Yuanqi Forest is the beverage brand that has reached the fastest annual sales of 7 billion in 5-6 years so far (Uni-President, Coca-Cola, and Dongpeng Special Drinks all took about 15 years, and Master Kong took 10 years). Yuanqi Forest was founded in Beijing in 2016. With its healthy product concept and trendy marketing methods, a sparkling water focusing on the concept of "0 sugar, 0 calories and 0 fat" quickly won the favor of young consumers, and its operating income increased by 300% from 2018 to 2021. , 200%, 307%, 260%, becoming a dark horse in the beverage market. In 2022, in the traditional beverage market where heroes are competing for hegemony, Yuanqi Forest encountered a growth bottleneck surrounded by giants, and its revenue growth plummeted to 37%. So we will wait and see whether Yuanqi Forest’s omni-channel growth strategy can succeed in breaking through.
01. The Yuanqi Forest start-up team reduced dimensions to create a new beverage brand
Yuanqi Forest was founded in 2016 by Tang Binsen. As a serial entrepreneur, he founded the game company SmartStar and sold it to Chinese Media. Yuanqi Forest is an emerging beverage company that specializes in sugar-free sparkling water. In just five years since its establishment, the company has become one of the most popular brands in the Chinese beverage market.
The rapid rise of Yuanqi Forest is due to the innovation ability , consumer-oriented thinking and digital operation management capabilities of the entrepreneurial team.
- Innovation ability: Yuanqi Forest’s entrepreneurial team is young and possesses the innovative spirit of not being stuck in the mold and daring to break the rules. They continue to explore in product research and development and have launched a variety of innovative beverages, such as sugar-free sparkling water, milk tea, functional drinks, etc. For example, Yuanqi Forest's sugar-free sparkling water is the first sugar-free sparkling water in China. It has quickly won the favor of young consumers with its fresh and delicious taste and healthy drink concept.
- Consumer-oriented thinking: The Yuanqi Forest entrepreneurial team always puts the needs of consumers first. They are consumer-centric in product development, marketing and sales. For example, Yuanqi Forest will extensively solicit opinions from consumers when developing products and continuously improve products based on consumer feedback. At the same time, Yuanqi Forest also focuses on interaction with consumers in marketing and sales, and establishes connections with consumers through various channels such as online and offline.
- Digital operation capabilities: Most of Yuanqi Forest’s entrepreneurial team have Internet industry backgrounds and are good at applying data analysis, grayscale testing and other methods to market research, new product testing, sales data monitoring and other fields. This makes Yuanqi Forest's product research and development, market operations and management highly efficient. For example, Yuanqi Forest uses data analysis to understand consumer preferences during product development and adjusts product formulas based on the data. At the same time, Yuanqi Forest also pays attention to data analysis in marketing and sales, and uses data to optimize marketing strategies and sales channels.
Yuanqi Forest's innovative advantages and Internet model give it an advantage in the traditional beverage market. The company has become one of the most popular brands in the Chinese beverage market in just five years. The success of Yuanqi Forest has set an example for other emerging beverage companies and also brought challenges to traditional beverage companies.
02. Insight into new consumption opportunities and propose new brand value propositions
Yuanqi Forest faces fierce competition when entering the beverage market. International brands such as Coca-Cola and Pepsi-Cola, as well as domestic brands such as Nongfu Spring and Master Kong, are all vying for share in this market. However, Yuanqi Forest successfully seized new opportunities to gain insights into the soft drink consumer market and proposed a new value proposition of "creating healthy and good products".
In the past, beverage markets such as carbonated drinks, drinking water, ready-to-drink tea and juices were dominated by a few leading brands, with a high degree of concentration. Two giants, Coca-Cola and Pepsi-Cola, monopolize 90% of China's carbonated beverage market, while brands such as Nongfu Spring and Master Kong account for 70% of the tea beverage market.
Discover market incremental opportunities. Seizing the opportunity of the new needs of young consumer groups, we have met the new needs of consumers by opening up new product categories. Secondly, the emergence of social media platforms and new business formats, such as Douyin, Kuaishou and Xiaohongshu, provide new consumer brands with opportunities to quickly obtain traffic at low cost. These new channels usually provide greater support and traffic tilt to the brands that have settled there, thereby helping new consumer brands such as Yuanqi Forest to develop rapidly. In addition, as the "world's factory", China has a complete industrial chain and supply chain system, providing cheap and high-quality production supporting services for new consumer brands, which has also brought supply chain dividends to Yuanqi Forest.
Seize the opportunities of the era of innovation. They encountered challenges while investing a lot of money and energy in product development, and seized business opportunities by gaining insight into changes in consumer concepts and industry development trends. For example, they discovered the sluggish growth trend of traditional carbonated drinks, so they launched a series of sugar-free sparkling water products to solve the consumption pain points of traditional carbonated drinks.
Insight into market needs. Propose new value propositions that are closely aligned with consumer needs. Through innovative products and seizing the dividends of the times, we have successfully stood out in the insightful soft drink consumer market. Yuanqi Forest's value proposition of "creating healthy and good products" has won the recognition and love of consumers. Pay attention to the health and quality of products and actively promote a healthy lifestyle. By establishing close connections and interactions with consumers, Yuanqi Forest has successfully established its brand image and won consumers' trust. Their success also sets an example for other new consumer brands.
Yuanqi Forest will continue to maintain interaction with consumers and continue to innovate and improve products to meet changing consumer needs. They will continue to pay attention to market trends and gain insights into consumer psychology to provide healthier and higher-quality products. At the same time, they will also strengthen cooperation with channel partners, expand sales channels, and further expand brand influence. The successful experience of Yuanqi Forest will provide reference and inspiration for the entire beverage industry and promote the development and innovation of the industry.
03. Seize emerging channel trends and new brands quickly break through successfully
Open up new channel layout. In the 2B beverage industry, only 5% of peer companies use direct sales channels, while Yuanqi Forest has a direct sales ratio of 22%. Traditional beverage brands usually promote product penetration in the market through terminal sales channels such as supermarkets and convenience stores, and through multi-level dealers and distributors.
These traditional sales channels have become obstacles for new brands to enter the market: on the one hand, brands need to spend a lot of time and energy to cultivate and manage high-quality dealers, and the cost is expensive; on the other hand, new brands need to pay for new brands to enter the market. There are fees such as listing fees, listing fees, promotion fees, and sales commissions to get products onto the shelves of terminal retailers, and terminal retailers have limited willingness and sales motivation to put new brands on the shelves.
Yuanqi Forest has chosen a channel strategy that is completely different from traditional brands: First, it will deeply cultivate chain convenience stores and online e-commerce channels in first- and second-tier cities, and attract channel operators and terminal retailers such as supermarkets to join them by increasing product awareness. Next, these new channels selected by Yuanqi Forest have the characteristics of direct contact with consumers and highly digital operations, which can help start-up brands save channel costs in intermediate links. Yuanqi Forest also cooperates with third-party data service providers to collect consumer feedback in a timely manner through these channels, and uses big data analysis to support product development and market operation decisions.
Chain convenience stores and e-commerce channels are highly tolerant and supportive of new brands. They need to rely on new brands of products to differentiate themselves from other convenience stores and small supermarkets, enrich their product categories, and increase profitability through high gross profit margins on new products.
Yuanqi Forest's channel strategy matches its own resources, that is, its product strength is strong but its channel construction experience and resources are weak. Yuanqi Forest's product design is novel and can meet the individual needs of consumers, but it lacks channel resources and experience. Therefore, it has chosen chain convenience stores and e-commerce channels that are easier to build and focus on product strength to avoid direct competition with industry giants. Gain valuable growth time.
This channel strategy has achieved remarkable results: in 2020, chain convenience stores and online e-commerce channels became the main sales channels of Yuanqi Forest, and product sales increased significantly. With the increase in product visibility and accumulation of market reputation, more and more channel operators and supermarkets have joined Yuanqi Forest's sales network, further expanding product coverage.
In addition, Yuanqi Forest uses these new channels to directly interact and communicate with consumers, understand their needs and preferences, and continuously optimize products and services based on market feedback. Through cooperation with chain convenience stores and e-commerce channels, Yuanqi Forest has successfully broken through the barriers of traditional channels and achieved rapid and stable market growth. This successful channel layout has laid a solid foundation for Yuanqi Forest's brand building and long-term development.
04. Multi-party user data drives the creation of PMF star items
Product PMF market verification is the key to the success of an idea, and product testing is a crucial link.
Yuanqi Forest is a successful case. They tried a variety of ideas in the early testing stage and finally settled on the product Rancha. They even conducted more than 100 tests in the field of sparkling water. The whole process took more than a year. .
Although Yuanqi Forest far exceeds its peers in SKU research and development speed and scale, only 5% of its SKUs are ultimately launched on the market. So, how can Yuanqi Forest conduct new product testing efficiently? Let us first take a look at the method commonly used by traditional consumer goods companies: focus group discussion (FGD).
A focus group is a group of 6-8 people selected from the target market. A trained moderator talks to the group members in a natural way and fills out questionnaires to obtain their opinions on the product and brand. . Symposiums are usually held in conference rooms equipped with single lenses and listening devices, and participants are unaware that they are being monitored.
This method has been used in the FMCG industry for decades and is proven to be an effective scientific approach. However, there are two problems with it:
(1) It is expensive. If entrusted to leading market research companies such as Nielsen, the cost may be as high as hundreds of thousands.
(2) The cycle is long and it is very time-consuming to recruit suitable target groups. It may take 2-3 months to implement a project.
With traditional companies using this approach, coupled with cumbersome approval processes, it can take up to a year to develop a new product.
However, according to Ye Suping, former R&D director of Yuanqi Forest, they adopted a rapid trial-and-error R&D approach. Taking taste as an example, they conduct beverage taste tests internally on average every two days and then make quick adjustments. The entire R&D cycle is controlled at 3-6 months, and new products can be launched in as little as 3 months at the earliest.
Yuanqi Forest adopts the Internet method to carry out "dimensionality reduction attack", and applies the testing methods commonly used in game products to beverage product testing. It speaks through data, which is low cost and fast.
In the Internet industry, you must have heard of the concept of "A/B testing" or "multiple testing": preparing multiple versions of a product interface or process, and allowing similar groups of target users to randomly access these versions during the same time period. Collect user experience data and business data, finally analyze and evaluate the best version, and formally adopt it.
In other words, Yuanqi Forest adopts A/B testing and multivariate testing methods commonly used in the Internet industry. They prepared multiple versions of the beverage product, and allowed similar groups of target users to randomly access these versions during the same time period, and collected user experience data and business data. Through analysis and evaluation, they were able to identify the best version and formally adopt it. This approach enables quick and cost-effective acquisition of user feedback and data to iterate and optimize.
Yuanqi Forest believes in the importance of rapid trial and error and market verification in product development. Although traditional focus groups are a proven scientific method, they are expensive and lengthy. Using A/B testing and multiple testing methods in the Internet industry, user feedback and data can be obtained faster, thereby improving the efficiency and success rate of product development.
Therefore, market validation is an indispensable step for ideas. Through appropriate testing methods, user needs and market feedback can be better understood, so that products can be adjusted and optimized in a timely manner to ensure that they gain market recognition and success.
Yuanqi Forest recognizes that product testing is the key to success. They ultimately settled on Burnt Tea and other successful products by testing multiple ideas and continually tweaking and improving the product. This process may take some time and resources, but it is a critical step in ensuring that your product matches market demand.
The case of Yuanqi Forest shows us the importance of rapid trial and error and market verification. By constantly testing and adjusting, they are able to identify problems and improve the product in a timely manner. This agile approach allows them to launch new products quickly and succeed in a highly competitive market.
Therefore, no matter how awesome an idea is, it is just a piece of waste if it is not verified by the market. In the product development process, product testing is a crucial step, which can help us understand user needs, identify problems and make improvements. With appropriate testing methods, we can ensure that products match market needs and increase product success rates. Therefore, it is crucial to regard product testing as an important link and continue to provide feedback and optimization. Only in this way can we ensure the success of our products in the market.
05. When Yuanqi Forest encounters a growth bottleneck, is omni-channel the way to save itself?
In 2021, the freezer war and the joint attack by giants have become the focus of the beverage industry. In 2022, fluctuating prices and target reductions have led to market chaos, and the team needs to be rectified. However, in early 2023, when Tang Binsen visited dealers, traditional giants launched an offline campaign against him, causing Yuanqi Forest's distribution channels to suffer setbacks. These events reveal a tense atmosphere, and the Yuanqi Forest is really in trouble. In the internal letter, Lao Tang clearly proposed the work theme for 2023: "Sustain survival and seek development" and called for "respecting industry laws and embracing traditional experience."
In the Chinese beverage market, the real battlefield for giants is offline. In recent years, new consumer brands have emerged one after another, and the beverage industry has become a popular area for entrepreneurship. Due to the large market capacity, high consumption frequency, rigid demand, and low consumer loyalty, sales can be quickly launched as long as the needs of a small group of consumers can be met. However, for beverage giants, even if the sales of these new brands reach tens of millions or even hundreds of millions, it is not enough for them.
In China's beverage market, only those with annual revenue of over 10 billion can enter the top ten, and only those with single product sales of 1 billion can be considered entry-level. Not only are the giants huge, but they also focus on offline channels. According to retail sales estimates, China's soft drink market exceeds one trillion yuan, with at least 70% of sales coming from offline channels.
China's soft drink market exceeds RMB 1 trillion, with at least 70% of sales coming from offline channels. Specifically, it includes modern channels (supermarket chains, convenience stores), catering channels, traditional distribution channels (small grocery stores, community stores) and special channels (airports, stations, gas stations, hospitals), etc. Traditional distribution channels are of particular concern to brands. Although these terminal stores are small and dispersed, they go deep into the community and have close contact with consumers. Only by placing products on the shelves of these terminal stores can we gain support and sales promotion from millions of store owners, thereby achieving giant-level sales, even reaching sales of billions or even tens of billions. These terminal stores are located in 333 prefecture-level cities, 2,844 districts and counties, and 41,658 towns and villages in China. In China's huge and multi-layered market, to truly achieve breakthroughs, emerging brands need to establish strong sales networks and dealer relationships in offline channels.
When Tang Binsen visited dealers in early 2023, he encountered a crackdown from traditional giants, causing Yuanqi Forest's dealer channels to suffer setbacks. This incident is a severe test for Yuanqi Forest. Tang Binsen made it clear in an internal letter that the work theme in 2023 will be "preserving survival and seeking development", and also called for respecting industry rules and embracing traditional experience. This incident once again highlights the fierce competition in the beverage industry and the importance that giants attach to offline channels.
For emerging brands, to survive and develop in this market, they need to formulate clear strategies, strengthen cooperation with dealers, grasp the laws of the offline market, and constantly innovate and adapt to consumer needs. Only by establishing a solid channel network and providing competitive products can we stand out in the competition in the freezer war and achieve sustainable development.
06. Omni-channel strategic brand expands traditional channels with 4 concerns
Under the general trend of brand omni-channel strategy, DTC soft drink brands are actively expanding traditional channels, focusing on the following four key points, and making strategic adjustments based on their own characteristics and market conditions to stand out in the fierce market competition.
(1) Lower market: Brands realize that the lower market has huge potential, and 60% of the market opportunities are in the offline market. In 2022, the beverage retail market share of sinking markets such as county-level cities-county towns-rural areas will exceed 60% of the beverage market. From the perspective of channel type, small retail channels such as grocery stores still account for half of the market. The market and channel types in this area are usually called "traditional channels", and the results of sales work mostly rely on the construction of channels and dealers.
(2) Product innovation: When a brand expands traditional channels, it can carry out product innovation with the help of its brand operation advantages and genes. They can leverage their brand image and reputation to launch hit star products across categories. By combining consumer needs and market trends, these brands can launch new products with unique features, flavors or packaging to attract more consumers' attention and gain greater market share in traditional channels.
(3) Channel alliances: Cooperation with traditional dealer channel networks is one of the keys for DTC soft drink brands to expand traditional channels. This cooperation model can make up for the shortcomings of the brand through joint dealer channel networks and achieve a win-win cooperation mechanism. Brands can jointly develop sales strategies with dealers, share user data and market insights, and jointly bear market risks. This channel joint cooperation model allows DTC brands to better utilize the resources and coverage of traditional channels, expand market share, and develop and grow together with dealers.
(4) Model innovation: When implementing omni-channel strategies , both DTC brands and traditional brands need to be careful not to simply copy each other’s model, but to innovate the model. DTC brands can draw on the channel expansion experience and resources of traditional brands, but they need to maintain their brand characteristics and differentiation without losing the flexibility and agility of DTC. Traditional brands can learn from the direct consumer relationships and market insights of DTC brands to enhance the brand’s digital capabilities and user experience. When implementing an omni-channel strategy, both parties should innovate models based on their own characteristics and market needs, and find an omni-channel development strategy that suits them to achieve sustained growth and competitiveness.
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Extended article :
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