Brew Crew: How Coffee Culture Continues to Curate the Alt-Milk Category

In a world where, for many years, soy milk was the only alternative for lactose-avoiding latte lovers, the plethora of alt-milk options available today has created some category winners, a handful of new opportunities and two industries that will likely remain inextricably linked. Almond and coconut milks may have helped warm consumers up to non-dairy milks, but the strong taste of the former and the watery, hard-to-froth nature of the latter never made either an enticing use-case for an average consumer’s cappuccino. When Oatly burst into the U.

S. market via next-wave coffee shops in 2018, consumers were quick to embrace oat milk for ticking the boxes on taste, functionality and sustainability. The variety has reigned, and remained, the alt-dairy category’s king within coffee culture.

According to recent SPINS data, the refrigerated oat milk set continues to see strong growth, including a 10. 5% volume increase to $598 million during the 52-weeks ending October 8, 2023. During that same period, traditional dairy saw volume growth of 0.

3% to $14. 6 billion. “We had been providing soy milk, coconut milk, almond milk to coffee shops for many years prior but oat milk came on the scene in coffee shops first and that’s where consumers really learned about it,” said Lauren McNamara, VP of Plant-Based Food and Beverage at SunOpta, one of the largest U.

S. oat milk suppliers. “It pairs and performs so nicely with coffee that it gave a really favorable impression.

. and it continues to be picked up by both big chain and independent coffee shops. ” While individual products and positions have evolved, oat milk’s place behind the coffee bar remains as prominent as ever.

According to Cary Wong, director of coffee at Partners Coffee Roasters, a New York City-based cafe and roastery, nearly half of all beverage orders at its shops today include oat milk. Jon Feldman, VP of sales at Minor Figures and a former sales and market development lead at Stumptown Coffee, explained that when alt-milks started gaining steam in the cafe channel in the late aughts, small coffee shop operators saw the offerings as a way to build incremental revenue via upcharges, typically anywhere between 20 cents to a dollar per drink. But following the oat milk boom, those charges have become a point of contention – not to mention the center of quite a few PETA protests.

Last year, Partners was one of many small cafe operators to eliminate extra charges for alt-milk. At the time, Starbucks also revoked the charge in all its U. K.

stores but continues to charge 70 cents more per drink in the U. S. despite numerous consumer and industry group-led petitions.

In maybe the biggest confirmation of oat milk’s popularity within coffee, cafe operators including Blue Bottle Coffee and Stumptown roasters have flipped the script on the upcharge debate altogether and now use oat milk as the default “milk” in prepared hot beverages. That means consumers must request dairy if they don’t want oat milk. “[That was] the real bellwether to me,” Feldman said.

“[These two] globally-recognized and celebrated coffee roasters by and large did bring us to this point, along with others. They looked at their sales and saw 60% of consumers asking for oat milk and [said] why don’t we actually respond to them and also do something that aligns with our values: better for the planet and better-for-you. ” That change has increased oat milk use in Blue Bottle’s U.

S. cafe’s by 54% and become a key piece to reducing the chain’s greenhouse gas emissions and reaching its net-zero commitments. According to Starbucks, dairy remains its largest source of Scope 3 emissions, contributing 21% annually – which is equivalent to the emissions produced by the company’s packaging, waste, and food segments combined.

Dairy milk consumption has been declining for the past 70 years according to data from the USDA, with one exception – its use case has held strong in hot beverages. Prior to the oat milk mania, Feldman said alt-dairy offerings were often just a box coffee shop operators felt they had to check to cater to those with gluten, dairy or nut allergies. But now, strong consumer demand and a plethora of options means baristas have higher standards and more specific needs for the products they use behind the bar, and brands are responding in turn.

Over the past year, companies ranging from clean label, low-ingredient almond milk maker Three Trees to AI-driven NotCo have introduced their own takes on barista blends. These products typically have higher fat contents, allowing the froth and foam to hold up better in hot beverages than standard oat milk varieties. While Three Trees introduced its product initially just for at-home use in June, NotCo debuted its Barista blend with a launch at Joe Coffee locations across New York City in September.

For RISE Brewing, which originally expanded into the oat milk category due to a national shortage of the product in late 2018, it originally felt its standard oat milk did the trick. Considering its coffee origins, Melissa Kalimov, RISE’s COO, CMO and alt-channel sales lead, said the brand felt confident in the product’s performance in coffee, but as time went on, and cafe operators became more comfortable with oat milks, they began to expect more from it. “We heard loud and clear from our barista partners that they really wanted a barista focused product that was higher fat and played nicely with hot as well as cold coffee,” explained Kalimov.

“We worked for a year to launch a brand new barista with this channel in mind while also still keeping its ingredient panel as clean as possible. ” But the relationship between coffee and plant-based milk doesn’t always move in one direction. Like RISE, Minor Figures began as a coffee-focused brand hawking canned oat milk lattes, but as the ingredient began gaining popularity, it shifted focus to selling alt-milks.

The brand now sells a three-SKU line of oat-based Barista milk in Regular, Lite and Organic formats and made with seven ingredients or less. For Minor Figures, creating a product that compliments coffee and works better than cow’s milk has remained its north star. “If milk doesn’t have to come from cows, does milk have to be white?” said Melissa Hauser, General Manager of Minor Figure’s North American business.

“That’s the framework for how we started thinking about [alt-milk innovation]. We don’t need to try to replicate what exists today. We need to be thinking way beyond it… to meet consumers where we think they’re going to be [in the future] not where they are today.

” Small and independent cafe operators may not represent the average consumer, but their purchasing preferences are fairly close. In a channel where customers have limited choice, and often don’t know what brand of milk they are being served, emerging players can win over cafe operators with similar attributes that help them in retail, although presented in a slightly different fashion. RISE’s organic oat milks carry a dollar price premium in grocery, but in foodservice – which represents about one-third of its business – that price is even higher, Kalimov explained.

In the retail context, RISE justifies its premium compared to other oat milks due to its clean label, organic and certified glyphosate free tenets. While consumers have increasingly shown interest in clean label products across food and beverage broadly, according to RISE and Minor Figures, that attribute has also become a sticking point with baristas in small and regional cafe operators. Additionally, showing how the product performs, highlighting its sustainability attributes and demonstrating how the taste impacts the final product is important, but winning on price per pour remains essential.

“The cafe and office channels are both more people and margin-driven versus retailers are more data and trend-driven,” Kalimov explained. “What you present is slightly different: [its] getting them to root for my team, to taste and love the product and then showing them that the economics can work for them [and] why the product attributes are worth paying for it – that’s how we win in this channel. ” For context, in retail, organic refrigerated plant-based milks have seen sales increase ​​nearly 30% over the past year, according to recent SPINS data; in organic oat milk specifically, sales have skyrocketed 345% while almond milk is close behind at 144% growth.

Wong also echoed these sentiments, stating that a product’s ingredients and relationship with the supplier are one of the most important attributes to Partners. In September, Partners subbed out Tache’s pistachio milk as its alt-milk offering for Minor Figures’ oat milk. The broader opportunities for alt-milks within the coffee retail channel aren’t going to evaporate anytime soon, either.

As cafe operators swap out slates of Skim, 1% and whole dairy milks for a counter covered with oat-based barista blends and novel non-dairy products made from sesame, macadamia, pistachio and others, continued experimentation from specialty coffee shops can help convert even more coffee consumers. According to Groundwork Coffee Co, specialty coffee consumption reached a five-year high, growing 43% in 2022, – a 20% increase compared to the year prior. The increase has been attributed to the positive social and environmental responsibility associated with the subcategory, and runs counter to the narrative surrounding the broader coffee industry.

Considering the lower-environmental impact of plant-based products, alt-milks are set to continue riding the specialty coffee segment’s upward momentum. “Consumers are continually looking for more sustainable [and] more locally sourced options – they’re looking to make those really easy switches in their life,” explained McNamara. “Switching out dairy for plant based milk is a totally painless change, especially in coffee – it’s not something that you’re making a taste or performance trade off for anymore.

” While oat milk gave rise to a new segment for consumer choice, it has also helped put the alt-milk category on a path for new and emerging opportunities. According to McNamara, seasonal and limited edition beverages still remain an effective means to get new consumers out of dairy, into alternative milks and expand their preferences beyond oat varieties. But the performance of oat milk in coffee shops has also helped inspire further discovery and experimentation within plant-based milks.

This fall, New York City-based startup Táche partnered with cafe Devocion to create an off-menu “secret” drink featuring its pistachio milk, while in May Elmhurst continued to expand its barista-focused sub-line with a Walnut Maple SKU at Sprouts Markets, Wegmans, and Fresh Thyme. Even for large brands like Vita Coco, a barista-focused coconut milk at retail may be a tough sell, but for a limited collaboration with Australian cafe chain Bluestone Lane, as the company has done this year, it can be effective. According to McNamara, now that consumers are more comfortable with the category, Sunopta has seen cold and non-coffee beverages become increasingly effective for driving trial for a range of alternative milks, like a fruit-based refreshment beverage made with coconut milk.

But there are still challenges to growing a new brand in this space. Given how important relationships are to succeeding in this space, opening up new doors, compared to retail, is a bit tricker simply due to longstanding and well-entrenched relationships between longtime operators and their suppliers, according to Kalimov. “We’re growing exceptionally well – like in high double-digit year-over-year growth,” said Hauser.

“But that is probably one of the limitations because we only have so many people, so we can only act on so many relationships a day. ” To forge growth in both channels, Minor Figures has created a holistic sales strategy where it will leverage marketing activities with grocery partners in markets where it also supplies multiple independent cafes. “Because of that strategy, we’re seeing a number of Whole Foods regions [open up], we’re seeing an expansion with The Fresh Market and Natural Grocers – we are really gaining a lot of ground grocery as well so it’s not an isolated channel strategy.

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