Source: Titanium Media (ID: taimeiti) Author: Zhao Hongyu

Driven by Genki Forest, the 'catfish,' China's soft drink industry is undergoing a revolutionary shift in competitive dynamics.

▲Image source: Visual China

2021 was a year of chaotic battles between old and new brands in the soft drink industry, with the main battlefield being the sugar-free sparkling water segment popularized by Genki Forest.

In April, Coca-Cola launched AHHA sparkling water; in May, Wahaha introduced 'Angry Bobo' sugar-free soda sparkling water; in June, Nongfu Spring launched four fruit-flavored soda sparkling waters with 0 sugar; in July, Pepsi also launched 'Smile Bubbles'... While giants like Coca-Cola and Nongfu Spring were locked in fierce competition with Genki Forest, the bottled beverages of new tea drink unicorn Heytea quietly rose, capturing 16% of online sparkling water sales in the first half of the year, closely following Genki Forest. ▲Data source: Huajing Industry Research Institute, Chart: Titanium Media APP In fact, Heytea, which sells freshly made milk tea, entered the bottled soft drink market as early as July last year, launching its own bottled beverage brand 'Hey Bottle' (喜小瓶). Products are available in Heytea stores, e-commerce channels, and some offline convenience stores, supermarkets, and new retail platforms. According to official data, during last year's Tmall Double 11, Hey Bottle sparkling water sold 500,000 bottles, ranking in the top 3 among internet-famous sparkling waters. During the 2021 Spring Festival, the new sea salt grapefruit sparkling water drove sales of all Heytea sparkling water products to nearly 65,000 boxes (about 750,000 bottles) during the New Year shopping festival. ▲Hey Bottle sparkling water, Image source: @Visual China Now, Heytea has launched two bottled beverage production lines: sugar-free sparkling water and fruit tea. The 'Bao Ning Tea' series of bottled fruit tea beverages, launched recently, brings the popular freshly made hand-shaken lemon tea from Heytea stores into bottled form, available across online and offline retail channels. This has sparked consumer enthusiasm and alerted old and new soft drink brands. In fact, from Genki Forest to Heytea, these 'cross-border' new players in the soft drink industry have become 'catfish' stirring up the traditional competitive landscape. It is precisely under the agitation of these catfish that the once 'lifeless' soft drink industry has been 'activated,' radiating new vitality. ****The Battle for the 'New King' of the Soft Drink Market Zhong Shanshan, the richest man, is the first traditional soft drink tycoon to directly confront new soft drink brands. This summer, Zhong Shanshan personally led Nongfu Spring in a nationwide 'Heaven-Sent Wealth God' campaign targeting Genki Forest's sparkling water, even giving away water and money to distributors and retail terminals: ▲Image source: WeChat public account 'Fast Moving Consumer Goods' Zhong Shanshan's anger stems from Genki Forest's near-frenzied investment in offline freezer placement this year. In October last year, at Genki Forest's 2020 distributor conference, the company announced a sales target of 7.5 billion yuan for offline channels, along with plans to complete the placement of 80,000 smart freezers by the end of Q2 this year. To achieve this goal, Genki Forest showed great sincerity to offline distributors. Typically, the cost of placing freezers is borne by distributors, who then charge a deposit to retail terminals. A freezer requires a deposit of 2,000-3,000 yuan from distributors, returned over three to four years, tying up a significant amount of distributor cash flow. According to the WeChat public account 'Fast Moving Consumer Goods,' if distributors place Genki Forest freezers, they can recover their funds in about three to four months: 50% refund after qualified placement, another 40% after three to four months if still qualified, and the remaining 10% offset against the deposit paid by retail terminals, returned after five years. Additionally, Genki Forest stipulates a 200 yuan reward for salespeople and 100 yuan for supervisors per freezer placed, and even display fees are 100 yuan higher than those of Nongfu Spring and Coca-Cola. With such generous rewards, distributors and retail terminals were mobilized. In 2022, Genki Forest aims to break into the top three in the freezer market. ▲Genki Forest smart freezer, Image source: @Visual China In fact, extensive placement of freezers in offline channels has long been standard practice in the FMCG soft drink industry. Coca-Cola had 870,000 freezers and vending machines in China in 2020. Nongfu Spring's financial report shows that as of the end of 2019, Nongfu Spring covered over 2.37 million retail terminals nationwide, with over 360,000 terminals equipped with 'Nongfu Spring' freezers. But terminal space is limited. When Genki Forest, the hot new player, squeezed in, some freezers from established giants like Nongfu Spring, C'estbon, and Master Kong were pushed out by distributors. Offline channels have traditionally been the stronghold of traditional soft drink brands, and the old giants naturally couldn't tolerate this. In the 'Heaven-Sent Wealth God' campaign, Nongfu Spring explicitly stated its goal to 'seize competitors' freezers and buy back our own freezers.' Nongfu Spring's offline freezer battle can be seen as the first shot fired between old and new brands in the FMCG soft drink industry. But the question arises: In this track crowded with giants, how did Genki Forest grow? ****Genki Forest 'Borrows the East Wind' Public awareness of Genki Forest began with its hit product 'Ran Tea' (燃茶), launched in December 2016. Little known is that before Ran Tea, Genki Forest also stepped into a 'big pit.' Genki Forest's official WeChat account once recalled that at the company's inception, they hired a professional beverage industry team for market research and product development, but the product produced at a cost of 5 million yuan was 'not even drinkable by our own people.' Ultimately, Genki Forest invested another 1 million yuan to destroy all unsatisfactory products. After the scrapping incident, Genki Forest reorganized its product R&D team, meticulously refined the product, and finally produced its first hit, 'Ran Tea.' In fact, from 2014 to 2016, when Tang Binsen was preparing to establish Genki Forest, it was a period of transition between old and new forces in China's soft drink industry. For a long time, the domestic soft drink market was 'channel-centric': whoever controlled more offline channels controlled the lifeline of enterprise development. Brands with channel advantages, such as Wahaha, Master Kong, Dali, and Want Want, developed rapidly. At that time, Wahaha established a joint sales model, gathering powerful distributors nationwide. In 2013, Wahaha's channel coverage reached its historical peak, with revenue hitting 78.3 billion yuan, making it the undisputed industry leader. But starting in 2014, as traditional offline channel coverage became saturated, the dividend period of 'enclosing land' in the traditional beverage industry ended, and growth of leading companies stagnated. With the end of the channel-centric era, companies began to focus on product innovation. Nongfu Spring and Uni-President, which emphasized product innovation, began to leverage their product advantages. In 2014, Uni-President launched 'Hai Zhi Yan' and 'Xiao Ming Tong Xue,' quickly becoming annual hits. In 2016, Nongfu Spring launched the low-sugar tea drink 'Tea π,' which added fruit juice to tea, preserving the tea aroma while masking the bitter taste. It quickly became popular, achieving 1 billion yuan in sales in just seven months, making it one of the most successful single products of 2016. Just as Tea π became a dark horse in the 2016 beverage market, Genki Forest was founded in 2016. Within just a few years, leveraging Ran Tea and sugar-free sparkling water, it rapidly transformed from an unknown startup into the 'storm center' of the soft drink industry. A key to Genki Forest's success was its precise positioning in the sugar-free beverage track. The current development level of sugar-free beverages in China is similar to that of Japan in 1985. In 1985, sugar-free beverages accounted for only 2% of Japan's market, but thereafter, Japan experienced a decade of rapid growth in sugar-free beverages. By 2019, sugar-free beverages accounted for over 50% in Japan. In 2019, China's sugar-free beverage market size was 9.87 billion yuan, accounting for only 1.25% of the total soft drink market. However, according to Zhiyan Consulting forecasts, China's sugar-free beverage market will reach 27.66 billion yuan by 2027, maintaining double-digit growth annually. This means Genki Forest gained a first-mover advantage in a high-growth consumer track. By being the first to use the costly sugar substitute 'erythritol,' it ensured the taste of its beverages while achieving 0 sugar, avoiding the fate of Nongfu Spring's 'Oriental Leaf' when it was first launched. In 2011, Nongfu Spring had identified the sugar-free beverage track but failed to balance the bitter taste of tea, leading 'Oriental Leaf' to be listed among the 'Top 5 Worst-Tasting Beverages in History,' with dismal sales. Another key to Genki Forest's success was its focus on retail convenience store channels. Traditional soft drink brands primarily rely on large supermarkets, but for an unknown new brand, these channels are difficult to enter and costly. Therefore, Genki Forest initially chose to bypass traditional channels and focus on emerging chain convenience stores—a precise and forward-looking strategy. On one hand, from 2016 to 2018, during the new retail boom, a large amount of capital flowed into chain convenience store companies, driving rapid expansion of existing chains and the birth of numerous new ones—JD Convenience Stores, Suning Xiaodian, Hema, Bianlifeng, and other emerging convenience store companies were established. The market size of China's chain convenience store industry grew rapidly from 98.5 billion yuan in 2014 to 226.4 billion yuan. On the other hand, the customers of these convenience stores are mostly young white-collar workers who pursue quality of life, love trying new things, and are not very price-sensitive—highly overlapping with Genki Forest's target audience. In 2019 and 2020, through online marketing and strong offline placement focused on convenience stores, Genki Forest's soda sparkling water was elevated to a pedestal. Public data shows that during the '618' shopping festivals in 2019 and 2020, Genki Forest achieved the No.1 sales ranking in Tmall's beverage category. In 2020, Genki Forest's performance grew approximately 270% year-on-year, with annual sales reaching 3 billion yuan, of which sparkling water accounted for over 70%. Data from the Chinese Academy of Sciences' '2021 China Sugar-Free Beverage Market Trend Insight Report' also shows that Genki Forest, as an emerging brand in the domestic soft drink market, has grown rapidly in recent years. Although it accounted for only 0.4% of the overall beverage market share in 2020, its compound annual growth rate reached 334%. In comparison, Nongfu Spring's compound growth rate was 14%, while Coca-Cola and Pepsi, the two international giants, had compound growth rates of 7% and 2%, respectively. ▲Data source: China International Capital Research Report, CAS '2021 China Sugar-Free Beverage Market Trend Insight Report', Chart: Titanium Media APP ****What is the Methodology for Creating a Soft Drink 'Hit Product'? External observers believe that Genki Forest's successful breakthrough in the crowded soft drink industry is actually a victory of 'internet thinking.' In this year's Yabuli Entrepreneurs Forum speech, Genki Forest founder Tang Binsen also stated that the core of internet thinking is the ultimate pursuit of user experience. Under this cognitive model, Genki Forest's R&D and production methods differ greatly from traditional soft drink brands. Traditional beverage companies typically allocate the most investment to channel fees and packaging design, with the least going to raw material costs. In contrast, Genki Forest invests the most in R&D and raw materials. Take the sweetener 'erythritol' used by Genki Forest, for example. Due to its high cost, raw materials account for nearly 50% of Genki Forest's costs. However, because it offers better taste and lower calories, it ultimately became a key factor in Genki Forest's success. 'Internet users only reward companies with high retention rates and high NPS (Net Promoter Score),' Tang Binsen said, drawing on his experience in the internet sector. This has become Genki Forest's product philosophy. Tang Binsen was once an outsider in the beverage industry. But his cross-over from the gaming industry brought a set of internet product development methodologies. Ye Suping, former R&D director of Genki Forest, revealed in an interview with the self-media 'Finance Graffiti' that Genki Forest's R&D follows an internet-style rapid trial-and-error approach: conducting beverage taste tests every one or two days and quickly adjusting, with R&D cycles controlled within 3-6 months. The WeChat public account 'Growth Hacker' also reported in related research that, in addition to taste research, Genki Forest conducts e-commerce tests, convenience store tests, and information flow advertising tests. At every stage from product development to large-scale launch, it continuously tests, iterates, and adjusts based on feedback, until finally launching validated soft drink products in a form consumers love. Genki Forest's 'anti-traditional' product methodology has thrown a depth charge into the soft drink industry while also blazing a new path for later entrants to break through. Among them, Qingquan Chushan's sparkling water product Qingting adopted a 'hug Genki Forest's thigh' product-following strategy. In terms of product R&D and design, whether it's the 0 sugar, 0 calorie concept, the Japanese-style fresh packaging style, the bottle shape and size, or even the refreshing taste, Qingting resembles a replica of Genki Forest. Many consumers even mistakenly believe Qingting is a Genki Forest product. ▲Qingting series sparkling water However, in market positioning, Qingting tries to avoid direct competition with Genki Forest, adopting a differentiated channel strategy, mainly targeting lower-tier markets and student populations where Genki Forest's penetration is limited. To this end, in channel construction, Qingquan Chushan strictly follows Coca-Cola's complete solution in supply chain and channels, striving to penetrate every 'capillary' of lower-tier markets, even treating prisons as A+ priority channels for field promotion when expanding to new cities. Community group buying + live-stream e-commerce (Douyin, Kuaishou) + e-commerce (Pinduoduo) channels have become effective ways for Qingting to open up lower-tier markets. Sun Daqiang, co-founder of Qingquan Chushan, told Titanium Media APP that after three months of aggressive marketing on Douyin and Kuaishou this summer, Qingting sparkling water, priced at 9.9 yuan for 6 bottles with free shipping, secured the No.1 position in the relevant Douyin category. In community group buying channels, Qingting's monthly orders also approached 5 million. But more new brands hope to find new differentiated growth points under the general trend of sugar-free sparkling water. Starting from the needs of segmented consumer groups, bypassing traditional channels, and launching super single products to capture the minds of young people have become a universal logic for new products. For example, the new-style herbal juice sparkling water brand 'Haowangshui' chose to enter from B-end dining scenarios, addressing the need for drinks that relieve spiciness and greasiness in restaurants, launching products like 'Wang Shan Zha' and 'Wang Tao Hua.' Data shows that in 2020, Haowangshui's transaction volume reached 120 million yuan, with revenue exceeding 50 million yuan. The health beverage new brand Bestinme focuses on 'fashion and health,' adding dietary fiber, prebiotics, vitamin C, and other nutrients, targeting weight-loss and fitness groups. In terms of channels, it primarily uses CVS new retail vending machines, supplemented by KA and special channels, and announced earlier this year that it has covered over 100,000 offline terminals.

The Next Battleground for Soft Drinks: Functionality and 0 Preservatives

After Genki Forest stirred up waves in the soft drink industry, it single-handedly brought the entire sparkling water category onto the fast track. While new brands emerged, giants like Nongfu Spring, Wahaha, and Uni-President couldn't sit still and joined the fray. Against the backdrop where 'health' has become the mainstream consumer concept and '0 sugar, 0 fat, 0 calories' has become standard for new sparkling water products, how to differentiate has become a new challenge for soft drink brands. Thus, on the basis of sugar-free sparkling water, adding specific ingredients to achieve certain functional effects has become a way for new products to differentiate and compete for segmented consumers. Sparkling water brands have begun to innovate in various ways, with 'lactic acid bacteria sparkling water,' 'hyaluronic acid sparkling water,' and other 'cross-over' products becoming trends. 'Everything can be sparkling water':

  • Mengniu launched 'Ru Ci Qi Zhi' lactic acid bacteria sparkling water and 'Youyi C Huohuo Jun,' focusing on the concept of lactic acid bacteria for gut health.
  • Wahaha and Hankou Erchang each launched hyaluronic acid sparkling water, integrating hydration and skin care into daily life.
  • VOSS launched protein peptide sparkling water, positioned as high-end functional sparkling water, focusing on antioxidant properties.
  • Heytea launched Hey Bottle sea salt grapefruit sparkling water, focusing on vitamin fortification.
  • Wahaha's KellyOne launched 'Angry Bobo' soda sparkling water, adding water-soluble dietary fiber to support gut health. At the same time, 0 preservatives has become another battleground for sparkling water players under the health consumption trend. Typically, producing sparkling products uses ordinary carbonated beverage production lines, which require preservatives to inhibit microorganisms. Potassium sorbate, which effectively inhibits mold, aerobic bacteria, and yeast activity with low toxicity, has become one of the commonly used preservatives in beverages. However, a few soft drink products have already established '0 preservative' production standards. For example, Genki Forest's sugar-free sparkling water and Ran Tea, Laoshan's sugar-free sparkling water, and Nongfu Spring's sugar-free sparkling water launched in April this year—which has been in the fiercest competition with Genki Forest—'0 potassium sorbate' is its core selling point beyond '0 sugar.' ▲Nongfu Spring soda sparkling water, Image source: @Visual China But to produce without preservatives, one must have a costly Log6-level aseptic filling production line. It is reported that there are fewer than 30 such production lines globally. Currently, Nongfu Spring's 14 Log6 aseptic beverage production lines are its core technological advantage in the industrial chain. However, Genki Forest, which began deploying its own factories in 2019, officially announced its 'Three Zeros' factory strategy—'0 carbon, 0 pollution, 0 preservatives'—in October this year. It is reported that Genki Forest has already put into operation 8 aseptic carbonated beverage production lines at the Log6 microbial control level, with plans to increase to 24 lines next year. From new brand breakthroughs to giants entering the fray, this year has seen a proliferation of various sugar-free sparkling water brands and products across the country. While the sparkling water market advances rapidly, it has also made this segment the largest incremental market in the soft drink industry in recent years. As Sun Daqiang, co-founder of Qingquan Chushan, said in an interview with Titanium Media APP, 'Competition among beverages has no high technical barriers; in the long run, it's about jointly expanding the track.' The Chinese Academy of Sciences' '2021 China Sugar-Free Beverage Market Trend Insight Report' shows that the domestic sugar-free beverage market reached 11.78 billion yuan in 2020, a seven-fold increase from 2014. By 2025, the market is expected to grow to 22.74 billion yuan, doubling in size within five years. Among this, in 2020, the sugar-free carbonated beverage (including sparkling water) market reached 6.69 billion yuan, accounting for half of the sugar-free beverage market. At the same time, soft drink products have always had a life cycle, ranging from 2-3 years for short cycles to 4-5 years for longer ones. However, the current abundance of participants in the track has extended the life cycle of the sparkling water segment, which represents a huge opportunity for all players in the soft drink industry. References: 1. Fast Moving Consumer Goods: Sniping at Genki Forest, Nongfu Spring is the only 'wolf-like' enterprise in FMCG 2. Fast Moving Consumer Goods: In-depth | Six months of offline visits, uncovering things you don't know behind Genki Forest's popularity 3. Yicai: Genki Forest to place 80,000 smart freezers next spring 4. Growth Black Box: 12,000-word interpretation of Genki Forest: A game of arbitrage and dimensionality reduction 5. Shen Xiang: Unveiling Genki Forest's success: Precisely calculating popularity, making beverages like an app 6. Huachuang Securities: In-depth report on China's soft drink industry: Seeking progress amid change, a hundred boats racing 7. Dongxing Securities: Food & Beverage: 'Sugar-free' series report (1): The rise of sugar-free beverages 8. Toubao Research Institute: 2019 China Chain Convenience Store Industry Overview Are you 'watching' me?