Genki Forest: How Data-Driven Iteration Built a $6B Beverage Brand

China's Unique Industrial Landscape

The e-commerce and industrial structure of China differs significantly from that of Western nations, mirroring the distinctions in their cultures. Through decades of dedicated effort, China has established itself as a global manufacturing powerhouse.

Currently, the nation possesses a supply chain and manufacturing capacity that is difficult for many other countries to replicate.

Leveraging Manufacturing and Logistics

China’s strategically utilized network of manufacturing centers and logistical hubs facilitates both inexpensive and efficient mass production. A vast array of products, including clothing, electronics, toys, automobiles, musical instruments, and furniture, can be manufactured there.

Manufacturers in China are capable of transforming conceptual ideas into mass-producible goods within days, often at a lower cost than anywhere else globally.

A Thriving Tech and E-commerce Ecosystem

China is also a hub for a substantial tech and e-commerce environment. Numerous startups are emerging across the country.

The investment and expenditure dedicated to innovation within China’s industrial sector are considerable.

Challenging Beverage Industry Giants

It was inevitable that a forward-thinking Chinese entrepreneur with a technological background would attempt to compete with established beverage companies like Coca-Cola and PepsiCo.

While the tech revolution has significantly impacted many industries, the bottled beverage sector has remained relatively unaffected. This presents an opportunity for a company to combine China’s manufacturing prowess and adaptability with the agile, data-driven approach of modern tech startups.

The Rise of Genki Forest

Genki Forest, a Chinese direct-to-consumer (D2C) beverage startup, exemplifies this approach. The company’s success is rooted in a philosophy of data-informed iteration, rapid development cycles, and a strong focus on leveraging China’s expansive e-commerce market.

Since its inception five years ago, Genki Forest has experienced rapid revenue growth. Its range of sugar-free sodas, milk teas, and energy drinks are now sold in 40 countries, generating approximately $450 million in revenue in 2020.

The company is projecting to achieve $1.2 billion in revenue this year.

Impressive Valuation Growth

Genki Forest’s valuation has increased at an even more remarkable rate. A recent fourth round of venture capital funding valued the company at $6 billion, tripling its valuation from the previous year.

To date, the company has raised at least $500 million in funding.

A Tech Startup Approach to Beverages

The operational model of Genki Forest closely mirrors that of a technology startup. Therefore, a detailed examination of the company’s trajectory can provide valuable insights into the emerging wave of Chinese D2C entrepreneurship aiming for global expansion.

Identifying a Larger Market Opportunity

Genki Forest’s founder, Binsen Tang, didn't originally intend to enter the bottled beverage industry. His initial venture was ELEX Technology, a successful gaming company primarily focused on mobile platforms. While not a record-breaker, ELEX Technology achieved significant reach, with approximately 50 million users engaging with its games across more than 40 countries.

Among these games was an early iteration of Happy Farm, a title that foreshadowed the popularity of Zynga’s Farmville. However, Tang felt a desire for greater challenges and ultimately sold ELEX Technology for around $400 million in 2014.

This sale provided Tang with several key insights. He recognized the growing global competitiveness of Chinese products, often underestimated by international markets. He also observed the effectiveness of geographic arbitrage, exemplified by the success of Happy Farm.

Crucially, Tang understood the importance of selecting the optimal market – the right “racetrack,” as it’s commonly termed by Chinese investors – over simply possessing a superior product. This concept proved pivotal in his future endeavors.

The selection of the correct competitive arena emerged as the most significant lesson. This perspective distinguishes Chinese entrepreneurs from their Western counterparts, prioritizing the identification of the largest and most lucrative market, irrespective of prior expertise.

This philosophy directly influenced the creation of ByteDance by Zhang Yiming and the founding of Xiaomi by Lei Jun. It was a core principle that would guide Tang’s next undertaking.

The Genesis of Genki Forest

Following the sale of ELEX Technology, Tang didn’t revisit the gaming sector that had brought him initial success. Despite benefiting from the growth of the mobile internet, he believed a more substantial opportunity lay in building a consumer brand.

He envisioned applying his programming expertise to the manufacturing of physical goods. This led to the establishment of his investment fund, Challenjers Capital, based on the conviction that the next major technological advancement in China would involve applying technology to everyday consumer products.

Tang began investing in a diverse range of consumer goods, including ramen, hotpots, and, notably, bottled beverages. He saw potential for disruption and innovation within this sector.

China’s rapidly expanding e-commerce landscape, coupled with the proliferation of Direct-to-Consumer (D2C) businesses on platforms like Alibaba and JD.com, further influenced his strategy. He opted for a direct sales approach, bypassing traditional retail channels.

To fully grasp Tang’s motivations, it’s essential to examine the unique D2C environment in China and its evolution over time. This context is critical to understanding the strategic decisions behind Genki Forest’s launch and growth.

The Distinct Characteristics of Chinese D2C

Tang communicated to his team in a 2015 internal email that “China has sufficient established platforms; what it truly requires are superior products.” This highlighted a shift in focus – the period of building e-commerce infrastructure in China was concluding, and the emphasis was moving towards creating brands capable of utilizing the existing, sophisticated distribution systems.

This observation was shared by other investors. Albus Yu, a principal at China Growth Capital, explained that his fund temporarily ceased investments in independent consumer platforms and marketplaces. He stated that 2014 likely represented the final economically viable year to initiate such ventures, due to escalating customer acquisition costs and the dominance of established players.

Specifically, 2015 marked the point where customer acquisition costs (CACs) began to equal or surpass the average revenue per user (ARPUs) for both Alibaba and JD.com.

Within China, this distribution network operates seamlessly across both digital and physical realms. Online, significant market control is concentrated within two major companies: Alibaba and JD.com, collectively holding 80% or more of the market share.

The overwhelming influence of Alibaba, in particular, led venture capitalists for years to invest not in direct-to-consumer (D2C) brands, but in “Taobao brands.” This was because Taobao was considered the sole essential channel for achieving success.

Customer acquisition was relatively simple – dedicating resources to advertising on Alibaba’s Tmall platform, especially during the annual Singles’ Day shopping event. Achieving a prominent position in category rankings remains a reliable method for building brand recognition, attracting investment, and boosting sales.

The Chinese physical market also differs considerably from many developed Western nations. Substantial private sector investment in logistics, coupled with government support and infrastructure development, has dramatically reduced delivery expenses. As of this year, wholesale delivery costs have even fallen below $0.40 per package.

By 2016, China was processing 30 billion packages annually, representing 44% of global shipments. This figure is projected to double every three years, exceeding 100 billion packages this year. The affordability of delivery is a key driver of China’s expansive e-commerce market – the largest globally, estimated to reach $2.8 trillion in 2021, surpassing the U.S. market more than threefold.

Contemporary China offers an additional advantage: close proximity to a sophisticated and adaptable manufacturing network and supply chain for the majority of consumer goods, with extensive outsourcing capabilities.

Original equipment manufacturers have evolved into original design manufacturers. Being “the Factory of the World” for an extended period, producing goods for leading global brands, inevitably resulted in a transfer of expertise.

The strength of China’s manufacturing hubs can be challenging for outsiders to fully grasp. Processes that once took weeks now take days, thanks to advancements in software, robotics, and other technologies. For instance, Shein, a Chinese cross-border ultra-fast-fashion company, can move from design to shipment in as little as seven days.

This rapid turnaround isn’t limited to apparel. Even the production of unfamiliar items can be remarkably swift, as demonstrated when BYD, an electric vehicle manufacturer, converted its factory into the world’s largest face mask plant in just two weeks during the COVID-19 pandemic.

Companies utilize this manufacturing flexibility and speed not only for efficiency but also for innovation. Perfect Diary, a Chinese cosmetics brand, launches twice as many stock keeping units (SKUs) as its foreign competitors. Furthermore, this agility allows brands to capitalize on fleeting trends, such as memes.

The Chinese supply chain isn’t inaccessible to foreign entrepreneurs. Zinus, a top-selling mattress brand, was founded by a South Korean entrepreneur, but its products are manufactured in China and primarily sold to U.S. customers on Amazon.

However, few non-Chinese companies have achieved the same level of integration into the supply chain as emerging Chinese D2C brands. This often requires years of collaboration, working directly within factories to build trust and acquire specialized knowledge. Shein, for example, closely monitors the products being created by other brands by maintaining close ties with factories.

The Chinese Market Opportunity

Prior to the rise of globally recognized platforms like TikTok, the phrase "copy to China" frequently described the approach of Chinese startups. In December 2015, when the Genki Forest trademark was secured by Tang, this strategy remained highly pertinent.

While companies such as Xiaomi drew inspiration from Apple, and WeChat from Kik, Genki Forest’s influences originated in the East. The Japanese market presented a wealth of sugar-free teas and beverages. As Chinese consumers gained affluence and prioritized health, it was anticipated they would also seek reduced sugar options.

Genki Forest initially focused on the fruit tea market, subsequently expanding into carbonated drinks. The latter represented a substantial Total Addressable Market (TAM) of $14 billion and was characterized by established, yet comparatively slow-moving, international competitors.

Similar to Miniso, a retailer modeled after Japan’s Muji, Tang opted for a Japanese-sounding name and aesthetic. This was intended to leverage the Chinese consumer’s perception of Japan as a source of high-quality goods.

However, the Genki Forest team lacked prior experience within the beverage industry. Consequently, the initial months were dedicated to intensive experimentation and product development in their laboratory.

They eventually introduced two fruit teas, drawing inspiration from popular drinks available in Japan at the time.

A pivotal moment arrived when Tang and his team discovered the potential of erythritol, an artificial sweetener, as a sugar alternative. While not widely used in China, erythritol was utilized by American and European brands like BAI.

Erythritol offers a significant advantage: it provides 70% of the sweetness of sugar with only 6% of the calories. Furthermore, it had undergone rigorous safety testing, making it an ideal ingredient for appealing to health-conscious consumers.

A challenge, however, was the cost. Erythritol is considerably more expensive than sugar, and significantly pricier than other sugar substitutes – up to 70 times the cost.

Genki Forest maintains competitive retail pricing around $1 per bottle online, avoiding the perception of being a low-cost brand. This suggests potentially lower profit margins per bottle compared to competitors utilizing cheaper ingredients.

When questioned about this, Candy Tang, a Genki Forest executive, stated that this approach aligns with the company’s commitment to providing customers with high-quality products.

The Power of Iteration and Data in Genki Forest's Success

While access to robust digital and physical infrastructure, alongside manufacturing capabilities, are undoubtedly important for achieving success, they don't fully explain Tang's decision to focus on the bottled beverage industry. To understand this, we must revisit the “racetrack” theory, which posits that selecting the appropriate market is the most crucial decision an entrepreneur will make.

Tang observed that a significant number of both global and Chinese leading companies operated within the beverage sector. Importantly, it was a market that hadn't yet been fundamentally transformed by software solutions.

This observation aligned with a prevalent concept within Chinese startups – a practical application of the “dimensionality reduction attack” as conceptualized by science fiction author Liu Cixin in his Three Body Problem trilogy.

The core idea suggests that entities possessing “higher dimensional” capabilities, such as tech entrepreneurs utilizing the internet and the iterative software development process, can effectively overcome businesses lacking this “technology superpower.”

Tang recognized the potential to apply his experience in casual game development – specifically, optimizing the entire user experience from content to distribution – to the beverage industry.

Digitizing the Beverage Process

Consistent with its founder’s technological background, Genki Forest prioritizes the digitization and optimization of every stage, from product development and marketing to sales and distribution. Tang emphasizes that the biggest challenge in this digitalization lies in a leader’s willingness to relinquish control, trusting data and employing it for decision-making.

The company places a strong emphasis on rapid data collection and analysis, valuing swift iterations. This data-driven, iterative approach allows Genki Forest, alongside other emerging Chinese D2C brands, to refine products within days, contrasting with the year-long processes of established competitors.

Data is considered a key asset, and Genki Forest actively invests in acquiring it, whether through third-party purchases or innovative procurement strategies.

The company effectively tracks and experiments with products sold online, which currently represent over 30% of its total sales. Extensive A/B testing is conducted, and even “fake door” testing has been implemented.

Generally, products are initially launched online, with offline distribution reserved for those demonstrating the strongest performance.

Bridging Online and Offline Sales

Although Genki Forest’s online sales percentage surpasses many competitors, the majority – nearly 70% – of its revenue still originates from offline channels, which present significant entry barriers.

The company reported that its milk tea series was initially available exclusively online, gaining entry into brick-and-mortar stores only after substantial customer demand prompted traditional distributors to take notice.

Genki Forest benefited from the expansion of convenience stores between 2016 and 2018, enabling direct sales. For smaller, independent shops, the company utilizes distributors.

Beyond the added costs of offline sales, a major challenge is the inability to gather real-time sales data. To address this, Genki Forest is deploying 80,000 IoT-enabled smart refrigerators.

Leveraging Digital Marketing and the Chinese Supply Chain

In addition to data-driven product development, Genki Forest aggressively pursued digital marketing, utilizing both established and emerging e-commerce platforms. During JD’s 2019 618 Shopping Festival, the company sold over two million bottles, securing the top position in the beverage category.

It also outperformed Coca-Cola and Pepsi during Alibaba’s Singles Day in 2019 and again claimed the category leadership in 2020.

The company expanded into livestream e-commerce in 2019, partnering with Austin Li on China’s second-largest platform. The liveshopping market is projected to reach $300 billion this year, representing 9% of all e-commerce activity in China.

Later that year, Genki Forest established a presence on RED (China’s equivalent of Instagram) and Douyin (the Chinese version of TikTok). While these strategies were common in other consumer product categories, Genki Forest was an early adopter within the beverage industry.

Finally, the company effectively utilizes the efficiency of the Chinese supply chain to rapidly launch and iterate products. Like other recent Chinese D2C brands, it maintains a larger number of SKUs and expands them at a faster rate than traditional competitors.

From just 10 SKUs in 2018, the company’s portfolio has grown to 50. In contrast, BAI, a 12-year-old brand, offers only 31 SKUs.

Rapid Iteration and Product Evolution

However, simply counting SKUs doesn’t provide a complete picture, as the products themselves undergo frequent modifications. Alienergy, a Genki Forest sub-brand launched in 2020, has already experienced over three major packaging redesigns.

This constant evolution is expected, as physical product changes are implemented quickly and affordably whenever data supports them. The process of transforming a beverage bottle concept into a fully operational manufacturing line can take as little as six days.

Challenges Remain for the Company

Despite its numerous benefits, the company faces considerable skepticism. A primary concern is that many direct-to-consumer (D2C) brands initially lack manufacturing infrastructure and substantial research and development capabilities. This often leads investors to view them as primarily marketing-driven entities without significant intellectual property.

This critique has been directed at Yatsen Group, the Chinese D2C company behind Perfect Diary cosmetics, contributing to a 30% decline in its stock value. Although Genki Forest has proactively addressed these concerns by initiating in-house manufacturing in late 2020, complete supply chain ownership remains a future goal.

Furthermore, the competitive landscape is intensifying. New competitors are appearing, including ventures founded by former employees, alongside established companies recognizing their need to adapt. A significant portion of these challengers are specifically targeting the sugar-free soda market, a segment Genki Forest popularized and which currently generates approximately 70% of its revenue.

Several competitors are even utilizing erythritol, an ingredient Genki Forest introduced to the Asian market, though it doesn’t hold exclusive rights to it. Others are focusing on distribution strategies, exemplified by Nongfu’s offer of free drinks for every Nongfu bottle displayed in a Genki Forest refrigerator.

Regarding intellectual property, Genki Forest has assembled a 1,000-member R&D team and established a research partnership with Jiangnan University, concentrating on sugar reduction technologies. To protect its distribution network, the company is even offering financial incentives to retailers for maintaining exclusive product placement. However, these measures will inevitably impact profit margins, prompting cautious investors to question the company’s ability to sustain its market position.

Like many rapidly expanding startups, Genki Forest has experienced public relations challenges. Earlier this year, the company voluntarily revised the labeling of its milk teas, changing “no sucrose” to the more easily understood “low sugar” to improve clarity regarding its ingredients.

This change, however, proved counterproductive. Genki Forest not only failed to satisfy previous critics alleging deceptive marketing practices but also triggered a significant social media backlash. While the company successfully weathered this storm, its high profile suggests similar issues may arise in the future.

The Future of "Made in China"

A sophisticated digital e-commerce infrastructure, coupled with affordable logistics and interconnected supply chain networks, is empowering a fresh wave of Chinese Direct-to-Consumer (D2C) brands.

These companies are now applying data-driven strategies, traditionally used in software development, to both the creation and marketing of tangible products.

Genki Forest, a company established just five years ago, has rapidly emerged as a prime example of this evolving trend.

Anna Fang, an early venture capital investor, affirms this perspective: “The company’s foundation feels exceptionally strong – encompassing its market position, leadership, product line, and operational systems; it truly embodies the modern Chinese consumer brand.”

Expanding Beyond Domestic Borders

The ambition of these “new Chinese consumer brands” extends beyond solely serving the Chinese market.

Echoing Tang’s earlier experience with his gaming venture, these businesses recognize that successful products in one region often demonstrate similar appeal in others.

Genki Forest is actively pursuing international growth.

Currently, its products are available in 40 countries through both traditional retail channels and online marketplaces like Amazon.

The company has also assembled a dedicated globalization team of 70 individuals.

Furthermore, they recently appointed Zhen Liu, formerly of Uber China and ByteDance, to spearhead their international expansion initiatives.

Strategic Global Investments

Candy, who manages international mergers and acquisitions, indicates that the team is proactively seeking opportunities for acquisitions or investments in foreign companies.

There is also consideration being given to reintroducing some of these acquired brands to the Chinese market.

Regardless of the specific approach, Genki Forest stands as a key company to monitor within this new generation of Chinese D2C consumer goods.

Whether this revised approach to “Made In China” – mirroring the impact of “Made in Japan” in previous decades – will achieve global significance remains to be seen.