Click to read the original article for details In late October 2020, founder Tang Binsen announced an offline sales target of 7.5 billion yuan for 2021. That's more than triple the 2.1 billion yuan target for 2020. Beyond the sugar-free sparkling water leading the charge, what will support such a massive appetite? What challenges will it face, and what is its ultimate endgame? "0 sugar, 0 fat, 0 calories" was popularized by Yuanqi Forest, which also solidified its position in the beverage industry. During the 2019 Double 11 shopping festival, Yuanqi Forest's online sales surpassed Coca-Cola and Pepsi; in the recent 2020 Double 11, Yuanqi Forest again ranked first in the beverage category on Tmall and JD.com with over 20 million bottles sold. But this is far from satisfying for Yuanqi Forest. In late October 2020, founder Tang Binsen announced the 2021 offline sales target: 7.5 billion yuan. That's more than triple the 2.1 billion yuan target for 2020. Beyond the sugar-free sparkling water leading the charge, what will support such a massive appetite? -01- The Charger's Posture From Yuanqi Forest's recent intensive moves, one can somewhat detect the charger's bared fangs. On one hand, poaching executives and stockpiling resources. First, Ran Hao, former HRD of Luckin Coffee, joined, followed by Liu Zhen, former Senior Vice President of Corporate Development at Toutiao. Yuanqi Forest began to bolster its management team's ammunition. Public information shows that Ran Hao spent nearly 3 years at Luckin, during which his title was HR Director, while the Chief Human Resources Officer position was vacant for a long time. So, Ran Hao almost single-handedly built the company's HR system. Observers speculate that Ran Hao's top position allowed him to accumulate considerable industry resources. His joining might help Yuanqi Forest quickly fill its talent gap in the coffee sector. As for Liu Zhen, her name is certainly familiar. From Uber to Toutiao, she is an adventurer and a decisive decision-maker. She is familiar with U.S. law, has led multiple acquisitions, and has extensive overseas experience. Yuanqi Forest began its internationalization in 2019. Liu Zhen's experience in capital and product localization will undoubtedly be a boon for accelerating overseas expansion. On the other hand, expanding products and investing, building high warehouses. Currently, Yuanqi Forest's product matrix is quite rich. The product lines include sparkling water, milk tea, burn tea, Manfen!, and Waixingren, covering categories such as milk tea, tea drinks, fruit juices, and vitamin energy drinks. This time, Yuanqi Forest has set its sights on plant-based protein drinks. According to a report by Caijing.com, Yuanqi Forest has applied to register trademarks like "Soy Milk" and "Oats Crazy," possibly entering the plant-based protein beverage sector. Yuanqi Forest stated that soy milk has entered the trial tasting stage, and whether it will be launched is undecided, while there is no clear news about oats. If soy milk successfully launches, it will be Yuanqi Forest's first product in the plant-based protein beverage category. Beyond self-incubating new products, Yuanqi Forest continues to expand its consumer landscape through external investments. According to Tianyancha data, Yuanqi Forest has not only invested in a light meal brand "Tianyuan Zhuyi" but also in a Japanese ramen restaurant chain "Shangui Jitang," with significant stakes, including as high as 80% in Shangui Jitang. However, this is only a small part of Tang Binsen's investment map. What is rarely noticed or mentioned is that before founding Yuanqi Forest, Tang Binsen established Challenger Capital, where he remains the largest shareholder with a 78.75% stake. According to Tianyancha data, as of now, Challenger Capital has made 76 public investment events, focusing on consumer and TMT sectors. In the consumer sector, past investments include Lamasay, Panda Brew, Guanyun Baijiu, and more recently Wangxiaolu, Shizuren, and NeverCoffee, each a strong player in its niche. Finally, deepening channel reach, quickly claiming the crown. At the "2020 Distributor Conference," Tang Binsen announced the 2021 plan, calling 2021 a "big product year," with 80,000 smart freezers to be deployed by the end of Q2 at the latest, and setting an offline sales target of 7.5 billion yuan. To smoothly achieve the deployment and sales targets, Yuanqi Forest has adopted an aggressive "guaranteed sales" strategy—if these freezers fail to meet expected sales, Yuanqi Forest will compensate stores for the difference; additionally, it has added a new assessment metric for distributors: "freezer and outlet connectivity efficiency." It is reported that these self-developed freezers will all be networked, and every bottle sold will feed sales data back to Yuanqi Forest in real time, ensuring supply chain efficiency and guiding new product development. These seemingly random moves actually conceal Yuanqi Forest's ambition to build a "Yuanqi Empire." -02- The 'Yuanqi' Empire Upon careful analysis, there is a clear logical core behind these actions: replicating multiple Yuanqi Forests in the same way. Yuanqi Forest's rapid rise can be summarized in three points: First, it broke the barrier between sparkling water and sugar-free drinks, successfully creating the sugar-free sparkling water category; second, it seized the channel dividend of chain convenience stores; third, it expanded other categories around the health and sugar-free concept. Looking at the new consumer brands Yuanqi Forest has invested in—NeverCoffee, Wangxiaolu, Tianyuan Zhuyi—they all share similar upgrade paths with Yuanqi Forest. NeverCoffee is a ready-to-drink coffee made from direct extraction of specialty coffee beans, with improved flavor over ordinary bottled coffee; its channels focus on high-end convenience stores where young people gather; its categories have expanded to specialty drip coffee, specialty coffee beans, and coffee-related products. Wangxiaolu's hit product, Tiger Skin Phoenix Claws, combines chicken feet with braised flavor for micro-innovation, avoiding direct competition with Youyou Food's pickled pepper phoenix claws; while deeply cultivating online channels, it is also covering the top 20 convenience stores and supermarkets in China. Tianyuan Zhuyi's main product, "sugar-free, oil-free" healthy whole wheat European bread, has been recommended by influencers and big V's on platforms like Douyin and Xiaohongshu, with monthly sales exceeding 50,000 units. In less than a year and a half since its founding, it has expanded from a single whole wheat bread to multiple categories including sugar-free low-calorie snacks, meal replacement drinks, low-calorie noodles, instant meat products, and low-fat seasonings. These brands also share a common trait: they do not pursue cost-effectiveness but high quality. Lamasay, Panda Brew, and Guanyun Baijiu also have this attribute. More importantly, whether self-built or invested, the tracks favored by Yuanqi Forest all follow a principle. It is held as a golden rule by Tang Binsen, namely "Bayesian theory." In a business context, it means that only in big tracks and big trends are there big opportunities. Specialty coffee, light meal replacements, and craft beer all have industry scales in the tens of billions or hundreds of billions, and they are also at the cusp of industry explosion. Around the eating and drinking of young people, Yuanqi Forest could potentially replicate multiple Yuanqi Forests. However, going from 0 to 1 is easy, but to 10 is difficult. For this big leap, Yuanqi Forest has chosen to pin its hopes on smart freezers. For new consumer brands, after online saturation, offline becomes the necessary path for product explosion. The difference is that Yuanqi Forest is betting on digitalization to reduce costs and increase efficiency. According to Tang Binsen, "We must continuously build a more efficient channel system, achieve end-to-end data connectivity, and use digital technology to reduce costs." Digitalization is precisely another killer feature of Yuanqi Forest's rise. Similar to Luckin and Bianlifeng, Yuanqi Forest has actively built a digital system since its inception, using the system to accurately predict hits and conduct marketing promotions. Among new consumer brands, Yuanqi Forest is one of the few that built a digital system from the start, which is its advantage in empowering invested companies. When offline channels are perfected, they can form a linkage with each other. Thus, the prototype of a super Yuanqi empire gradually emerges, and the highway leading to it is built from mid-to-high-end [(eat + eat + drink + drink) * channels]. -03- Hidden Corners Admittedly, the super empire has infinite imagination, but how high and stable the highway can be built, each link hides obscure corners that could shake the bridge. First, regardless of external investment cases, the internally incubated product matrix is still too early to take the lead. Look at predecessors. From single product to multi-category is the norm for established beverage players, but none have excelled. Nongfu Spring, Master Kong, and Coca-Cola have all sought new growth points, but their bestsellers remain water, iced tea, and Coca-Cola. For Yuanqi Forest, the multi-product line is hard to break through, and single categories lack barriers. Sparkling water has no high technical barrier, nor does it have a formula barrier like Coca-Cola, so anyone can jump in. Heytea, Naixue Tea, and Wanglaoji have all launched sparkling water products. Over time, Yuanqi Forest's slightly prominent brand barrier may also face gradual erosion. Yuanqi Forest is likely aware of this, so it has offered another "life-saving" strategy: quickly deepen and solidify scale barriers. The 80,000 smart freezers, as a multiplier for scale, determine the speed of building the Yuanqi empire. But channel construction is not an overnight task. Take Coca-Cola for comparison. According to Su Wei, President of Swire Coca-Cola, the company has deployed over 870,000 sales freezers and vending machines in China. Nongfu Spring's financial report shows that as of the end of 2019, Nongfu Spring had equipped "Nongfu Spring" freezers at 360,000 terminal sales outlets nationwide. 360,000 outlets and 870,000 machines took 10 and 20 years respectively, equivalent to 30,000-40,000 units per year. If Yuanqi Forest wants to complete 80,000 units before Q2, the difficulty is considerable. Although there are 6.8 million mom-and-pop stores in China, the space left for Yuanqi Forest is limited. After all, Yuanqi Forest's price band and brand effect are not yet suitable for promotion in lower-tier markets below third- and fourth-tier cities. Of course, there is another "hidden reason" why Yuanqi Forest wants to deploy offline smart freezers: distributors are unwilling to provide necessary operational data to Yuanqi Forest. This is also a major difficulty Yuanqi Forest has encountered in building its distributor system. Compared to traditional methods, smart freezers can promptly grasp sales and distribution data, but for distributors and sub-distributors, "intelligence" means losing "freedom"—previously they could put different brands in one freezer, or even secretly include "counterfeit products." As such, whether each terminal is willing to cooperate and whether profit distribution is adequate will directly affect the deployment effect and speed. Returning to the revenue level, 2021 is a big product year for Yuanqi Forest, meaning costs will also rise significantly. According to Tang Binsen, Yuanqi Forest still has 95% of products not yet launched, and R&D expenses and R&D personnel in 2021 will be three times that of 2020. He even said that next year, they will continue to upgrade product formulas, increase R&D, and even "drive up costs" to make the best products with better raw materials. Marketing expenses will also rise in 2021. In 2020, Yuanqi Forest invested 500 million yuan in marketing, accounting for over 23% of its 2.1 billion sales target. At the start of 2021, Yuanqi Forest sponsored Bilibili's New Year's Eve gala and even secured the title sponsorship for the Spring Festival Gala in February. For a startup, using money to exchange for scale first may be understandable. But when products and channels are still unstable and immature, what challenges will Yuanqi Forest face, and what is its ultimate endgame? Everything remains unknown. Source: Hydrogen Consumption (ID: qingxfno1), Author: Li Kexin Major Conference Announcement! January 19-20, Jiangsu Wuxi New Distribution will join 500+ FMCG distributors from five provinces in East China in Wuxi, Jiangsu, to provide a conference for brand owners and distributors aimed at product selection and cooperation exchange. Plan before the new year, start after the new year! Don't wait until after the Spring Festival to plan! 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