there sort of. So we know what it takes.

Are you happy with the amount of advertising and promotional activity you're doing? Do you think you need to do more? Do you think there's more opportunity? Or what do you think?

Yes. I mean, the -- I mean, we haven't done anything for the last 9 months due to supply situation. So we have ammunition there to do more, to educate people more to create more awareness around our brand and our products on all -- in all the regions. So that is something that we're really, really looking forward to.

Got it. And then my last question is just kind of longer term. We talked a little bit at the beginning about the different products and opportunities and the frozen dessert and whatnot. But what about other markets? I mean, obviously, we focus on EMEA, U.S. and China. But how do you think about India? How do you think about Latin America? I mean, when do those start to be a bigger part of the story?

Yes. We're thinking about them for sure. And we have the ability and experience to expand in different markets. So we feel confident about that. But we also have to wait and see how it develops in our current key markets. I mean, U.S. and China are massive markets. And what we see now is that the velocity is continuing to increase. And we don't have the fill rates there. We have a massive runway where we are, we were determined to win where we are. And now if we are, like, have the opportunity to enter some of the bigger -- the other continents, like India is the massive dairy country, right? So -- and think about Russia, think about those countries where there's so much more to do. But first, our priority is to win where we are. That is the number one thing.

Fantastic. Well, I really appreciate the time. This is an incredibly exciting time for you and a really neat story to be tracking. So we can't wait to visit you, hopefully, in Ogden, at some point and see what the future holds for you. So thank you so much for joining, and we look forward to the next update from you.

Thank you so much, Wendy. Thank you, everyone.

Thank you.

Bye-bye.

Bye-bye.

Bye.