Sunday, 2024 June 23

China’s fast-growing sparkling water maker Genki Forest wants to grow faster, will it succeed? (Part 1)

Founded in 2016, Chinese beverage startup Genki Forest has made a meteoric rise with its eponymous brand of sweetened and flavored soda that it touts as a healthier choice since it is free of sugar, calories, and fat.

Even the outbreak of the COVID-19 pandemic in 2020 couldn’t stop its animated growth trajectory, whereas most of its beverage-making contemporaries were reeling under the pandemic. For instance, Nongfu Spring, an established leader in the bottled water industry in China, saw its annual revenue decline by 4.8% in 2020 due to a combination of factors, including disruptions in manufacturing and supply chain.

But Genki Forest held down the fort. Its pre-pandemic growth carried well into 2020 and resulted in a several-fold growth rate for three consecutive years from 2018 to 2020. As a result, its annual sales grew from 2018’s RMB 160 million (USD 25 million) to last year’s RMB 2.5 billion (USD 390 million).

The only thing in the market that could match its growth is probably investors’ “frenzy” over its valuation, which grew sixfold in 17 months, ballooned from late 2019’s USD 1 billion to 6 billion US dollars in March.

There was a venture capital fund that “didn’t even bother to review (documents) or do its due diligence before offering a 2 billion dollar term sheet” and pumped up the valuation of that round, an investor familiar with the matter told Chinese business and technology news outlet 36Kr.

A legacy playbook

Genki Forest was founded by serial entrepreneur Tan Binsen, who was mostly known for his last startup ELEX Technology, a gaming company that developed Clash of Kings, one of the popular knockoffs of Clash of Clans, a strategic action mobile game. At the time of his reign as CEO at ELEX, he once said that “When we make USD 2 billion, we’ll spend a USD 1.8 billion out of it on advertising. We’re going to show our brand in international metropolises like New York, London, and Moscow.”

And Tan seems to have applied the same methodology to run a beverage company, building awareness for its sparkling water. Sources told 36Kr that Genki Forest has kept its annual marketing expenses at 25% and 30% of its sales revenue. In comparison, for Nongfu Spring or Coca-Cola, the number is 10% to 15%.

An investment banker told 36Kr that Genki Forest’s marketing expenditure reached RMB 700 million (approx. USD 109 million) in 2019 alone and increased by at least RMB 200 million (approx. USD 31 million) in 2020. At least another RMB 200 million (approx. USD 31 million) will be spent on marketing in 2021, according to Tang Binsen at a distributors’ conference. This means that in the past three years, Genki Forest’s marketing expenses notched up to close to RMB 2.7 billion (approx. USD 416 million).

Even in the midst of the COVID-19 pandemic, Genki Forest didn’t slash its costs on advertising. An informed source told 36Kr that due to the relatively low advertising costs during the pandemic, Genki Forest bought a lot of advertisement spaces in office buildings to increase brand exposure.

Expanding sales channels

Genki Forest is part of the emergence of local consumer brands in China that take their root on the internet. However, Tan was also mindful of the importance of offline channels.

In 2016, Genki Forest forced its way into the convenience stores in tier-1 and tier-2 cities at a considerable cost at a time when convenience stores are booming in China.

According to Zong Hao, vice president of Genki Forest, this was to differentiate itself from traditional brands such as Coca-Cola, which is everywhere in supermarkets and mom-and-pop shops.

Convenience stores in high-tier cities don’t just have young female white-collar workers—the very demographic the company is trying to woo—as frequent patrons, but also those who are craving new brands and products. They will actively advocate products by placing them prominently in their shops for better sales.

That is why, even when the sales of Genki Forest from online and other offline channels have risen, convenience stores still account for more than 40% of its overall sales.

Genki Forest also explored other sales channels, gradually increasing its sales through shopping malls and supermarkets, including Carrefour and RT-Mart. A Genki-stocked convenience store manager told 36Kr, since 2020, Genki Forest has set up a new account management department that centralizes key accounts, including the likes of Carrefour, in its regional markets in China.

After establishing a stronger hold in metros, the company also ventured into lower-tier cities, adding more sales among other staffers in these cities, resulting in its quick admittance into local stores and supermarkets. Nowadays, Genki Forest’s total employees have exceeded 5,000, with over two-thirds on the offline channel teams.

While the company is making steady progress on the offline sales channel, it didn’t forget its root on the internet. E-commerce accounted for nearly 20% of its total sales, four to five times higher than traditional industry leaders.

On the other hand, e-commerce channels like Taobao or Tmall are not just the sales channel for Genki Forest. It’s also a testing ground for the company to launch new products to gauge customer interest before a massive offline rollout. Genki Forest has a keener eye for market trends and acts faster in product development and iteration. It introduces new products every three to six months, compared to the usual one to two-year cycle of releasing a new product for industry giants.

The rise of livestreaming commerce—think of the mobile phone-based and live chat-enabled version of your TV shopping experience—in China also caught the eye of Genki Forest. It teamed up with Li Jiaqi, dubbed China’s “lipstick king,” to promote its mile tea product line. In March 2020, Li sold RMB 12 million worth of milk tea in a blink of 30 seconds.


This piece originally appeared in 36Kr, and was written by Peng Qian.



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