In 2021, Tang Binsen, founder of Yuanqi Forest, said in a later interview:
“Last year, we took the initiative to remove a product – fruit tea. I told the team that we sold a little because we had channels. But we couldn’t.”. Tang Binsen explained that Yuanqi Forest has its own definition of good products. Winning through channels cannot replace the pursuit of good products. “This is an era where products are king rather than channels,” Tang Binsen once mentioned.
Two years have passed. On the eve of the Spring Festival, Tang Binsen paid close visits to major distributors. Previously, Yuanqi Forest’s marketing departments and provincial organizations in South, Central, Northeast, and North China also visited dealers intensively. Tang Binsen even said at the dealer conference, “In the long run, relying on dealers to develop our sales network is the right way. The so-called decentralization, this kind of internet thinking, is a poison, and our understanding of this aspect is not deep enough.” Sales volume
From believing in good products to changing the fate of enterprises to channels is the right path. Behind the 180 degree turn in Yuanqi Forest is the anxiety of beverage companies that have made their fortune through the Internet about the decline of channels, but the problem goes far beyond channels.
1、 Sinking channels become shackles
Throughout the success of Yuanqi Forest in front-line channels, the main reason is the early profits.
In 2018, the retail price of a box of Yuanqi Forest Bubble Water was 82.5 yuan, the manufacturer’s purchase price to the dealer was 38 yuan, and the dealer’s purchase price to the terminal was 55 yuan. This means that dealers can earn 17 yuan and terminal store owners can earn 27.5 yuan for each box sold. Tang Binsen once said that Yuanqi Forest “is the brand with the highest gross profit and the largest space in the industry”.
Drinks from the Vigorous Forest
Drinks from the Vigorous Forest
According to Tiger Smell, when Yuanqi Forest rose from 2016 to 2018, its core channel was the CVS channel (convenience store) in high-end cities, and then expanded to the KA channel (hypermarket) in high-end cities. However, the couple’s shops and the county market on the street corner, which do not sell much and have a small purchase budget, were once ignored. At that time, the market sank, and the acceptance of Yuanqi Forest was limited, and dealers did not have much budget for market promotion.
In addition, more importantly, when the sales of Yuanqi Forest were booming in 2019, 2020, and 2021, either a suitable OEM factory was not found, or the supply of brown sugar alcohol was insufficient due to competitive product pressure, resulting in annual shortages for three consecutive years. As a result, the sinking channel becomes more inconspicuous.
However, in 2022, the sinking of channels will gradually become a must for major beverage brands.
In 2022, retail sales in first-tier cities such as Beijing, Shanghai, Guangzhou, and Chengdu decreased by more than 10% year-on-year, while retail sales in modern channels and county-level cities remained flat year-on-year. It is worth noting that retail sales in rural areas across the country have bucked the trend and accounted for 45% of the market share, with the smallest change in total retail sales among all declining cities.
The vitality of the forest has also decreased. The expected revenue of Yuanqi Forest in 2022 is 8-9 billion yuan, compared to 2.9 billion yuan and 7 billion yuan in 2020 and 2021, respectively. The revenue slowdown of Yuanqi Forest is very significant. The growth of online e-commerce channels is approaching saturation, and the growth rate in Beijing, Shanghai, Guangzhou, Shenzhen, and first-tier cities is slowing down. Yuanqi Forest is bound to enter the sinking market.
According to data, traditional grocery stores and supermarkets account for 37.7% and 34.4% of China’s sales channels, respectively. After all, in terms of channel distribution, traditional grocery stores and supermarkets occupy most of the retail market in China. The former are mostly husband and wife stores, concentrated in the sunken county. The scale of China’s sinking market is as high as 15.1 trillion yuan, accounting for 79.2% of the total retail market in China.
Compared with Nongfu Shanquan and Master Kang, the gap in the sink channel of Yuanqi Forest is very obvious. At present, Yuanqi Forest has more than 1000 dealers; Nongfu Spring has more than 4454 dealers; Master Kang has 36837 dealers. Further exploration will reveal that the biggest problem of Yuanqi Forest is not only the difference in the number of channels with competing products, but also the distribution of dealers.
At present, Nongfu Spring has covered 2.43 million terminal retail outlets nationwide, of which 1.88 million are located in third-tier and lower-tier cities. To this end, the strategy of Yuanqi Forest is to deploy smart freezers in the third and fourth tier cities. This measure has actually increased the market share and sales of Yuanqi Forest.
However, in 2021, Nongfu Mountain Spring launched an activity called “God of Wealth” in some regions: dealers can display a bottle of bubbly water from Nongfu Mountain Spring in the ice cabinet of Yuanqi Forest, and then obtain a bottle of Changbai mineral water for a free price of 3 yuan through the terminal, with a maximum price of 48 bottles. At the end of last year, Zhong Rong, Chairman of Nongfu Shanquan, announced that he would invest 2 billion yuan to promote the application of four or three smart freezers in terminals. Currently, he has placed orders for more than 30000 smart freezers with smart freezers manufacturers.
Interestingly, in an interview in 2021, the reporter asked, what are the things that Farmer Shanquan can do but you can’t do? Tang Binsen’s answer is: We develop our own smart freezer, which can remind the salesperson to make up when they are out of stock, instead of going to the site for inspection. The farmer didn’t do this.
According to titanium media reports, in 2022, the retail sales of Yuanqi Forest Bubble Water in the sinking market of county-level city-county city-rural areas increased by 32% year on year, and the number of monthly outlets in this type of market increased by more than 35% year on year. It can be said that Yuanqi Forest’s investment in the sinking market in 2022 has gradually seen a return.
However, as Li Guoxun, Vice President of Yuanqi Forest, said, “By 2022, the number of offline terminals in Yuanqi Forest will reach 1 million, which is only the first step. In contrast, the number of other traditional consumer terminal enterprises in China is 5 to 6 times that of Yuanqi Forest, which also means that there is still great room for development of Yuanqi Forest’s channels.”
In order to further open up the sink channel, before the end of the 2023 Spring Festival, Tang Binsen began to visit dealers frequently. However, in order to truly open up the sinking channel, the key also includes the cost-effective competition of the sinking channel.
2、 There is no shortage of “bubble water” in the freezer in the small county town
According to enterprise survey data, there are 2040 bubble water related enterprises in China, and the number of new registrations each year in recent years has maintained at over 100. This means that the barrier of Yuanqi Forest in the field of bubble water is not high, and there is no shortage of cheap bubble water in the sinking market.
In the range of 2-5 yuan, there are many bubble water options for consumers to choose from. For example, Pepsi Cola sparkling water, Nongfu Mountain Spring soda sparkling water, Wahaha’s “Angry Wave” sparkling water, and so on, are all lower than Yuanqi Forest. In addition to the established giants, there are more rising stars also targeting the bubble water market. The first is Qingquan, who was born in Yuanqi Forest. Both of its founders are the top 5 employees of Yuanqi Forest. Qingquan’s core product, Qingting Bubble Water, also focuses on the zero sugar concept, as the founder Sun Zhiqiang once said.
“On the premise of ensuring product quality, we achieved a price of two fifths of bubble water. In addition to two fifths of a single bottle, we also made a combination of six bottles and one bottle. Therefore, in the last year, after the new product was launched, the sales volume exceeded 100 million bottles in the shortest time.”
According to the interface news report, in the second half of 2021, the market share of Yuanqi Forest Bubble Water will drop to about 50%! Ha! The small universe market accounts for 25%, and the Nongfu Mountain Spring Bubble Water market accounts for about 18%. Although Yuanqi Forest still accounts for 50% of the total market share, it has decreased by about 35% compared to 85% in 2019. The bubble water market created by Yuanqi Forest is being nibbled by many brands such as Nongfu Shanquan and Wahaha.
Nongfu Mountain Spring Bubble Water
Nongfu Mountain Spring Bubble Water
What is more noteworthy is that the economy is declining, and consumption in offline cities is beginning to deteriorate. At the end of last year, the People’s Bank of China released three regular questionnaires for bankers, entrepreneurs, and urban depositors in the fourth quarter. The results showed that 61.8% of residents tended to “save more” in terms of consumption, savings, and investment willingness, an increase of 3.7 percentage points compared to the previous quarter. Against this background, it is difficult for small county towns to match the income of bubble water above 6 yuan.
In an interview, Ye Suping, the former research and development director of Yuanqi Forest, said that the target user group of Yuanqi Forest is consumers aged 15-35 living in large and medium-sized cities. These users are not sensitive to product prices. Zong Hao, founder and vice president of Yuanqi Forest, also said that young people do not look at the price when buying drinks in convenience stores. They only choose the products they want and like most, then pick them up and pay for them.
But now, if you want to go deep into the market, cost-effectiveness becomes the king’s way. What’s more embarrassing is that even if the price of Yuanqi Forest is lowered, the sales volume is not optimistic. Taking “mineral” as an example, Yuanqi Forest once placed high hopes on this high-end mineral water. It was reported that the water search team of Yuanqi Forest screened from 200 water sources and personally visited 48 high-quality water sources, only 5 of which met the standard of mineral.
Such harsh water standards also led to a high price of 5 yuan per bottle. After a small batch of tests, Yuanqi Forest lowered the price of mineral resources to 3 yuan per bottle. However, this adjustment has failed to make the sales myth of the mineral replica bubble water. According to 36 Krypton, in the view of a dealer, “the reason why the mineral is not easy to sell is not the high price, but the lack of market awareness”.
The so-called market awareness, on the one hand, is that the market structure of bottled water in China is basically stable, with the top six companies accounting for over 80% of the market share, and Nongfu Shanquan accounting for 26.5%; Ipoh 21.3%; Master Kang 10.1%; Wahaha 9.9%; Baisui Mountain 7.4%; Ice Dew 5.3%. As a latecomer, Yuanqi Forest is difficult to shake its position as a giant.
On the other hand, Yuanqi Forest launched a large number of marketing in social media such as Xiaohongshu, WeChat and Tiktok, and improved brand awareness and variety show through KOC, KOL, star promotion, cross-border co branding, live broadcast, naming and other ways. However, offline consumers, especially those who have sunk into the market, have low awareness of their brands.
In general, compared to competitors, the Internet has successfully passed the brand’s cold start period and rapidly expanded the brand scale. However, in a sinking market that is more sensitive to price, Yuanqilin, surrounded by low prices from many beverage manufacturers, still has more lessons to learn. After nearly two years of channel war, the official positioning of Yuanqi Forest has changed from “Internet plus beverage company” to “Chinese catering enterprise”.
3、 Yuanqi Forest has to pay a lot of tuition fees
In 2022, Wang Lie wrote in a letter from Procter&Gamble’s “old cannon” to Yuanqi Forest: “The problem of aggressive sales targets is not the sales targets themselves, let alone the coordination of production capacity and raw materials. The real big problem is the confusion of sales organization and the loss of control of channels caused by this.” Tang Binsen commented on this after seeing it, “That’s right, thank you”.
Perhaps Tang Binsen was really inspired. In that year, Yuanqi Forest adjusted its sales target from 10 billion to 7 billion. Turning around, returning to the dynamic forest of traditional corporate thinking, and ultimately competing with traditional brands such as Nongfu Shanquan in the most traditional way. However, before opening up, there are still some internal issues that need to be addressed.
The problem of production capacity was once the sword of Damocles hanging over the top of the forest of vitality. Li Bingqian, general manager of Yuanqi Forest Production Center, revealed that under the pressure of international giants, Yuanqi Forest had suffered from supplier supply cuts for many times from 2018 to 2020. In 2021, Yuanqi Forest lost more than one billion yuan in the peak season of beverage sales due to the suspension of production and supply.
In order to solve this problem thoroughly, Yuanqi Forest began to invest 5.5 billion yuan to build its own factory in 2019.
Within two years, Yuanqi Forest has basically completed the layout of its own factories, forming a production capacity pattern in East China, South China, West China, North China, and Central China, covering key market deltas such as Beijing, Tianjin, Hebei, and the Yangtze River, the Pearl River Delta, Guangdong, Hong Kong, Macao, the Greater Bay Area, Southwest Sichuan, and Central South China, with significant improvement in delivery capacity. After all the self-built factories are put into production, the annual production capacity of Yuanqi Forest will exceed 5 billion bottles.
In an internal letter earlier this year, Tang Binsen also mentioned building his own factory. “If it hadn’t been driven by the pressure of being crushed by giants in the past few years, we wouldn’t have had our own factory layout so quickly. Then in 2022, we might not be able to cope with the sudden increase in the market’s demand for extraterrestrial electrolyte water. This growth was completely unexpected and unexpected. If it had been three years ago, I wouldn’t have imagined it.”
Yuanqi Forest Drink
Yuanqi Forest Drink
Self built factories not only solve the production capacity problem, but also make Yuanqi Forest more competitive in products.
Sugar free bubble water has been independently approved for the removal of chemical preservatives (potassium sorbate and sodium benzoate) in Yuanqi Forest since 2018. However, to achieve zero corrosion prevention, sterile production lines need to be used throughout the process, and the cost is more than twice that of ordinary production lines. “We want to shorten the ingredient list and make bubble water without preservatives, but domestic factories cannot do it and can only do it themselves. Currently, Yuanqi Forest’s own factory has 23 PET sterile filling lines, of which 19 are PET sterile carbonation dual-use lines, covering the full capacity of bubble water.”.
The Yuanqi Forest, which has solved the production capacity problem, still needs to find the second growth curve as soon as possible. After all, on the bubble water, the moat of the Yuanqi Forest is not high, and its performance occasionally fails.
In fact, in 2022, Yuanqi Forest had this kind of problem on the “cherry white air bubble”. In March 2022, the unsalable news of “Cherry Blossom White Air Soaking in Water” spread across the country. Even though the dealers cleared the warehouse with large quantity and high price, it still took half a year to clean up. Returning to the node that needs to prepare inventory for the boom season in May and June this year, how should Yuanqi Forest deal with the sales of products.
In an interview, Ye Suping, the former research and development director of Yuanqi Forest, mentioned that the research and development of Yuanqi Forest is taking the path of rapid trial and error. The internal taste test is conducted on average once a day or two days. The research and development cycle is controlled within 3-6 months, and the product can be produced in 3 months soon. The research and development time of traditional beverage enterprises is about one year. In contrast, the vigorous forest created on the Internet is almost a blow in terms of research and development speed.
From the market perspective, before and after its launch, Yuanqi Forest did launch tea, energy drinks, juice drinks, electrolyte drinks, energy drinks, yogurt drinks, and other categories, but there was almost no soda equivalent to sparkling water. Milk tea and roasted tea are the main products of Yuanqi Forest after soaking in water, but their sales are not ideal.
Now when it comes to bubble water, consumers may not think of Yuanqi Forest, but when it comes to Yuanqi Forest, many people’s first reaction is bubble water. Last year, the overseas electrolysis water unexpectedly went out of business, with the highest monthly sales exceeding 190 million yuan and annual sales of 1.27 billion yuan. However, compared to the once popular bubble water, it can only be said that it is still inadequate.
Tang Binsen once said that he wanted to make a good drink worthy of the hard working Chinese people, just as the United States has Coca-Cola and Switzerland has Nestle
In 2021, Tang Binsen, founder of Yuanqi Forest, said in a later interview: