Electronic commerce and The industrial ecosystem is as different from the western world as its culture. It took decades for the country to earn its reputation as the Factory of the World, but now it has a supply chain and manufacturing capacity that few countries can match.
Creative use of the country’s network manufacturing and logistics centers makes mass production cheap and easy. Clothes, electronics, toys, cars, musical instruments, furniture, you name it and you will find a manufacturer in China that can turn your intangible concept into a mass manufacturable reality in just a few days. And they will do it for cheaper than anywhere else in the world.
It was only a matter of time until an intrepid Chinese entrepreneur with a background in technology decided to take on Coca-Cola and PepsiCo.
China is also home to one of the world’s largest e-commerce and technology ecosystems. Hundreds of startups dot the landscape, and the amount of money raised and spent on innovating around the country’s industrial weight is mind-boggling.
So it was only a matter of time before an intrepid Chinese entrepreneur with a background in technology decided to take on Coca-Cola and PepsiCo. The technological revolution has not yet affected the bottled beverage industry as much as others. Thus, existing giants could lose a sizable chunk of market share if a company could succeed in marrying China’s competition and manufacturing agility with the modern technology startup philosophy of “move fast and break things.”
Genki Forest, a Chinese direct-to-consumer (D2C) bottled beverage startup, is one of those contenders. A philosophy focused on data-informed iteration, fast turnarounds, and a laser focus on leveraging China’s huge e-commerce ecosystem has helped this company’s revenue grow rapidly since it started five years ago. Its sugar-free soft drinks, milk teas and energy drinks are sold in 40 countries and generated revenue of around $ 450 million in 2020. The company aims to achieve $ 1.2 billion this year.
If anything, Genki Forest’s valuation has skyrocketed even faster. He recently completed his fourth round of VC which values him at a huge $ 6 billion, triple the price it reached a year earlier, and so far it has raised at least $ 500 million.
It’s surprising how much Genki Forest’s operations resemble those of a tech startup. So we thought we should take a closer look and see what this company’s graphic can tell us about the new wave of Chinese D2C entrepreneurship looking to take over the world.
Find a bigger wave to ride
The bottled beverage industry was not what Genki Forest founder Binsen Tang initially set out to address. Its first start-up was a successful casual games equipment, mainly for mobile devices, known as ELEX Technology. However, it was nowhere near breaking records: Some 50 million users logged into some popular games in more than 40 countries around the world, including an early version of Happy Farm, a predecessor to Zynga’s Farmville. But Tang was not satisfied and eventually sold ELEX Technology to a publicly traded company for about $ 400 million in 2014.
Tang would leave with some important lessons. By now I had learned that Chinese products were already globally competitive, whether people realized it or not, and that geographic arbitrage was real, Happy Farm was the perfect example of this. Finally, I now knew that it was much more important to choose the right “racetrack” (as Chinese investors and entrepreneurs like to say) than to have a great product.
Choosing the right race to win was perhaps the most important conclusion. It’s also an idea that sets Chinese entrepreneurs apart from their Western counterparts: Identifying the largest and most rewarding market available is the most valuable endeavor, regardless of one’s prior experience. It was what led Zhang Yiming to create ByteDance and Lei Jun to found Xiaomi.
That same philosophy led Tang to build Genki Forest. After selling the ELEX technology, Tang did not return to the business that earned him his first pot of gold. As much as he had benefited from the rise of the mobile Internet, he believed there was a much greater opportunity to build a consumer brand and apply the lessons he learned from programming to the manufacture of tangible products.
Soon he created his own investment fund, Challenjers Capital, convinced that the next great technological opportunity in China was in the application of technology to everyday consumer products. He soon began investing in everything from ramen and hot pots to bottled drinks.
China’s rapidly expanding e-commerce ecosystem and the large number of D2C businesses thriving on Alibaba and JD.com would also influence your decision to sell directly to your target audience rather than go the traditional route. But to really understand their motivations, we must take a look at the extremely unique D2C environment in China and how it has changed over the years.
What’s different about the Chinese D2C?
“China does not need more good platforms”, Tang he told his team in an internal email in 2015, “but you need good products.” Tang was talking about how the era of building e-commerce infrastructure in China was largely over; the time had come to create brands that could take advantage of the advanced distribution network that had been designed.
Other investors noticed it too. Albus Yu, Head of China Growth Capital, told me that his fund had stopped investing in independent consumer-facing markets or platforms for a while. “2014 could have been the last year in which it was economically feasible to start such a business due to the dizzying cost of acquiring customers and the strength of incumbents,” he said.
In fact, 2015 was the year that CACs began to exceed or at least Rival ARPU for Alibaba and JD.com.
In China, that distribution network was present in the digital and physical worlds. Online, there was immense market power concentrated in the hands of just two players: Alibaba and JD.com, who used to have, and still maintain, 80% or more in market share.
In fact, Alibaba’s dominance, in particular, was so overwhelming that for years, venture capitalists invested not in D2C, but rather “Taobao brands,” as that was the only channel that needed to be conquered to do so.
So customer acquisition was straightforward: Invest everything in advertising on Alibaba’s Tmall platform, especially during its annual flagship shopping festival, Singles Day. Even today, getting a top spot on one of the category leaderboards is still a surefire way to build brand awareness, investor interest, and sales records.
Physically, the Chinese market also differs greatly from much of the developed West. Years of heavy investments in logistics by the private sector, accelerated by government support and infrastructure construction, mean that delivery costs have dropped significantly over the years, even dropping below $ 0.40 per package wholesale from this year. Innovations like return insurance they have also accelerated customer adoption.
In 2016, China was shipping 30 billion packages a year, which already represents 44% of global shipments. That number has doubled every three years and is expected to exceed 100 billion this year. And the low cost of delivery is one of the main reasons for China’s huge e-commerce market, the largest in the world and is estimated to reach $ 2.8 billion in 2021, more than triple the number 2, USA.
Today’s China also has another advantage: proximity to an advanced and flexible manufacturing network and supply chain for the vast majority of consumer products, and the ability to outsource almost everything to them.
The original equipment manufacturers of previous years have long evolved into original design manufacturers. An expected consequence of having been “the Factory of the World” for so many years, making products for some of the best brands in the world, is that some of the knowledge was destined to be transferred.
It can be difficult for outsiders to understand how strong China’s networked manufacturing centers are these days. What used to take weeks now takes just days, delivery times drastically shortened by software, robots, and other advancements. For example, Chinese cross-border ultra-fast fashion company Shein has cut design-to-shipment times to just seven days.
And it’s definitely not just for making blouses. Change can be surprisingly fast even when making completely unfamiliar products, such as when electric vehicle maker BYD turned its factory into the world’s largest face mask plant in just two weeks when the COVID-19 pandemic struck. last year.
Companies take advantage of this flexibility and manufacturing agility for more than speed. Chinese cosmetics upstart Perfect Diary uses it to launch double the SKU as foreign competitors. In addition, the rapid response allows agile brands to take advantage of that more ephemeral intellectual property, memes.
It is not to say that the Chinese supply chain is inaccessible to foreign entrepreneurs. Best seller mattress maker Zinus, for example, is founded by a South Korean, but its products are made in China and is sold primarily on Amazon to US customers.
It’s just that very few non-Chinese companies have figured out how to take advantage of so deeply in the supply chain like this new crop of Chinese D2C brands, which may require years of work not only alongside but physically within factories, building trust and technical know-how. Shein, for example, watches closely what other brands are doing by staying close to factories.
Before global sensations like TikTok weakened the mantra, “copying China” used to be a dominant characterization of Chinese startups. In December 2015, when Tang registered the Genki Forest brand, it was still a very relevant strategy.