Genki Forest’s fizzy drinks line the shelves of stores and vending machines in more than 40 countries, from the United States to Japan. The Beijing-based beverage company has experienced a meteoric rise since selling its first drink in 2017, enticing younger Chinese consumers with its flagship “sugar-free, carb-free, and fat-free” peach-flavored water beverage, thanks to the use of erythritol, a popular artificial sweetener that mimics the effect of white sugar, with fewer health detriments.

The firm, officially named Genki Forest Food Technology Group, describes itself as a technology company. Its valuation skyrocketed from USD 2 billion to USD 6 billion in less than a year, thanks to continued financial backing from notable tech investors like Sequoia Capital China, Warburg Pincus, and Temasek.

In 2020, it generated annual sales of RMB 2.9 billion (USD 440 million)—still trailing established players like Nongfu Spring, which made over RMB 24 billion (USD 3.67 billion)—but with enough room to grow in China’s USD 192 billion beverage market.

Genki Forest is not the first startup in China’s food and beverage (F&B) industry to covet a technology label amid ambitions of quick expansion and frequent fundraising. The company claims to be an innovator in manufacturing and R&D. While formidable competitors in the global beverage market like Coca-Cola, Pepsi, and Nestlé all boast sophisticated production and R&D capabilities, they refrain from assuming a tech company’s moniker.

So, where does Genki Forest’s self-designation as a technology company come from, and how might it impact its ambitions?

Genki Forest’s beverages are popular among young urban Chinese, especially those who are health conscious. Source: Genki Forest’s Facebook account.

A founder steeped in the tech world

Genki Forest’s founder is 39-year-old Tang Binsen, a programmer who previously gained notoriety for winning the International Program Design Competition in France when he was 22.

From 2008 to 2020, Tang served as founder and CEO of gaming studio Beijing ELEX Technology. The firm was behind hit games like Clash of Kings, which has grossed around USD 700 million since its launch in 2014. Tang used his success with ELEX to start his own venture capital fund, Challenger Capital, focusing on angel investments. The VC has funded 30 projects in the consumer products space, including Genki Forest.

“The gap in lifestyle between Chinese and Americans is not down to high technology, but consumer products. For example, a product like craft beer, of higher quality than the average substitute, is what improves people’s lives. There are already many excellent craft beer companies in the United States, but China lacks local brands,” Tang said in 2015.

Tang is well-respected in Chinese entrepreneur circles. Kai-fu Lee, chairman and CEO of Sinovation Ventures, once called him the founder with the most potential he’d ever seen. He added that Tang could become the next Pony Ma, Tencent’s founder and CEO.

Upon announcing an undisclosed investment at the end of March, Wei Zhen, co-president of Warburg Pincus Investment China, described Tang as “a rare combination of innovative thinking, entrepreneurial spirit, and strategic clarity.”

Tang’s company has approached consumer brands in a non-traditional fashion, relying on online marketing and sale channels, compared to traditional offline strategies. Genki Forest adeptly leveraged China’s vibrant digital social media marketing channels to build its customer base.

The company also leveraged a fresh approach to manufacturing. Leasing a factory is cheaper than building one from scratch, and Genki Forest embraced this production model in a similar way to other F&B brands like Three Squirrels and Baicaowei. Beyond its most popular flavored water, Genki Forest has rolled out a slew of other products ranging from milk tea to energy drinks.

An evolving production model

Previously, the company relied mainly on China’s largest online shopping festivals, namely Singles’ Day and JD.com’s 618, to power the brand and its popularity. Genki Forest stole the show during these nationwide shopping sprees, ranking first in the beverage category in recent years. The brand partnered with China’s top livestreaming e-commerce hosts like Li Jiaqi, Viya, and Luo Yonghao to build its reputation.

Since making its initial splash in the Chinese beverage market, the company is now pivoting to take greater control over the manufacturing process. In late 2020, Genki Forest began the operation of fully owned production centers in Anhui, Tianjin, and Guangzhou. Once operating at full capacity, these factories expect to produce 850 million drinks annually.

“We hope to continuously reduce the cost of sales and marketing and commit more resources to product development as possible,” Zong Hao, vice president of Genki Forest, told Sina Finance.

The company’s tech bent stems from its internet-centric approach, leveraging e-commerce sales channels and digital marketing methods to tap into young Chinese consumers’ mobile-savvy demographic. The firm also believes that it can iterate quickly to launch new products aligned with consumption trends by constantly gathering and analyzing consumer data and feedback.

While these may be the foundations of a strong go-to-market approach, it doesn’t yet make the company unique to other consumer brands, and hardly merits the full-fledged label of a technology company. Genki Forest did not respond to KrASIA’s request for comment or elaboration on the company’s tech element.

Genki Forest’s products are mainly sold through well-known e-commerce channels in China like Alibaba’s Tmall and JD.com. Source: Genki Forest’s Facebook account.

Proof in the product?

Tang set Genki Forest’s annual sales target for this year at RMB 7.5 billion (USD 1.15 billion). He also said that 95% of the firm’s products had not been released yet, implying the company is sitting on a trove of new beverages to be launched this year. A short product life cycle and frequent new releases are qualities associated with tech startups. Still, Genki Forest’s current trajectory does not indicate that technology is a vital element of its core business.

When it comes to product iteration, Genki Forest is full speed ahead. R&D expenses are expected to triple compared to 2020, as the firm needs to retain its products’ quality and integrity that initially garnered attention from Chinese consumers.

Despite Zong’s desire to reduce sales and marketing expenses, Genki Forest secured naming rights to Bilibili’s 2021 New Year’s Eve Gala in February, in a deal that is estimated to cost RMB 100 million (USD 15.28 million).

Genki Forest’s branding has a particularity: it gives the impression of being a Japanese brand, even using Japanese characters on some of its products’ packages. The word genki also comes from Japanese, meaning “energetic, healthy, and lively.” Presumably, this has helped the firm capture the interest of China’s Generation Z shoppers, who have shown an affinity for Japanese content and products. The partnership with Bilibili, which has Generation Z (those born after 1995) as its major target audience, only highlights this marketing strategy.

Posing as a pseudo-Japanese company has sparked criticism from some consumers who derided this as inauthentic marketing. Genki Forest has a Japanese branch, but according to recruiting information website Doda, the division only has three employees in Japan.

The firm’s aggressive advertising has also caused headaches on other fronts. On April 10, Genki Forest issued an apology for misleading consumers by labeling its milk tea product as having “0 sugar,” instead of “0 sucrose,” after receiving backlash from Chinese netizens that feared the potential health implications for those with diabetes or other underlying conditions. The company recalled the product and offered a compensation of RMB 20 (USD 3.06) for customers that had bought the beverage. Genki then changed the label to “low sugar.”

Despite this recent fallout, it seems that leveraging erythritol as a beverage sweetener and intensive online marketing campaigns are propelling Genki Forest into the upper echelon of consumer brands within China’s F&B industry. They are the only beverage brand in China to use erythritol at scale, as the sweetener is costlier than normal sugar.

Genki Forest has also been ramping up its operations in Southeast Asia, scaling distribution in Singapore, Malaysia, and Thailand through e-commerce platforms like Lazada and Shopee. During Q4 2020, revenue from international sales increased 69% year-on-year, according to Zong. In December 2020, the company also recruited well-known former ByteDance executive Liu Zhen to lead its overseas business.

While Genki Forest’s overseas business relies on online sales with high logistics costs, it aims to have manufacturing operations in international markets within the next two to three years. In more mature markets like the US and Europe, the company faces stiffer competition, along with higher standards and more scrutiny for food safety.

Whether the company can continue to produce lucrative beverage products will depend on the prudence of its expansion and the management of its capital-intensive marketing strategies, with rising R&D expenses straining the company’s bottom line. Yet, it remains to be seen if, and how, Genki Forest could really earn the already self-proclaimed label of a tech company.