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Instead of Oatly shares, I’m buying this plant-based food-maker

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There has been great excitement around Oatly (NASDAQ: OTLY) shares being listed on the stock market in the US. Investors are enthusiastic about the company’s strong brand. They also like its strategic positioning that capitalises on a consumer shift to vegan food and drinks. I see value in those attributes too – but there’s a company I think can capitalise on them more than Oatly. 

Oatly and vegan trends

The company in question is Unilever (LSE: ULVR). Unilever is well known for its portfolio of brands, which include foods such as Hellmann’s and Ben & Jerry’s. The company has identified some of the same shifts that have helped make Oatly popular. That’s why Unilever has set ambitious targets for its plant-based food brands.

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Oatly may do well from a consumer shift to plant-based foods and drinks. But I think Unilever has three crucial advantages over it that make it more attractive to me than investing in Oatly shares.

Oatly shares and brand-building

Oatly has done a great job building brand recognition for its flagship drink in just a few years. But Unilever is a proven marketing machine. It has over a century of experience under its belt.

Its broad portfolio has given it experience of building brands in different market segments, across most countries and throughout the economic cycle. So, for example, if the economy worsens, its consumers can trade down to cheaper brands while staying within the Unilever franchise. Magnum may not be affordable, but Wall’s will be.

That allows Unilever to build brands that maintain relevance over decades. It is not dependent on behavioural shifts among higher-spending consumers — one concern I have with Oatly shares. Unilever is rolling out its Vegetarian Butcher brand to more markets. It also plans to increase vegan products under the Hellmann’s, Magnum and Wall’s brands.

Distribution network

A second advantage is Unilever’s distribution network.

It already has relationships with retailers ranging from global hypermarket groups to small convenience stores. Selling a broad range of products means that it can maintain sales coverage more cost effectively compared to food companies with a narrow range.

Demand for plant-based products has grown strongly. But they don’t sell themselves. It’s important to have the right expertise to get them listed in retailers. Selling to a few select outlets in developed markets is one thing. But scaling a brand in mass-markets from Aberdeen to Zimbabwe is a very different task. Unilever has the resources and expertise needed for that.

Supply and manufacturing footprint

With its existing food businesses, Unilever is deeply embedded in supply chains from the bottom up. It also has a complex manufacturing operation spanning the globe. Its 40 ice cream factories, for example, stretch from Gloucester to South Africa.

That allows it to transform ideas that click with consumers into mass-market success stories. The company is targeting €1 billion of annual sales from plant-based foods by 2027.

Unilever risks

I find Unilever shares a tasty prospect. But, as with Oatly shares, there are risks involved.

Plant-based food has seen rapid growth, but that could turn out to be a limited trend. In that case, the focus on growing plant-based sales quickly could hurt profits due to the costs involved. Additionally, a multinational consumer goods company could lose appeal among more environmentally conscious consumers. That could lead to falling sales.

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christopherruane owns shares of Unilever. The Motley Fool UK has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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