If a company only starts considering gross margin three years after its founding, and only rethinks its distribution channels six years later, is it too late? Different industries may have different answers. Generally, a three-year-old company is still a startup. In the tech and internet industry, many companies don't even consider revenue, let alone gross margin. However, a startup in the ancient FMCG industry, facing competitors like Coca-Cola, one of the most powerful brands on Earth, is quite bold to ignore gross margin for three years and not systematically think about channels until after six years. This is the recent reflection of Tang Binsen, founder of Genki Forest, who raised this conclusion at the opening of the second supplier conference held not long ago. The industry is also buzzing because of the expensive "tuition fee" Genki Forest paid in terms of channels (the former channel head, surnamed Ye, was dismissed for serious corruption). Some industry insiders believe this tuition fee was too high, and the consequences could be even more severe than when Coca-Cola blocked Genki Forest's supply chain. Did Genki Forest make a mistake? One view is that Genki Forest is bowing to "reality" and tradition, beginning to admit that the internet approach doesn't work in China's FMCG market. To stabilize channels, Tang Binsen personally met with major distributors to discuss cooperation, a story that does circulate in the industry. "At the dinner table, several major distributors signed agreements with Old Tang while complaining," said a source. However, after communicating with Genki Forest executives and industry insiders, I do not agree with the above view. On the contrary, I believe that after a blow from "tradition," Genki Forest has indeed lowered its posture from top to bottom, learning from tradition at the channel level. But this does not mean Genki Forest denies its "internet spirit" and the path set at the beginning of its founding. As one company executive said: "Because of a high tuition fee, retreating to the traditional company route is absolutely impossible at Genki Forest." In his view, the reason it's absolutely impossible is that part of Genki Forest's genes lie in "Old Tang's idealism." As long as Old Tang has idealism, Genki Forest will not change. Today, this idealism is clearer and more pragmatic, but it never leads to realism and utilitarianism. A thought-provoking fact is that at this supplier conference, Xue Gang, president of Genki Forest Research Institute, was arranged to meet suppliers and introduced the entire R&D team. In Genki Forest's growth history, the research department was established before the product department, and R&D-driven has always been considered the basic development momentum. Clearly, even after major setbacks in channels, this gene has not changed. In his speech, Xue Gang said the company arranged for him to come on stage because Genki Forest needs to find strategic partners from excellent suppliers, and this strategic cooperation should achieve comprehensive deep cooperation from R&D to products. Therefore, suppliers need to understand what kind of partners Genki Forest needs. The word "partner" is also frequently mentioned by Tang Binsen himself at several company conferences this year. At the welcome dinner, he even made a bold statement to the suppliers present, hoping that in 20 years, this supplier conference would have reached its 22nd session. The implication is that he is thinking about things 20 years from now, so they don't need to worry about tomorrow. The outside world is indeed worried about Genki Forest. From public reports, what we see more is Genki Forest's slowing growth. Apart from Sparkling Water and Alien, other product lines are lackluster; the 10 billion sales target has not been achieved; and even the "Youkuang" product line was eventually abandoned, with Genki Forest admitting it was a failure story at the tens of millions level. It might even be the biggest and most important setback in the short history of this only 7-year-old company. However, Tang Binsen used internal rewards to highly recognize this "failure" tuition fee. Tang Binsen once privately said that he believes the most important way of thinking for internet companies is continuous self-iteration. Genki Forest has always been regarded as a representative of local new consumer brands. But by 2023, many local new consumer brands have indeed begun to recede under the counterattack of international giants, and many territories captured by marketing and traffic have eventually been given back. Will all this happen to Genki Forest? There's no need to rush to conclusions. To some extent, Genki Forest's rationalism or its "too young, too simple" attitude is a microcosm of China's new consumer brands. Entrepreneurship is like an uprising army; to charge through bullets and storms to the end requires not only ability but also luck, and even the choice of the times. Genki Forest, in an ancient industry, tries to carve out a path as a product innovator. The obsession with "innovation" may be both the making and undoing of a startup. In this process, Genki Forest inevitably has to say goodbye to various traditions one by one, from products to channels, to organization and strategy. On the channel issue, tradition gave Genki Forest a heavy punch. But an arrow shot cannot be taken back. The farewell to tradition continues. Genki Forest cannot turn back, and there is no turning back. But how long this farewell will be and how much it will cost, no one knows.

Innovation is a Double-Edged Sword

In some high-tech industries, what constitutes innovation is often clear. But in the beverage industry, what counts as innovation and whether innovation is useful are very complex questions. For example, when Guangdong's herbal tea became popular, does that count as innovation? Since its birth, Genki Forest has been offending people. In Genki Forest's view, herbal tea cannot be considered product-level innovation, but only market-level innovation. Their reasoning is that herbal tea is a plant-based beverage that existed in Guangdong before, but no one had scaled it up. Later, a market-leading brand created a large niche market by sorting out category logic and highlighting its functional attributes. But this is not product-level innovation. So from the beginning, Tang Binsen hoped Genki Forest could create truly "original" products, not market innovation or micro-innovation. Under this thinking, the 0 sugar, 0 calorie, 0 fat sparkling water succeeded. Many industry analysts now separate sparkling water from carbonated beverages as a separate niche category in their research reports. But the question is whether this kind of innovation can be sustained for a company. Can a startup maintain this innovation capability in the face of fierce market competition? Because the essence of innovation is to create incremental markets, not optimize existing ones. This proposition is particularly sharp for Xue Gang, president of Genki Forest Research Institute. Because doing research requires openness to achieve true "originality," but doing business requires closure. Just as Tang Binsen said, one must consider gross margin. This openness and closure are like the two ends of a seesaw. If not balanced well, problems arise. This sense of contradiction can be said to be a root cause of many problems Genki Forest has encountered in the past two years. According to Xue Gang, in the beverage industry, innovation can include innovation in raw materials and processes. For example, the use of new natural sweeteners in sparkling water is raw material innovation. But no matter what kind of innovation, it is subject to resource, market, and even policy environment constraints. In the food and beverage industry, the state has clear regulations on which raw materials can be used and which cannot. This means that some raw materials may be popular in foreign markets but not suitable for the current domestic market. Should such trends be monitored? Genki Forest's research team still keeps its radar on, always paying attention to the latest global market movements. For some feasible product plans, whether to mass-produce and how to solve supply chain issues requires collaboration between the research institute and other departments. This is like an uprising army: the front is fighting, while the rear is trying to develop new weapons instead of using existing ammunition to eliminate the enemy's effective strength. The difficulty is imaginable. Why does a startup put itself through such trouble, just because of the founder's idealism? Xue Gang believes it's not so. Precisely because Tang Binsen is not from the beverage industry, he is not an expert on specific product directions. The real drivers are the company's young people, including the R&D team. "Genki Forest is a young company with many young people who are curious. When they see good things, they want to try them themselves." Internally, they even joke that Tang Binsen, this top former game product manager, has been working hard to learn, hoping that the company's business experts will acknowledge that he is still an "excellent product manager and brand manager" in the traditional beverage industry. "Of course, Tang Binsen is still learning the underlying logic and growth logic of products, and he learns very fast," said an insider. In other words, when internet company people start businesses, the boss is often the chief product officer. But at Genki Forest, this is not the case. Tang Binsen's role is more reflected in strategic insight and organizational building. He himself has said that many internet people mistakenly think they can use internet methods to dominate traditional industries, but they misunderstand the "internet." He believes the true internet spirit includes the ultimate pursuit of products, the ultimate respect for talent, and a simple and equal culture. Recently, when the Genki Forest factory in Xianning, Hubei, opened, Tang Binsen insisted on building a factory without walls. The equality in his heart is not only spiritual but also tangible and perceptible. However, internet thinking can break the constraints of offline resources through the borderlessness of information, but in the beverage industry, this is far from mature. Like the failure of Youkuang, Genki Forest's internal reflection admitted that it severely underestimated the existing barriers of leading brands. Even so, Genki Forest is still unwilling to follow the old path of the traditional camp. On the other hand, it's indeed too late. This is the cruel reality that new consumer brands must face. For example, regarding the widely discussed channel issue, is there anyone in the beverage circle capable of copying Coca-Cola China's homework? Coca-Cola China's powerful channel capability comes not only from over 40 years of accumulation but also from the long-term cooperation of two major bottlers, COFCO Coca-Cola and Swire Coca-Cola. This stable triangular strategic cooperation foundation is why Coca-Cola's channel capability is terrifyingly strong. Not only can Genki Forest not learn this model, but even PepsiCo is in awe. In terms of channels, on the one hand, Genki Forest has indeed bowed to industry conventions, first returning to the industry's common large-region system, which is closer to Nongfu Spring's model. But on the other hand, it is understood that with the listing of Youbo and the development of new retail, Genki Forest still maintains a strong interest in new channels such as vending machines. It can be said that Genki Forest is always looking for the most suitable channel method for itself—because purely copying homework is too late. Recently, Chen Xiaoxin, head of Genki Forest's vending machine business, also publicly announced that the business has achieved profitability. However, it cannot be said that the giants' models have no inspiration for Genki Forest. Whether at the distributor conference in Dujiangyan, Sichuan, or the supplier conference in Hubei, Genki Forest always emphasizes one word: "partner."

Finding Partners

For a growing company, the growth trajectory is like life: some people wave goodbye, some stay with you through thick and thin, growing together, and some are friends in need. Genki Forest, as a young company, has a characteristic of loving to stir things up. When it is in a traditional and complex industry like beverages, it stirs up not only itself but also its upstream and downstream partners. The key is, who wants to stir things up with this young company, and for what? If you ask this question to Genki Forest's supplier, Langfang Baiguan Packaging Machinery Co., Ltd. ("Baiguan"), perhaps they would say: We had no choice. We didn't expect Genki Forest to be so "ignorant and fearless." Baiguan produces carbonated beverage production lines. In the beverage industry, aseptic production lines and carbonated production lines are two separate entities. But Genki Forest is the one that gives Baiguan a hard time. Genki Forest hoped to make an aseptic carbonated flexible production line, and later wanted to add a function to add fruit pulp to the production line. Jin Deliang, marketing director of Baiguan, explained the difficulty: "The difficulty of this aseptic carbonated production line is to combine the three processes of carbonation, asepsis, and fruit pulp at the same time. Asepsis requires no contact, carbonation requires airtightness, and fruit pulp requires a large injection port, which may cause backflow. Putting these three together is contradictory." But for the company's own development, Baiguan gritted its teeth and took on the demand. The two sides worked day and night, experiencing countless arguments and explorations. After repeated verification, Baiguan produced an aseptic production line that is carbonated and can inject fruit pulp through a three-stage push method. In the end, both sides benefited: Genki Forest obtained the first domestic aseptic carbonated production line and purchased more than 20 production lines from Baiguan. Baiguan's business also developed greatly. For a new company like Genki Forest, daring to invest heavily in so many aseptic carbonated production lines also represents the company's solid attitude and determination under the goal of "0 preservatives." Besides self-inflicted troubles, some troubles come from the industry. In past stories about Genki Forest, the outside world knows that Genki Forest was once strangled by competitors in the supply chain. So Genki Forest later started building its own factories. However, Genki Forest's core product line, sparkling water, actually encountered a more serious raw material crisis. Erythritol existed before being used as a beverage ingredient, but it was not well known to the public. Because Genki Forest used a healthier new natural sweetener as a raw material, and because Genki Forest popularized the concept of sparkling water, the market situation for this raw material changed dramatically. In 2019, the price of natural sweetener raw materials soared. From a stable ton price of around 10,000 yuan, it rose to 30,000-40,000 yuan. It is imaginable that there was a huge profit difference between the two price ranges. As the core raw material price of natural sweeteners rose, some suppliers who had signed contracts began to have other ideas. The most common practice was to demand price increases, using various excuses to resist the execution of the original contract. Some partners would find excuses, while others were very straightforward. One contracted supplier's head directly told Genki Forest: "I'm just a professional manager. If I don't raise the price, I'm afraid my boss will find fault with me." In this situation, Genki Forest also met true friends who stick to their principles. Dongxiao Bio is one of them. Dongxiao Bio was established in 2004 and laid out a natural sweetener production line in 2010. For years, it has been committed to providing high-end raw materials to customers, including international first-line brand users. Later, by chance, a salesperson from Dongxiao Bio found Genki Forest. According to Guo Chuanzhuang, general manager of Dongxiao Bio, the salesperson came back and told him that the people at this company had no airs at all. Previously, when he went to some factories and companies, he couldn't even get through the gate. The two sides then began cooperation. Around 2019, voices emerged in the industry to disrupt Genki Forest's raw material rhythm, and even institutions speculated to create resistance from the source of market supply. Dongxiao Bio also knew about market changes. So much so that Genki Forest once couldn't buy raw materials, but the chairman of Dongxiao Bio said they would still supply at the contracted price as promised, and they must be honest. "Guo Chuanzhuang said. "At that time, the market price was around 40,000 yuan per ton, but our contracted price was only over 10,000 yuan." For this, Dongxiao Bio also came under some pressure. People kept coming to buy the raw materials that Genki Forest urgently needed at higher prices. But Dongxiao Bio insisted on supplying Genki Forest. Not only did it suspend supply to Coca-Cola's overseas demand to ensure supply to Genki Forest, but it also significantly reduced cooperation with domestic middlemen. Later, Tang Binsen specially invited the boss of Dongxiao Bio to dinner, and this was the only supplier Tang Binsen had dined with alone. In Tang Binsen's understanding, friends in need, partners who value loyalty and righteousness, deserve more respect and cherishing. However, in Guo Chuanzhuang's view, sincerity is mutual. Because later, the market situation changed again. After 2022, due to blind overexpansion in the natural sweetener industry, product prices plummeted, and many companies suffered heavy losses. At such times, many companies couldn't hold on and shut down their sweetener raw material production lines. But at this time, Genki Forest began to reciprocate, giving Dongxiao Bio comprehensive support in orders, prices, and other aspects. In 2022, Dongxiao Group's output value achieved nearly 20% rapid growth. To some extent, in a market where profit maximization is the norm, Dongxiao Bio's initial approach is rare. However, Tang Binsen believes this is exactly the partnership he most appreciates and aspires to. Values like integrity are one thing, but the important thing is that both sides can grow together. Perhaps this is also a manifestation of Tang Binsen's long-termism. Regarding partnerships, Tang Binsen said he likes simple, direct, and transparent relationships. The most important thing is that both sides can cooperate long-term, grow together, and do more meaningful things. "I hope that while making good products, we can also make good friends," Tang Binsen said. "Many years later, when we talk about these things, we can feel that we did something great together." Clearly, Tang Binsen is still trying to bring the simple and direct production relations of the internet into today's beverage industry. Even when facing the distributor group, which seems to value connections, relationships, and drinking culture the most, Tang Binsen's tone has not changed. At the previous distributor conference, he said: "I hope everyone deeply understands the meaning of partners. You need us, and we need you. Everyone finds their own value and positioning in this process. This is not only said to our customers but also to every sales colleague present. You really need to find some reliable partners, and everyone improves together." He described this state as creating a "free kingdom" in the FMCG industry. Can such an idealistic person and company really laugh last in such a cruel market competition?

Scale, Gross Margin, and Competitors

In fact, the outside world is not without worry about today's Genki Forest. The main reason for worry is still the bottleneck of scale. Because Genki Forest has an internal tone that it won't talk about it until it reaches 10 billion in scale, it is known that Genki Forest has not yet reached the 10 billion scale. The reason this scale is important is more because the industry believes that 10 billion in sales is a safety boundary for a new consumer brand. The reason scale hasn't increased is partly due to the channel head's corruption issue. Another major reason is the performance of various product lines. Some industry insiders believe that the number and efficiency of distribution outlets determine the sales scale of FMCG companies, and in this regard, Genki Forest still has a large gap with leading companies. But from internal feedback, Genki Forest still insists on a user-centric strategy and adheres to the productism route. One of its confidence sources is the excellent performance of Alien beverage. It is said that Alien electrolyte water can achieve a sales scale of about 3-3.5 billion yuan this year. The success of this niche category is considered a success of Genki Forest's R&D-driven and productism approach. In other words, Genki Forest still hopes to find new niche markets through product R&D and innovation, and then scale them up. This approach is indeed quite different from the current industry leader's strategy of deep market penetration with basic products. But it is said that internally, Genki Forest believes that the success of Oriental Leaf is also a manifestation of long-termism and productism. In the first three years, Oriental Leaf's data performance was not ideal, similar to when Alien was first launched with sales of less than 100 million yuan. But the market eventually proved that as long as the product is excellent and you dare to sharpen a sword for ten years, explosive growth will eventually come. Xue Gang believes that because there are many products on the market now, what consumers really need are often "super products" that hit the biggest demand and truly provide solutions, rather than some minor improved products. So Genki Forest will continue to adhere to R&D-driven and use products to find breakthroughs. On the other hand, there is the issue of company profitability. Tang Binsen still emphasizes partnerships on this point, believing that Genki Forest does not need excessively high gross margins. As long as the product is good enough, the brand can ensure a reasonable gross margin space. Genki Forest's insistence on productism and long-termism is also related to today's beverage market environment. Due to the segmentation of consumer demand, the past model of winning with a single big product is becoming increasingly difficult. Today's beverage market consumers' demand for product innovation is close to the state of the new tea drink market. Therefore, in recent years, technical R&D personnel in the beverage industry have also become sought after. However, the beverage market is still a highly competitive market where products can easily substitute each other. With giants surrounding, how long is the time window for Genki Forest's farewell journey? According to its understanding of partnerships, Genki Forest seems to still believe that this world is not a zero-sum game of life and death. An example is that after Curt, former president of Coca-Cola China, retired, he visited Genki Forest and had candid exchanges with Tang Binsen and others. When someone publicly challenged him, asking how he viewed the competitive relationship between them, this beverage veteran, who had experienced many battles in the business world, answered: "According to you Chinese, the common competitor of all beverages is plain water." This beverage veteran also advised Tang Binsen, "Have you ever been to the channel terminals? I have measured many cities in China with my own feet." Perhaps it was this sentence that reminded Genki Forest to re-emphasize channel terminals. It is said that Tang Binsen himself has spent a lot of time in 2023, visiting distributors and external partners in important cities multiple times, and has even emphasized internally more than once that everyone should get out of the office and go to the market frontline to see the real situation. Perhaps it is because of the respect from competitors that Genki Forest has today's understanding of partners. Genki Forest, only 7 years old, as a representative of new consumer brands, needs to be more mature. In any case, during the growth of China's new consumer brands, they will inevitably, like Genki Forest, constantly say goodbye to tradition, including habits, thinking, organizational methods, etc. The final farewell journey will also include saying goodbye to a past self. This is painful, but it is an inevitable path of growth. The important thing is not to lose oneself in the process of continuous farewell. Inside the company, Tang Binsen often quotes three great entrepreneurs: Steve Jobs, Elon Musk, and Ren Zhengfei. He said that one of his original intentions in starting Genki Forest came from an early experience. When he first went abroad as a junior to participate in a competition, the first Chinese brand advertisement he saw when he walked out of the airport in a foreign country was Huawei. That moment was unforgettable. So, he started Genki Forest hoping that one day this brand could also go abroad to represent Chinese brands like Huawei. Although it seems everything is still too far away now.