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Data-driven iteration helped China’s Genki Forest become a $6B beverage giant in 5 years
China’s e-commerce and industrial ecosystem is as different from the Western world as its culture. The country took decades to earn its reputation as the Factory of the World, but it now boasts a supply chain and manufacturing ability that few countries can match.
Creative use of the country’s networked manufacturing and logistics hubs make mass production both cheap and easy. Clothing, electronics, toys, automobiles, musical instruments, furniture — you name it and you’ll find a manufacturer in China who can turn your intangible concept into mass-manufacturable reality in mere days. And they’ll do it for cheaper than anywhere else in the world.
It was just a matter of time until an intrepid Chinese entrepreneur with a tech background decided to take 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 being raised and spent on innovating around the country’s industrial heft is mind-boggling.
So it was just a matter of time until an intrepid Chinese entrepreneur with a tech background decided to take on Coca-Cola and PepsiCo. The tech revolution hasn’t yet affected the bottled beverage industry quite as much as it has others. Incumbent giants therefore could lose a sizable chunk of market share if a company could just manage to weave together China’s manufacturing proficiency and agility with the modern tech startup philosophy of “moving fast and breaking stuff.”
Genki Forest, a Chinese direct-to-consumer (D2C) bottled beverage startup, is one such contender. A philosophy centered around iteration informed by data, quick turnarounds and a laser focus on taking advantage of China’s huge e-commerce ecosystem has helped this company’s revenues rise rapidly since it started five years ago. Its sugar-free sodas, milk teas and energy drinks sell in 40 countries and generated revenue of about $450 million in 2020. The company aims to reach $1.2 billion this year.
If anything, Genki Forest’s valuation has shot up even faster. It recently completed its fourth VC round that values it at a whopping $6 billion, triple the price it fetched a year earlier, and it has so far raised at least half a billion dollars.
It’s striking how closely Genki Forest’s operations resemble that of a tech startup. So we thought we should take a closer look and see what this company’s graph can tell us about the new wave of Chinese D2C entrepreneurship looking to take over the globe.
Finding a bigger wave to ride
The bottled beverage industry wasn’t what Genki Forest’s founder, Binsen Tang, initially set out to tackle. His first startup was a successful casual, mostly mobile gaming outfit known as ELEX Technology. It was nowhere near record-breaking, though — some 50 million users logged on to a few popular games in over 40 countries worldwide, 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 listed company for about $400 million in 2014.
Tang would walk away with a few important lessons. He’d learned by now that Chinese products were already competitive globally, whether people realized it or not, and that and geographic arbitrage was real, Happy Farm being the perfect example of this. Lastly, he now knew that it was far more important to choose the right “racetrack” (as Chinese investors and entrepreneurs like to put it) than to have a great product.
Picking the right race to win was perhaps the most important takeaway. It’s also an idea that sets Chinese entrepreneurs apart from their Western counterparts — the most worthwhile endeavors are in identifying the largest and most rewarding market at hand, regardless of one’s previous expertise. It was what led Zhang Yiming to create ByteDance, and Lei Jun to found Xiaomi.
That very philosophy led Tang to build Genki Forest. After selling ELEX Technology, Tang didn’t go back to the business that netted him his first pot of gold. As much as he had benefited from the rise of the mobile internet, he thought there was a far bigger opportunity building a consumer brand and applying the lessons he learned from programming to the manufacture of tangible products.
He soon set up his own investment fund, Challenjers Capital, convinced that the next big tech opportunity in China was in tech’s application to everyday consumer products. He soon began to invest in everything from ramen and hotpots to bottled beverages.
China’s quickly expanding e-commerce ecosystem and the plethora of D2C businesses flourishing on Alibaba and JD.com would also influence his decision to sell directly to his target audience rather than take the traditional route. But to truly understand his motivations, we need to take a look at the extremely unique D2C environment in China and how it has changed over the years.
What’s different about Chinese D2C?
“China doesn’t need any more good platforms,” Tang told his team in an internal email in 2015, “but it does need good products.” Tang was talking about how the age of building infrastructure for e-commerce in China was largely over; it was now time to create brands that could take advantage of the advanced distribution network that had been laid out.
Other investors noticed as well. Albus Yu, principal at China Growth Capital, told me that his fund had stopped making investments in independent consumer-facing platforms or marketplaces for a while. “2014 might have been the last year it was economically feasible to start such a business due to the soaring cost of acquiring customers and the strength of incumbents,” he said.
Indeed, 2015 was the year when CACs began to exceed or at least rival ARPUs for Alibaba and JD.com.
In China, that distribution network was present across the digital and physical worlds. Online, there was immense market power concentrated in the hands of just two players: Alibaba and JD.com, which used to have, and still maintain, 80% or above in market share.
In fact, the dominance of Alibaba, in particular, was so overwhelming that for years, VCs invested not in D2C, but in “Taobao brands,” since that was the only channel one needed to conquer in order to make it.
Customer acquisition was therefore straightforward — throw everything into advertising on Alibaba’s Tmall platform, especially during its annual flagship shopping festival, Singles’ Day. Even today, garnering a top spot in one of the category leaderboards remains a surefire way to build brand awareness, investor interest, as well as sales records.
Physically, the Chinese market also differs greatly from much of the developed West. Years of heavy investment in logistics by the private sector, accelerated by government support and infrastructure buildout, means that delivery costs have come down significantly over the years, even dipping below $0.40 per package wholesale as of this year. Innovations such as return insurance have also sped up customer adoption.
By 2016, China was shipping 30 billion packages a year, already accounting for 44% of global shipments. That number has been doubling every three years and is expected to exceed 100 billion this year. And the low cost of delivery is one of the biggest reasons for China’s outsized e-commerce market — the largest globally and estimated to reach $2.8 trillion in 2021, more than triple that of the No. 2, the U.S.
Express parcels sit stacked at a logistic base of e-commerce giant Suning before the 618 Shopping Festival. Image Credits: VCG
Present-day China also presents another edge: Proximity to an advanced, 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 years past have long since evolved into original design manufacturers. An expected consequence of being “the Factory of the World” for so many years, making goods for some of the best brands in the world, is that some of the knowledge was bound to transfer.
It may be difficult for outsiders to understand just how strong China’s networked manufacturing hubs are these days. What used to take weeks now takes mere days, the lead times shortened drastically by software, robots and other advancements. For example, Chinese cross-border ultra-fast-fashion company Shein has compressed design-to-ship timelines to as little as seven days.
And it’s definitely not just for making crop tops. The turnaround can be astonishingly fast even when manufacturing completely unfamiliar goods, 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 leverage this manufacturing flexibility and agility for more than just speed. Chinese cosmetics upstart Perfect Diary uses it to launch twice as many SKUs as foreign competitors. In addition, the quick turnaround allows agile brands to take advantage of that most ephemeral of IP, memes.
It’s not to say that the Chinese supply chain is inaccessible to foreign entrepreneurs. Best-selling mattress maker Zinus, for example, is founded by a South Korean, but its products are manufactured in China and sold mostly on Amazon to U.S. customers.
It’s just that very few non-Chinese companies have figured out how to tap as deeply into the supply chain as this new crop of Chinese D2C brands, which can require years of working not just alongside but physically inside the factories, building trust and know-how. Shein, for example, watches carefully what other brands are making by staying close to the factories.
The China opportunity
Before global sensations such as TikTok weakened the mantra, “copy to China” used to be a dominant characterization of Chinese startups. In December 2015, when Tang registered the Genki Forest trademark, that was still very much a relevant strategy.
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Extra Crunch roundup: Unpacking BuzzFeed’s SPAC, curb your meeting enthusiasm, more
Meetings should have a clear purpose, but instead, they’ve become a way to measure status and reinforce what is colloquially referred to as CYA culture.
There’s a kernel of truth in every joke, so whenever someone quips, “This meeting could have been an email!” you can bet that some small part of them meant it sincerely.
Few people know how to run meetings effectively and keep conversations on track. Making matters worse, attendees often don’t bother to prepare, which makes a boring session even less productive.
And then there’s the complication of workplace politics: How secure do you feel declining an invitation from a co-worker — or a manager?
“Every time a recurring meeting is added to a calendar, a kitten dies,” says Chuck Phillips, co-founder of MeetWell. “Very few employees decline meetings, even when it’s obvious that the meeting is going to be a doozy.”
Full Extra Crunch articles are only available to members.
Use discount code ECFriday to save 20% off a one- or two-year subscription.
Changing your meeting culture is difficult, but given that 26% of workers plan to look for a new job when the pandemic ends, startups need to do all they can to retain talent.
Aimed at managers, this post offers several testable strategies that will help you boost productivity and say goodbye to poorly run, lazily planned meetings.
“Declining a bad meeting should never be taboo, and you should reiterate your trust in the team and challenge them to spend their and others’ time with more intention,” Phillips says. “Help them feel empowered to decline a bad meeting.”
Thanks very much for reading Extra Crunch, and have a great weekend.
Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist
Why Amazon should pay attention to Shein
Image Credits: Shein
In the last year, online apparel shopping app Shein grew active daily users by 130%, reports Apptopia.
Each day, thousands of new products arrive on the app’s virtual shelves. Items are rapidly designed and prototyped before Shein’s contractors put them into production in Guangzhou factories — two weeks later, those SKUs arrive in fulfillment centers around the globe.
TechCrunch reporter Rita Liao examined how the company’s agile supply chain has become hot talk among e-commerce experts, but beyond a strong logistics game and data-driven product development, Shein’s close relationships with suppliers are integral to its success.
She also tried to answer a question many are asking: Is Shein a Chinese company?
“It’s hard to pin down where Shein is from,” answered Richard Xu from Grand View Capital, a Chinese venture capital firm.
“It’s a company with operations and supply chains in China targeting the global market, with nearly no business in China.”
Inside GM’s startup incubator strategy
Image Credits: Chevrolet
GM Vice President of Innovation Pam Fletcher is in charge of the company’s startups that tackle “electrification, connectivity and even insurance — all part of the automaker’s aim to find value (and profits) beyond its traditional business of making, selling and financing vehicles,” Kirsten Korosec writes.
Fletcher joined TechCrunch at a virtual TC Sessions: Mobility 2021 event to discuss what it’s like to launch a slew of startups under the umbrella of a 113-year-old automaker.
Investor Marlon Nichols and Wonderschool’s Chris Bennett on getting to the point with a pitch deck
Image Credits: MaC Venture Capital / Wonderschool
MaC Venture Capital founding managing partner Marlon Nichols and Wonderschool CEO Chris Bennett joined Extra Crunch Live to tear down the company’s early deck.
“The first thing that jumped out at all of us was just how bare-bones the presentation is: white text on a blue background, largely made up of bullet points,” Brian Heater writes before noting the CEO admitted that “not much changed aesthetically between that first pitch and the Series A deck.”
“It aligned with what we were valuing at the time,” Bennett says. “We were really focused on getting the product-market fit and really trying to understand what our customers needed. And we’re really focused on building the team.”
Dear Sophie: What options would allow me to start something on my own?
Image Credits: Bryce Durbin/TechCrunch
Dear Sophie,
I’ve been working on an H-1B in the U.S. for nearly two years.
While I’m grateful to have made it through the H-1B lottery and to be working, I’m feeling unhappy and frustrated with my job.
I really want to start something of my own and work on my own terms in the United States. Are there any immigration options that would allow me to do that?
— Seeking Satisfaction
Investors’ thirst for growth could bode well for SentinelOne’s IPO
Image Credits: Nigel Sussman (opens in a new window)
Alex Wilhelm calls SentinelOne’s looming debut “fascinating.”
“Why? Because the company sports a combination of rapid growth and expanding losses that make it a good heat check for the IPO market,” he writes. “Its debut will allow us to answer whether public investors still value growth above all else.”
Alex delves into an early dataset from SentinelOne and why public market investors still appear to value growth above anything else.
Before an exit, founders must get their employment law ducks in a row
Image Credits: Jenny Dettrick (opens in a new window) / Getty Images
Guest columnist Rob Hudock, a litigator who focuses on helping companies recruit the best talent available while avoiding distracting workplace issues or lawsuits, lays out the importance of putting out any employment-related fires before an exit.
“Inattention to employment issues can have a significant impact on deals — from preventing closings and reducing the deal value to altering the deal terms or significantly limiting the pool of potential buyers,” he writes.
“Fortunately, such issues typically can be resolved well in advance with a little forethought and legal guidance.”
Practice agile, iterative change to refine products and build company culture
Image Credits: John M Lund Photography Inc (opens in a new window) / Getty Images
Building an excellent product and a standout company culture require the same process, Heap CEO Ken Fine writes in a guest column.
“At Heap, the analytics solution provider I lead, a defining principle is that good ideas should not be lost to top-down dictates and overrigid hierarchies,” he writes. “The best results come when you approach leadership like you would create a great product — you hypothesize, you test and iterate, and once you get it right, you grow it.”
Here, he lays out his method that argues in favor of iterative change, not “one-and-done decrees.”
a16z’s new $2.2B fund won’t just bet on the crypto future, it will defend it
Image Credits: Nigel Sussman (opens in a new window)
The big news on Thursday was the announcement of Andreessen Horowitz’s new cryptocurrency-focused fund. Most focused on the eye-popping $2.2 billion figure, but Alex Wilhelm dug a bit deeper into the announcement to note that a16z isn’t just pumping a ton of money into the crypto space, it’s putting on gloves to fight for it.
Alex writes that “a16z intends to run defense for crypto in the American, and perhaps global, market. Crypto-focused startups are likely unable to tackle the regulation of their market on their own because they’re more focused on product work in a particular region of the larger crypto economy. The wealthy and connected investment firm that backs them will take on the task for its chosen champions.”
5 takeaways from BuzzFeed’s SPAC deck
Image Credits: Nicholas Kamm / AFP / Getty Images
Alex Wilhelm dives headfirst into BuzzFeed’s announcement that it plans to go public via a blank check company.
He looked at its historical and anticipated revenue growth (the latter is very sunny, which is not atypical for SPAC presentations), what makes up that revenue (more “commerce” as time goes on), its long-term profitability projections, as well as fun stuff, like the Pulitzer Prize-winning BuzzFeed News.
Admit it. You’re curious.
3 issues to resolve before switching to a subscription business model
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Moving from a pay-as-you-go model to a subscription service is more than just putting a monthly or yearly price tag on a product, CloudBlue’s Jess Warrington writes in a guest column.
“Executives cannot just layer a subscription model on top of an existing business,” Warrington writes. “They need to change the entire operation process, onboard all stakeholders, recalibrate their strategy and create a subscription culture.”
Warrington says that in his role at CloudBlue, companies often approach him for “help with solving technology challenges while shifting to a subscription business model, only to realize that they have not taken crucial organizational steps necessary to ensure a successful transition.”
Here’s how to avoid that situation.
Veo CEO Candice Xie has a plan for building a sustainable scooter company, and it’s working
Image Credits: Bryce Durbin
Rebecca Bellan interviewed Veo CEO Candice Xie about the micromobility startup’s “old-fashioned way” of doing business.
“I understand people are eager to prove their unit economics, their scalability and also improve their matrix to the VC to raise another round,” Xie says. “I would say that’s OK in the consumer industry, like consumer electronics or SaaS.
“But we are in transportation. It is a different business, and transportation takes years of collaboration and building between private and public partners. … So I don’t see it happening from day one, turning over a billion-dollar company, while simultaneously having it all make sense for the cities and users.”
5 companies doing growth marketing right
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All companies want more or less the same thing: growth. But how do you accomplish it?
Ideally, don’t start from scratch.
The race to grow faster is more pressing than ever before. … “[F]orward-thinking entrepreneurs and growth marketers simply must make time to study their competition, learn best practices and apply them to their own business growth,” Mark Spera, the head of growth marketing at Minted, writes in a guest column.
“Of course, you should still run your own experiments, but it’s just more capital-efficient to emulate than to trial-and-error from scratch. Here are five companies with growth strategies worth emulating — including the most important lessons you can begin applying to your business today.”
Musculoskeletal medical startups race to enter personalized health tech market
Image Credits: ChrisChrisW (opens in a new window) / Getty Images
With more than 50 million Americans suffering from chronic pain and musculoskeletal (MSK) medical problems, a number of startups are offering patients new products “that don’t resemble the cookie-cutter status quo,” reports Natasha Mascarenhas.
Startups hoping to enter this space have an uphill climb. Setting aside regulations that cover aspects like product packaging and marketing, they must compete with well-entrenched competition from Big Pharma as they try to partner with health insurance companies.
Natasha profiles three companies that are each taking a different approach to personalized health: Clear, Hinge Health and PeerWell.
Like the US, a two-tier venture capital market is emerging in Latin America
Image Credits: Nigel Sussman (opens in a new window)
In the second part of an Exchange series looking at the global early-stage venture capital market, Alex Wilhelm and Anna Heim unpacked the scene in Latin America, discovering it looked a lot like the situation in the United States: slow Series A rounds, fast B rounds.
“Mega-rounds are no longer an exception in Latin America; in fact, they have become a trend, with ever-larger rounds being announced over the last few months,” they write.
Despite that, the funds aren’t being equitably distributed, and the region still lags behind its peers: Brazil has the most $1 billion startups in Latin America, with 12. The U.S., meanwhile, has 369, and China has 159.
But the Latin American market remains hot, if not quite as scorching as the U.S. and China.
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