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China’s e-commerce and The industrial ecosystem is as different from the western world as its culture. It took the country decades to earn its reputation as the world’s factory, but it now has a supply chain and manufacturing capacity that few countries can match.
The creative use of the country’s networked production and logistics centers makes mass production cheap and easy. Clothing, electronics, toys, cars, musical instruments, furniture – you name it and you will find a manufacturer in China who can turn your intangible concept into a mass-producible reality in a few days. And at a cheaper price than anywhere else in the world.
It was only a matter of time before an intrepid Chinese entrepreneur with a tech background decided on Coca-Cola and PepsiCo.
China is also home to one of the world’s largest e-commerce and tech ecosystems. Hundreds of startups dot the landscape, and the amount of money raised and spent on innovations around the industrial weight of the country is mind-boggling.
So it was only a matter of time before an intrepid Chinese entrepreneur with a tech background decided on Coca-Cola and PepsiCo. The technology revolution has not yet affected the beverage industry as much as others. The established giants could therefore lose a significant part of their market share if a company were to combine China’s manufacturing expertise and agility with the modern technology startup philosophy of “moving fast and breaking things”.
Genki Forest, a Chinese bottled beverages direct to consumer (D2C) startup, is one such contender. A philosophy that focuses on data-driven iteration, fast turnaround times, and a clear focus on leveraging China’s vast e-commerce ecosystem has helped this company’s revenue grow rapidly since it was founded five years ago. Its sugar-free sodas, milk teas and energy drinks are sold in 40 countries and had sales of around $ 450 million in 2020. The company is targeting $ 1.2 billion this year.
If anything, Genki Forest’s rating has skyrocketed even faster. It recently completed its fourth round of VC valuing it at a whopping $ 6 billion, triple the price it had a year earlier, and it has raised at least half a billion dollars so far.
It’s striking how much Genki Forest’s operations resemble those of a tech startup. So we figured we should take a closer look and see what this company’s graphic can tell us about the new wave of Chinese D2C entrepreneurship ready to take over the world.
Find a bigger wave to ride on
The bottled beverage industry wasn’t what Genki Forest’s founder, Binsen Tang, originally tackled. His first startup was a successful casual, mostly mobile gaming outfit known as ELEX Technology. It was far from a record, however – around 50 million users signed up for some popular games in over 40 countries around the world, including one of the first versions of Happy Farm, a predecessor to Zynga’s Farmville. But Tang wasn’t satisfied and eventually sold ELEX Technology to a publicly traded company in 2014 for about $ 400 million.
Tang would get away with a few important lessons. He’d learned by now that Chinese products were already competitive worldwide, whether people knew it or not, and that geographic arbitrage was real, Happy Farm was the perfect example. After all, he now knew that choosing the right “race track” (as Chinese investors and entrepreneurs like to say) was far more important than having a great product.
Choosing the right race to win was perhaps the most important lesson. It’s also an idea that sets Chinese entrepreneurs apart from their Western counterparts – the most rewarding efforts are to identify the largest and most rewarding market, regardless of previous experience. As a result, Zhang Yiming founded ByteDance and Lei Jun Xiaomi founded.
It was precisely this philosophy that led Tang to build the Genki Forest. After selling ELEX Technology, Tang never returned to the business that brought him his first gold pot. As much as he had benefited from the rise of the mobile internet, he thought there was a far greater chance there was to build a consumer brand and apply the lessons he had learned from programming to making tangible products.
He soon started his own mutual fund, Challengenjers Capital, and believed that the next great technology opportunity in China was in the application of technology to everyday consumer products. He soon started investing in everything from ramen and stews to bottled beverages.
China’s rapidly growing e-commerce ecosystem and the multitude of D2C companies that thrive on Alibaba and JD.com would also influence its decision to sell directly to its target audience rather than going the traditional route. But to really understand its motivations, we need to look at the extremely unique D2C environment in China and how it has changed over the years.
What is different about Chinese D2C?
“China no longer needs good platforms,” Tang told his team in an internal email in 2015, “but it does need good products.” Tang said that the age of building infrastructures for e-commerce in China is largely over ; Now it was time to create brands that could take advantage of the advanced distribution network that was in place.
Other investors have noticed that too. Albus Yu, director of China Growth Capital, told me that his fund has stopped investing in independent consumer-facing platforms or marketplaces for a while. “2014 was perhaps the last year it was economically feasible to start such a company due to the rising cost of customer acquisition and the strength of the incumbents,” he said.
In fact, 2015 was the year CACs began to outperform, or at least compete, the ARPUs for Alibaba and JD.com.
In China, this distribution network was present in the digital and physical world. Online, immense market power has been concentrated in the hands of just two players: Alibaba and JD.com, which used to have and still hold 80% or more market share.
In fact, the dominance of Alibaba in particular was so overwhelming that VCs invested in “Taobao brands” instead of D2C for years, as that was the only channel you had to conquer to make it.
Customer acquisition was therefore straightforward – throw it all in the ad on Alibaba’s Tmall platform, especially during the annual flagship shopping festival, Singles’ Day. Even today, a surefire way to build brand awareness, investor interest, and sales records is to get a top spot on a category leaderboard.
Physically, the Chinese market is also very different from much of the developed West. Years of heavy private sector logistics investments, accelerated by government support and infrastructure expansion, have resulted in delivery costs dropping significantly over the years, and as of this year they have even fallen below USD 0.40 per package in wholesale. Innovations such as reinsurance have also accelerated customer acceptance.
By 2016, China sent 30 billion parcels annually, which was 44% of global shipments. That number doubles every three years and is projected to exceed 100 billion this year. And low shipping costs are one of the main reasons for China’s oversized e-commerce market – the largest in the world and valued at $ 2.8 trillion in 2021, more than three times the number 2, the US
Express parcels are stacked in a logistics base of e-commerce giant Suning in front of the 618 Shopping Festival. Credit: VCG
Today’s China also offers another advantage: proximity to an advanced, flexible manufacturing network and supply chain for the vast majority of consumer goods, and the ability to outsource almost anything to them.
Original equipment manufacturers have long since developed into original design manufacturers. One expected consequence of being “the world’s factory” for so many years producing goods for some of the best brands in the world was that some of the knowledge had to be transferred.
It may be difficult for outsiders to understand how strong China’s networked manufacturing centers are today. What used to take weeks now only takes days; throughput times are drastically reduced by software, robots and other developments. For example, Chinese cross-border ultra-fast fashion company Shein has cut design-to-ship schedules to just seven days.
And it’s definitely not just for making crop tops. The turnaround can also take place surprisingly quickly in the production of completely unknown goods, for example when the electric vehicle manufacturer BYD converted its factory into the world’s largest factory for face masks in just two weeks when the COVID-19 pandemic struck last year.
Companies use this manufacturing flexibility and agility for more than just speed. The Chinese cosmetics newcomer Perfect Diary is bringing twice as many SKUs onto the market as foreign competitors. In addition, the fast processing enables agile brands to use the ephemeral IP memes.
That is not to say that the Chinese supply chain is inaccessible to foreign entrepreneurs. For example, top-selling mattress maker Zinus is founded by a South Korean, but its products are made in China and mainly sold to US customers through Amazon.
It’s just that very few non-Chinese companies have figured out how to penetrate the supply chain as deeply as this new generation of Chinese D2C brands that can take years of work not only alongside, but physically in the factories to Build trust and expertise. how. Shein, for example, is closely watching what other brands are making by staying near the factories.
The China opportunity
Before global sensations like TikTok weakened the mantra, “copy to China” was a dominant characterization of Chinese startups. When Tang registered the Genki Forest brand in December 2015, it was still a very relevant strategy.