12,000 words to explain Yuanqi Forest's brand marketing

In the process of communicating with beverage industry experts, we observed a set of interesting perspectives:

• Giant beverage brands are very curious about the rise of the new species Yuanqi Forest : Giant beverage brands have a solid channel layout and extreme product cost control, so why can a startup company with a gaming background make it in the beverage industry?
• At the same time, we listened to the sharing of the operator of Yuanqi Forest: Although Yuanqi Forest is still small, it has a big vision and directly targets Coca-Cola; but at the same time, it is not very satisfied with Coca-Cola's current practices and talked about a lot of completely different values.

This also aroused our curiosity. In order to find out the truth, we spent two months reading hundreds of public documents, interviewing many industry experts, analyzing millions of sales data, and lurking in the community.

We observed some unique features of Yuanqi Forest:

• Yuanqi Forest's products are almost all new arrangements of old elements, and almost every product can be found to have a creative prototype that it borrowed from;
• As a new brand, Yuanqi Forest dares to set high prices and invest in expensive raw materials: the raw material cost of each bottle of Yuanqi Forest sparkling water is 1 yuan, which is much higher than that of traditional giants, because the sugar substitute "erythritol" used is relatively expensive;
• Yuanqi Forest's SKU R&D speed and scale are several times that of its peers, but only 5% of its SKUs are on the market;
• Beverages are a B2B industry, and only 5% of peer companies have direct sales channels, but Yuanqi Forest's direct sales ratio is as high as 22%;
• As soon as Yuanqi Forest’s main product was launched, it began to invest in brands in other categories.

In order to explain the above different characteristics in detail, Growth Black Box will share with you our research results on Yuanqi Forest from the following 6 aspects:

1. Why can a gaming veteran cross over to make beverages?
2. Uncovering the “arbitrage thinking” of hot products
3. Data-driven new product testing
4. User-centered “subsidy model”
5. Flat channel management
6. Build DTC channels with private domains

The following text will involve some of the thinking logic of the founder of Yuanqi Forest. The Growth Black Box is only cited as an objective and neutral argument without any evaluation. You can just pick some ideas that you think can be reused!

1. The past and present of Yuanqi Forest

I believe everyone has heard that Tang Binsen, the founder of Yuanqi Forest, has been engaged in the Internet and gaming industry. The resources and experience he has are completely irrelevant. Why is he able to start a beverage brand from scratch?

We found that before founding Yuanqi Forest, Tang Binsen already had a deep understanding of the consumer retail industry and even had experience in operating soft drink companies. It can be said that he came well prepared.

In 2014, after selling his gaming company, he immediately founded a VC firm: Challenger Capital, which has raised $8 billion to date.

A closer look at the bids he made reveals that in addition to supporting his old employees in starting game businesses, Tang Binsen is more focused on the consumer retail track. Challenger Capital invested in companies like Ramen Say and Panda Craft Beer very early on - including many wine and beverage brands, such as the recently popular Guanyun Baijiu.

To invest in a company, one must inevitably research the industry and hundreds of targets, and also have the opportunity to deeply participate in the operations of the invested company, which is an excellent way to accumulate experience. Then, digging further along this line, we found even more shocking information: Tang Binsen actually invested in a company that is very similar to Yuanqi Forest, which started operations as early as 2015.

In Challenger Capital's portfolio, we can see a beverage company called "Youxuan Guben", whose business model and positioning for the post-90s and post-95s people are exactly the same as Yuanqi Forest.

(Image source: company business card, compiled from public information)

Let’s take a look at its flagship product “Add a Little”. Its “three-no” concept of “rejecting high sugar, rejecting high calories, and rejecting increased fat” is highly similar to Yuanqi Forest’s current selling point positioning of “0 sugar, 0 calories, 0 fat”.

If the above two points are just coincidences, then the following information can fully confirm them: from the equity structure, we can see that Tang Binsen’s wife Xu Xiao was actually arranged to be a shareholder of this company, holding 6% of the shares. This is unprecedented in Challenger Capital's historical record. The time when this brand disappeared from the market was when Yuanqi Forest was established.

(Information source: Business card)

In other words, Tang Binsen is very serious about making beverages and actually understands this industry. Of course, in addition to experience, another necessary condition is money.

Unlike other fast-moving consumer goods, the beverage industry has a very high market concentration, with major giants occupying the market. Therefore, if you want to build a well-known brand, you need a lot of marketing investment, such as:

• Carbonated beverages are dominated by two international brands, Coca-Cola and Pepsi, accounting for 59.5% and 32.7% respectively;
• Among tea beverages, Master Kong and Uni-President account for 60%.

In addition, the beverage industry is essentially a B2B business and is highly dependent on the distribution system. For this kind of instant and impulse-based consumption products, people mainly buy them offline, and the online proportion generally accounts for only 4% of the market. Therefore, you need to pay a large amount of channel fees to put the product on the shelves of various retail terminals. For convenience stores like FamilyMart, the cost of listing products is outrageously high.

Recruiting talents and building channels and sales systems from scratch cannot save money: Yuanqi Forest poached many top experts from giants in the early days.

Tang Binsen had already achieved brilliant results and had never been short of money. Thirteen years ago, after graduating from Beihang University, he founded Zhixingtong, focusing on the gaming field, and with the support of the campus network, he created the popular "Happy Farm" at that time. Afterwards, he quickly posted this game on Facebook, and it became popular all over the world in an instant.

Following the pace of making the first pot of gold, Elite Mobile successively developed navigation websites, anti-virus software, the mobile game "Clash of Kings", etc., all of which became popular products overseas that year. After selling the company for 2.6 billion in 2014, he achieved complete financial freedom at the age of 32.

Although all the conditions were met, it is difficult to speculate why Boss Tang came up with the idea of ​​making beverages. Rumor has it that he saw that his colleagues were working very hard, so he drank beverages every day, such as Coke and Red Bull, and he also had a high demand for sugar-free drinks. Therefore, he came up with the idea of ​​"cross-border" and immediately began to recruit a team to do it.

2. “Arbitrage Thinking” to Discover Hot Products

We have asked many experts a question: What is the core driving force behind Yuanqi Forest’s growth?

And the answer is always highly similar: the product is well made. Our research conclusion may disappoint everyone: Yuanqi Forest does not have any "one-trick" strategy to create a hit product.

Because in the beverage industry, the emergence of a hit product is a combination of many factors such as marketing, channels, pricing, timing, etc. There is no fixed "hit product formula", and everyone figures it out slowly through trial and error - whether it is a giant or a new brand, they are relatively equal in this regard.

Yuanqi Forest has accelerated the "trial" process through process optimization and innovation, greatly increasing the probability of a hit product appearing. From the birth of product ideas, to market feedback testing, to investment in product quality, Yuanqi Forest has brought in a strong Internet thinking.

Let’s start with the product idea: We believe that Yuanqi Forest’s most critical product strategy is geographic arbitrage[1].

“The world has never been and will never be able to achieve the so-called ‘flat state’, and the so-called successful businessmen are the ones who can first take advantage of the information gap to seek benefits.”

The person who first proposed this theory was Alexander Tamas, a partner of DST Global, a well-known Russian investment institution. Over the past decade, DST has mastered its application. It first invested in Facebook in the United States, and then turned its attention to looking for alternatives in areas where the Internet is underdeveloped. In the early days, it invested heavily in Internet giants such as JD.com, Alibaba, and Xiaomi, and also discovered unicorns in Russia, Brazil and other places.

Interestingly, DST was the investor in Happy Farm’s old overseas rival Zynga.

In an interview with media person Lan Xi in 2015, Tang Binsen expressed great admiration for this theory: as long as a product can be successful in one market, it means that it has the potential to be promoted to other markets, and the cultural and habit differences that people usually worry about will not cause decisive obstacles. [2]

Looking back at Tang Binsen’s early experience in running an Internet company, we can find that whether it was the previously successful navigation site, free anti-virus software or mobile games, they all brought China’s mature traffic model to areas where the Internet is underdeveloped. For a long time, half of Elextron's revenue came from countries such as Russia and Brazil, where one in every ten people uses Elextron's products.

Of course, this style of play from 13 years ago is still being copied today. For example, Tang Binsen just founded Challenger Capital in 2015, and the Tiger Brokers he invested in brought the mature business model of the American company eToro to China. And now, Tiger Brokers is also listed on the U.S. stock market. [3]

Now let’s get back to Yuanqi Forest. This kind of arbitrage is to bring the mature and successful fast-moving consumer goods concept from developed countries to China and do it again. According to historical records, the logic behind DST is to use GDP and Internet penetration rate to determine whether a mature Internet business model can be moved to another country and what growth potential it has.

If applied to the consumer goods sector, the scale of the beverage industry determines its potential, and the penetration rate of the category determines its growth space. In areas such as sugar-free tea and sugar-free carbonated drinks, Japan and other countries are clearly at the forefront. According to CICC’s estimates, the penetration rate of sugar-free tea in Japan’s tea beverages will even reach over 80% in 2019.

There is no doubt that the extremely developed Japanese consumer market is full of arbitrage opportunities. Before Yuanqi Forest's sugar-free tea product, Burning Tea, was launched on the market, the Japanese market already had sugar-free tea drinks such as Suntory's sugar-free oolong tea and Ito En's sugar-free green tea; and Yuanqi Forest's milk tea may also be inspired by Ito En's milk tea in the Japanese market.

One of the big factors is that many product concepts of foreign giants have not been launched in China, but sell very well in their own countries, or have entered the Chinese market but have not become popular.

As the American advertising master James Weber﹒ Yang said: Creativity is a new combination of old elements.

Of course, building a unique brand requires more than just portability. This brings us to the second arbitrage theory based on brand positioning: in fact, the "pseudo-Japanese" style is intentional.

In 2017, Luo Zhenyu invited Tang Binsen to get internal training. He strongly recommended the book "Positioning" and proposed his own "neural network" theory: using the human mind for arbitrage. [4]

He gave an example: "When the word 'Japan' is mentioned, the neural network will make us think of 'quality' and 'MUJI', a Japanese brand famous for its 'quality'. 'MINISO' is deliberately connected to 'MUJI', making you subconsciously think that 'MINISO' is related to 'MUJI' and the keyword 'quality' of 'MUJI'."

There are two key points:

1. Find the blank spots in consumers’ minds and connect with them
2. This blank spot must have value

It can be found that all of Yuanqi Forest’s current products are centered around 0 sugar, sugar-free, or no added sucrose. Under the brand positioning of "sugar-free specialist", the tones of all products are in line with it. Such consistency will also help Yuanqi Forest focus on the category of sugar-free beverages and focus on the core target group that cares about health.

In the market at that time, this was not just a "blank" but also met the "value" requirement.

(Information source: Kuiyan Brand Consulting, Growth Black Box)

3. Data-driven new product testing

No matter how brilliant the idea is, if it cannot be verified by the market, it will be nothing but a pile of waste. The next step is product testing, which is the most critical link.

Jiang Nanchun, chairman of Focus Media, once publicly mentioned that Yuanqi Forest tested dozens of ideas in the early years before deciding on the product of Ran Tea, and more than 100 kinds of sparkling water were tested, which took a total of more than a year. [5]

Why is Yuanqi Forest able to test new products so efficiently? Let’s first look at a method commonly used by traditional consumer goods companies: focus group discussion (FGD).

It carefully selects 6-8 people from the target market to be studied to form a focus group. A well-trained moderator talks to the respondents in the group in a natural way, asks them to fill out questionnaires, etc., so as to obtain the respondents' views on the products and brands. Focus groups are usually conducted in conference rooms equipped with single-lens cameras and listening devices, and participants are unaware that they are being monitored.

It has been used in the fast-moving consumer goods industry for decades and is naturally a proven scientific method. But there are two problems:

1. The price is expensive. If you entrust it to a leading consulting company such as Nielsen, the price will be hundreds of thousands.
2. The cycle is long and it is very time-consuming to recruit the right target population. It takes 2-3 months to execute a project.

Therefore, with all the traditional company's practices, plus various cumbersome approval processes, it may take a year to develop a new model.

But according to Ye Suping, the former R&D director of Yuanqi Forest, Yuanqi Forest's R&D follows a rapid trial and error approach. Taking taste as an example, we conduct beverage taste tests internally every one or two days on average, and then make quick adjustments. The entire R&D cycle is controlled within 3-6 months, and in the fastest case, a product can be released in 3 months. [6]

Because Yuanqi Forest once again used the Internet's strategy to carry out "dimensionality reduction attack", and moved the set of methods used in game product development to beverage product testing, using first-hand data to speak, with low cost and high speed.

In the Internet industry, you must have heard of the terms "A/B test" or "multivariant test": that is, prepare N versions of a product interface or process, and let target groups with similar components randomly access these versions in the same time dimension, collect user experience data and business data from each group, and finally analyze and evaluate the best version and officially adopt it.

In other words, you can design several versions of the ad banner, use a small amount of budget to try out which one has a higher click-through rate, and finally decide which one to use; you can also select a small number of users to test whether the button color in the app is red or green.

This is a very mature methodology both at home and abroad. For example, Facebook has 10,000 tests running at all times, just to improve product data by even 1%.

Yuanqi Forest actually uses this idea to test packaging, selling points, concepts, etc. We learned that Yuanqi Forest has an "inventory" reserve of hundreds of SKUs, and is constantly testing and comparing them. Once verified, it can be put into large-scale production and promotion at any time. In Tang Binsen’s own words, “95% of the products have not been launched this year.”

However, this data-driven testing method was not achieved overnight. It was actually developed slowly and has been iterating and changing over time. Currently, several sets of tests are run at the same time. From a chronological perspective, it can be roughly divided into the following stages:

1. Taste test

At the beginning, there seemed to be no rules or methods, and the purpose was just to be fast. Find experts to do the packaging design and formula development (for example, Ran Tea found a R&D center in Japan). After a new beverage comes out, let the sales staff drink it first. If everyone thinks it is ok, then it will be distributed.

But later I found that this was not reliable. After all, there is a difference between sales and real consumers. So we carried out the first iteration, giving the product to students on university campuses (born in the 1990s and 1995s) for the first round of internal testing.

2. E-commerce testing

Obviously, online testing can provide more accurate data. Yuanqi Forest will first sell products that have passed preliminary verification on e-commerce platforms, mainly Tmall flagship store and JD.com. It will use backend data indicators to determine whether a new product has reached the scale standards before rolling it out through offline channels.

This method is of course still used today. For example, I believe that you have never seen the following product in supermarkets before, but the Tmall store has sales of nearly 20,000 boxes per month. It is because it is still in the testing phase and the data does not seem to meet the standards, so it is not distributed offline.

3. Convenience store test

Since offline is the main scenario for beverage sales, consumers’ real behavior in stores is what should be tested the most.

In order to solve the problem of difficulty in obtaining offline data, Yuanqi Forest used a very direct method: placing new models next to competing products, and then using manual monitoring or camera recording to record consumers' shopping behavior. By judging data such as head-up rate, it can be clearly reflected whether a new product will be popular with consumers.

Of course, in order to make the products more relevant to their target audience, convenience stores became the best choice – for example, Yuanqi Forest was first tested in Convenience Bee.

4. Information flow delivery test

Our latest discovery is that Yuanqi Forest will test the selling points of its products by placing information flow advertisements on Toutiao.

For example, Yuanqi Forest has put out multiple materials for a soy milk that may be released in the future, highlighting different selling points such as "high protein and high calcium", "double protein", "no added sucrose and low fat", "low sugar and low fat", etc. After clicking, it will jump to the homepage of the Tmall flagship store, and there is no real soy milk product on sale.

When the target audience is basically the same, by counting the number of people who click on different selling points to enter the flagship store, we can see which description consumers are more receptive to. Testing in this way obviously has richer data dimensions and lower costs.

5. DTC channel testing

Both questionnaire surveys and food tastings are commonly used testing methods. But using traditional methods, a major challenge is recruiting the right people to participate in the survey. Therefore, Yuanqi Forest started operating on WeChat private domain in 2020. Its main purpose was to conduct testing activities at low cost and high efficiency, and it was named the "Experience Officer" activity.

For example, Yuanqi Forest will launch new product review activities in the "Yuanqi Member Store" (formerly known as "Yuanqi Research Institute") mini program. Most of the users who are active in the Yuanqi Forest mini program are loyal users. They will actively apply for a trial, and after winning the lottery, they only need to pay the shipping fee to get the product. After users receive the product, Yuanqi Forest’s product assistant will guide everyone to fill out the questionnaire in a special tasting exchange group.

According to observations, the products that have been tested so far mainly include: "0-calorie sugar" made with erythritol which can replace white sugar, low-fat "chicken breast sausage", Beihai Ranch's new product "Gem Cup Yogurt", "Popping Bead Yogurt", and alien functional drinks, etc.

Recently, Yuanqi Forest has also been trying to use big data tools to analyze feedback content to dig deeper insights.

Then why can Yuanqi Forest’s Internet genes be continued, while it is difficult for traditional giants to do so?

The most important point is: this paradigm is so new that it is difficult to form a consensus model or experience. Traditional companies have been using methods for decades, which are undoubtedly time-tested and have produced effective results. Today we need to apply a completely different logic, which is actually not that convincing - stable income has the highest priority.

For example, why it is difficult for people working in finance to accept Bitcoin is because this market is so new that hundreds of years of experience in the stock market are difficult to apply.

The second point: the flexibility of the organizational structure. In the early days, the number of people in the Yuanqi Forest product department once reached 10% of the entire company. By 2020, there were still more than 50 product R&D personnel in the company.

They explore and design various product concepts and conduct tests every day, and have a high level of resource authority to mobilize. Moreover, product development is done in groups, following the "horse racing mechanism" commonly seen in game companies, which constantly stimulates creativity through competition.

In contrast, in traditional companies, most of the R&D work is outsourced. From product packaging to brand planning, all work is done by professional agencies, and product managers are often the commanders of a few people.

The advantage of this is that a small number of people can control a large business, the company can control the top of the value chain, and pursue the ultimate scale effect. Obviously, if mercenaries are sent into battle, the chances of winning may be improved, but it is difficult for one to have a special forces unit.

4. User-centered “subsidy model”

If a beverage product is well made, then there is one essential issue that cannot be avoided: taste. Take Yuanqi Forest’s flagship product, sparkling water, for example. It seems to have solved the problems of the entire industry. Why?

Sugar-free healthy drinks are not uncommon at all. Coca-Cola launched a sugar-free version in 1982, and Pepsi was 18 years ahead of it. But to this day, almost all major manufacturers' sugar-free carbonated beverages use artificial sweeteners such as aspartame and acesulfame potassium, which causes the problem of difficult to meet consumers' taste demands.

Because in principle, the closer the sweetness of the sugar substitute is to sucrose, the more natural it feels, and the better the so-called "taste" will be - but aspartame is 150 to 250 times sweeter than sucrose, making it difficult to mix a natural taste, and it also contains calories (not 0 calories).

However, Yuanqi Forest successfully solved the taste problem by using erythritol: because its sweetness is only 60%-80% of sucrose, it is very easy to restore natural sucrose. What’s more, erythritol is also virtually calorie-free.

According to the patent description of sparkling water, Yuanqi Forest first found through testing that the best taste of beverages is 7-8% sucrose concentration, and then restored it through the ratio of erythritol + sucralose.

(Source: Tianyancha)

So, erythritol was invented in the 19th century and was industrially produced in China 15 years ago. Why don’t beverage giants use it?

The answer may be simple: cost. We calculated through public market data that the cost of using erythritol is 100 times higher than aspartame. This brings up the inertia and inventory burden of the traditional beverage industry: centered on profit and scale rather than users.

Beverages are actually a "highly profitable" business. Its biggest moat does not lie in the product itself, but in the high gross profit margins brought about by the business model.

For example, Coca-Cola has a gross profit margin of over 60% all year round. Nongfu Spring, which just went public, has a gross profit margin of 55%. Dongpeng Special Drink, which recently submitted its prospectus, also has a gross profit margin of nearly 50%. Infinitely expanding this high-profit business is what many giants care about most.

Even if consumers prefer the taste of erythritol, the company cannot suddenly change the raw materials, which will reduce profit margins and it also runs the risk of the new flavor having too small a target audience. From another perspective, listed companies are responsible for profits and shareholders - I'm afraid no one wants the financial report numbers to look ugly.

In many of his speeches in his early years, Tang Binsen repeatedly emphasized one thing: in this era, products are king, not channels. This is the truth he summed up after paying a lot of tuition fees on his own product. You can take a close look at the second line of words on the PPT.

So, does this mean that Yuanqi Forest will make excessive efforts in its products?

In order to verify whether his words and deeds are consistent, we estimated the cost of Yuanqi Forest sparkling water through various intelligence: about 2 yuan. The price for distributors to purchase (underwrite) is about 38-42 yuan per box (15 bottles), or 2.5-2.8 yuan per bottle.

In other words, Yuanqi Forest's maximum gross profit per bottle is about 0.8 yuan (28%), which is a big gap compared with traditional beverage giants.

This extra cost is actually subsidized for raw materials: according to public information, it can be calculated that the raw material cost of each 550ml bottle of Coke is about 0.2 yuan, while Yuanqi Forest costs at least 1 yuan. Especially in the early days, Yuanqi Forest’s erythritol costs may be higher because it uses imported raw materials from Cargill in the United States.

If the marketing costs are spread evenly over each bottle, Yuanqi Forest will have almost no net profit. Taking into account operating expenses, channel expansion and other expenses, we speculate that Yuanqi Forest is currently in a loss-making state. It seems that Yuanqi Forest has indeed seized this opportunity: putting user needs first, spending money on subsidies, and implementing the idea that products are king.

5. Flat channel management

After analyzing the product, let’s take a look at the channels: No matter what, Yuanqi Forest has to rely on offline sales to compete head-on with giants.

According to our understanding, Yuanqi Forest's terminal sales across all channels in 2020 exceeded 2.5 billion, exceeding its set target. In terms of channel characteristics, e-commerce sales of Yuanqi Forest account for 25%, convenience stores account for 35%, pure KA accounts for 1%, and traditional channels such as catering and schools account for about 40% (it varies across the country, so it is only an average estimate).

We estimate that by mid-2020, Yuanqi Forest has laid out more than 700,000 retail terminals across the country, with more than 2,000 sales staff maintaining dealers.

After research, it was found that there is not much difference between Yuanqi Forest and other traditional companies in their offline sales model. The key to achieving breakthroughs in channels lies in the continuous realization of flat management through technological means, greatly improving efficiency, and its management style is very characteristic of an Internet company.

In his early years, Tang Binsen mentioned in a public speech that the reason why small companies were able to survive the siege of giants was because of their efficiency.

He summarized it as a power law: if one person has 300 million yuan and the daily growth coefficient is 1.1, and another person has 100,000 yuan and the daily growth coefficient is 1.2, then after a period of time, the latter will naturally be richer. So this "coefficient" is more important than the basis.

For large companies, resources are almost unlimited, so all problems are solved with money. Most of the employees’ time is also spent on the “upward management” level. Every day they think about how to make PPT reports, how to get budgets, and how to help the boss complete KPIs. Naturally, their “growth coefficient” is greatly restricted.

However, if small companies can maintain efficient operations under extremely tight resources, they can greatly improve this coefficient and become the basis for success. Back then, Elexico's YAC antivirus software defeated giants with budgets a hundred times larger based on this principle.

Let’s take a few examples to see how Yuanqi Forest improves its “growth coefficient” from a management perspective:

1. Digital Office

Since 2018, the entire Yuanqi Forest has adopted a paperless office, including production, approval, reporting, etc. DingTalk was initially used, and various management tools were developed based on Alibaba's framework. For example, front-line sales staff can use the store inspection system in the DingTalk background, which includes profit and sales volume achievement functions. They can view the visits of sales staff through their mobile phones, and there are also weekly and daily reports and other tools.

Later, the company began to use Feishu, produced by ByteDance, as its OA system. In addition, an independent store inspection app has been developed, which includes functions such as outlet lists, route planning, expense receipts, business data, etc., so that front-line business personnel can reasonably divide the sales points they maintain when inspecting stores and form a reasonable itinerary route.

What impact do these seemingly fancy tools have on efficiency? For example: When a sales representative goes to a region, he has to go through five levels of hierarchy. If the approval is not given within an hour at each level, money will be deducted, so the documents are approved and the problems are handled quickly. An event application can be approved in 3 hours, while a traditional company would take 3-5 days.

Of course, in addition to within the company, Yuanqi Forest also uses digital methods to strengthen management on the dealer side. The picture below shows the mini program "Yuanqiliangpin" that allows dealers to place orders with one click. The prices in the background are naturally different for each person.

2. OKR Management System

In the past two years, Internet companies represented by ByteDance have set off a "OKR" craze. Yuanqi Forest introduced this mechanism early on to replace traditional KPI. The benefit is that the goals are more focused and the self-motivation of employees is enhanced.

For example, the regional manager can set the ultimate goal O as sales of XX billion yuan, and the execution means KR can be broken down into the number of outlets, number of cities developed, number of displays, freezer deployment, etc. The other two common Os are team building and training, and improvement of business quality.

In addition, the formulation of this O is broken down from the national level to the individual level, and finally implemented in performance appraisal. This is quite complicated, so I won’t go into details.

3. Amoeba Model

Friends who are familiar with management must be familiar with it. Kazuo Inamori invented this groundbreaking model in the 1960s: split the company into small groups, allowing all employees to participate in management and allow employees to truly "work for themselves."

This is the model adopted by the entire sales team of Yuanqi Forest. Each district is divided into different groups, and all operating profits are controlled internally by the team. 10-15% is divided equally among everyone, and the rest is taken by the company. This gives salespeople a great deal of flexibility and a certain degree of control over budgets and outputs.

For traditional companies, the annual sales expenses are determined in the previous year. The regional sales manager applies for budget from the headquarters, and it is approved one level at a time. There is actually not much room for optimization and adjustment in between.

Compared with traditional beverage companies, this model is still very innovative. For example, Nongfu Spring just started to implement its first Amoeba project in 2019.

4. Offline data feedback

For traditional fast-moving consumer goods companies, one of the main reasons for not being "flat" enough is that distributors are unwilling to provide offline data, resulting in a long delay in front-line intelligence. Yuanqi Forest is trying to solve this problem.

We learned that Yuanqi Forest uses a data supplier called "Ma Shangying", which can access the POS data of retail stores and directly obtain the transaction order information of the store, thereby obtaining accurate sales data. In 2020, Challenger Capital, the company behind Tang Binsen, invested in Mashangying.

The most commonly used data indicator of Yuanqi Forest is the "Coke Index" to quantify the sales level of products. Because only looking at the absolute value of product sales is easily affected by seasonality, a stable reference is needed to measure whether a new product is selling well.

Judging from industry data, the distribution rate of 500ml Coca-Cola in retail terminals across the country can reach 80%, and sales volume has been in a stable pattern for a long time throughout the year.

By comparing with this indicator, Yuanqi Forest can continuously monitor the sales of new products after they are put on the shelves on a weekly basis, so as to determine which products are not doing well and need to be quickly removed from the shelves; and which products are selling well and need to be vigorously distributed - the timeliness of this kind of intelligence is several times higher than that of traditional means (the data is sensitive, so I won’t post the picture here).

For example, the product Alien Energy Drink was first piloted in some convenience stores. But data soon showed that this product was not selling well, so it was immediately taken off the shelves. Now it is being tested instead with Alien electrolyte water.

Of course, the problem of dealers being unwilling to provide data is definitely not so easy to solve. At the 2020 Distributor Conference, Yuanqi Forest announced that it would launch 80,000 smart freezers this year to monitor product sales data at each retail terminal in real time. Although it is much lower than the data of 870,000 units of Coca-Cola and 360,000 units of Nongfu Spring, it is also an essential test.

Next, we summarized the two major characteristics of Yuanqi Forest’s channels: emphasis on convenience store channels and a high proportion of e-commerce channels.

Anyone who has worked in the beverage industry knows that it is basically impossible to make money by stocking goods in convenience stores because the commissions are very high, including logistics fees, ice rink fees, marketing fees, etc., which can even total 30%-40%. Yuanqi Forest chose to start distributing its products from Convenience Bee and 7-11, mainly because it saw the growth potential of convenience stores and the degree of overlap with the target population.

As can be seen from the figure below, convenience stores are the fastest growing channel besides e-commerce, with an overall scale of more than 250 billion yuan in 2020.

On the other hand, taking 7-11 as an example, its customer base is mainly composed of young people aged 20-29, and the two largest groups are corporate white-collar workers and students.

Since the entry threshold of convenience stores is high, the process is not smooth. Before 2020, Yuanqi Forest completely handed over this work to dealers - the company still supplied goods to dealers, and then the dealers negotiated cooperation with local convenience stores, which greatly improved efficiency.

But after all, there is a layer of distributors in the middle, and the channel costs are not transparent. Yuanqi Forest also bears the risk of declining operating quality and convenience store closures. Therefore, starting from 2020, the company began to take back large CVS channels and directly operate them.

Finally, let’s take a look at the operation status of Yuanqi Forest’s e-commerce channels:

Data shows that the proportion of online sales of Yuanqi Forest is far higher than that of traditional companies. For example, Nongfu Spring’s e-commerce sales only account for 5% of its total revenue. In 2018, Yuanqi Forest’s online sales accounted for more than 30%. Among them, Tmall and JD.com are the main sales channels.

It can be seen that 2020 is undoubtedly the time when Yuanqi Forest exploded. Its sales on Tmall alone have more than quadrupled, reaching 450 million yuan! Our analysis found that this was mainly due to the substantial increase in marketing investment.

From the e-commerce data, it is obvious that Yuanqi Forest is driven by popular products, of which sparkling water accounts for nearly 50%. In contrast, other products, except for the milk tea launched in 2020, seem to have some gaps.

We originally believed that since e-commerce is a direct sales channel, it should have a very high gross profit margin and will definitely be a profitable channel compared to offline channels. But later it was discovered that although the company was responsible for operational activities, the goods still went through dealer channels.

In other words, Yuanqi Forest itself still makes money from the price difference of dealers, which is not much different from offline. Well, the online retail price is originally lower than the offline price. Coupled with various advertising costs and Li Jiaqi’s various low-price promotions, the online gross profit is even lower than the offline price.

We speculate that Yuanqi Forest wants to control operating costs while expanding its channel scale.

6. Use private domain to build DTC channels

Marketing is not the whole of Yuanqi Forest, but it is undeniable that strong omni-channel marketing capabilities are a necessary condition for Yuanqi Forest’s success. According to our calculations, the online and offline marketing expenses of Yuanqi Forest may exceed 600 million yuan in 2020. According to the revenue share, it is also very high in the beverage industry.

Many emerging fast-moving consumer goods brands have broken through the giant blockade through the strategy of "surrounding the city in the countryside". For example, Feihe Milk Powder starts to build high-end milk powder brands from third- and fourth-tier cities, and finally counterattacks the first- and second-tier cities. But Yuanqi Forest adopts the opposite strategy, which surrounds the countryside from cities and closely revolves around young people of Generation Z to do marketing.

This kind of "strike high and fight" actually follows Tang Binson's idea of ​​playing games back then.

In 2015, Tang Binson said in an interview: "When we dare to generate 2 billion revenue, we spend 1.8 billion to advertise, and expose brands in central cities such as New York, London, and Moscow. This approach of playing from high to low rather than the other way around has made "The Disputes of Kings" the most successful export game in Chinese history." [2]

For example, in 2020, Yuanqi Forest launched 6 variety shows and 1 TV series; and focused on media and satellite TV such as Mango TV, Hunan Satellite TV, which are mainly female users; at the end of 2020, Yuanqi Forest spent 150 million to acquire the sponsorship rights of the 2021 bilibili Spring Festival Gala, and fans on B station directly increased from 0 to 1.5 million.

There are many articles on the market that analyzes the marketing strategies of Yuanqi Forest, so I will not repeat them here. However, we would like to talk about a point in the recent rapid layout of Yuanqi Forest: private domain traffic.

Since 2020, Yuanqi Forest has begun to deploy private domains. It not only established its own mini-program mall and service account system, but also used corporate WeChat to add fans, and continued to operate WeChat groups. According to our data monitoring, Yuanqi Forest's users in WeChat private domain (enterprise WeChat + service account) have exceeded 200,000, while the total revenue of the mini program in the past five months is close to 10 million.

Although this does not make much contribution to the company's revenue, as mentioned above, this DTC (direct to consumer) channel is an excellent traffic pool for collecting user feedback and testing product concepts. For Yuanqi Forest, which always wants to be close to users, should have great strategic value.

Next, we will disassemble how the private domain system of Yuanqi Forest works according to the private domain engineering model of "drainage-incubation-conversion".

The first is the traffic diversion stage. The mainstream method is to use the advertisements on Moments, guide users to the landing page, and then divert traffic to follow the service account - the bait for the event is usually new products, or large-scale discount promotions. If users want to receive coupons, they must add corporate WeChat customer service to truly enter the private domain and finally place an order in the mini program.

What’s more interesting is that the customer service character of Yuanqi Forest is called "Xiao Yuanzi". I wonder if this is a tribute to "Xiao Wanzi" of Perfect Diary?

According to our previous experience, the cost of attracting new traffic according to this link is more than 10 yuan per fan, so it is estimated that Yuanqi Forest may have spent millions on private domain traffic.

Let’s look at the operational stage. The forms here are more diverse:

• Push a large amount of product information in the group at a frequency of 2-3 times a day, or mainly discounts;
• At a frequency of 1-2 weeks, enterprises can push promotions on WeChat private chats;
• Launch a series of "Experience Officer" activities on the mini program, inviting users to participate in new product reviews and write reviews to form a content community.

Finally, there is the conversion process. In fact, we believe that the key indicator of Yuanqi Forest should not be the GMV of the private domain, but how much user data is collected. Therefore, the private domain team should not have a heavy sales KPI.

Unlike e-commerce channels such as Tmall, the mini program sells a lot of SKUs. In addition to Yuanqi Forest's own products, it even has other brands of oral care products, gift boxes, etc.

In addition, we also found that Yuanqi Forest sells membership cards, priced at 98 yuan per year, and its main purpose is to save money. According to data monitoring, there are almost 10,000 people currently paying, and I feel that there are still many fans.

Finally, in order to give everyone a global concept, here is a summary of the latest private domain operation activity link, starting from fission sending bubble water to attract new items until the end of ordering or entering the membership system:

7. Summary: From limited games to unlimited games

Let’s summarize that through innovations in three aspects: product research and development, channel management, and marketing promotion, Yuanqi Forest has brought the efficient operation model of Internet companies to the fast-moving consumer goods industry, increasing the speed of trial and error, laying the foundation for the birth of hot products:

1. Arbitrage thinking: bring mature foreign concepts to China, and use positioning packaging to label Japanese-style labels;
2. Quick test: Learn from the idea of ​​AB testing in the Internet industry, collect data through various online and offline methods, and test the most selling products;
3. User subsidies: focus on user needs, reduce gross profit and improve taste, rather than one-sided pursuit of scale and profit;
4. Flat management: Create digital management tools, apply Internet-based management methods, and improve organizational operational efficiency;
5. Layout private domain: While doing brand marketing , use the DTC model to get close to users and accelerate demand development and product testing.

However, the price of pursuing innovation is risk. No matter how much Yuanqi Forest respects user needs, it is impossible to continue to lose money. This model must be positive, so Yuanqi Forest must:

• Controlling production costs
• Increase shipping prices to dealers

Since Yuanqi Forest has always relied on OEM factories in the past, the production costs will naturally be high. On the other hand, this model has also led to the mismatch between production cycle and terminal sales - that is, the goods are under pressure during the off-season and the goods are out of stock in the peak season. In the past, the situation of selling goods from last September this year was often the case.

In this way, the dealer's opinion is naturally very big. The solution is to send an extra batch when picking up the goods, which will cause the shipment price to be shared and reduced.

Therefore, Yuanqi Forest has vigorously invested in its own factory. At present, the annual output of the first phase of Chuzhou self-built factory is 30 million, with an annual output value of about 850 million. It can produce tea burning, sparkling water, milk tea, functional beverages and other beverages. The second phase of Chuzhou production base and the new factory in Zhaoqing, Guangzhou, have started construction in August 2020, and the factory in North China is also under preparation. With the help of the optimization work of the data team, production costs can also be greatly reduced.

Another problem with Yuanqi Forest is over-reliance on individual explosive products. Judging from the data in 2020, the sales of sparkling water accounted for 60%, 30% of burning tea, and other milk tea and other products accounted for 10%.

Among the sparkling water, a few SKUs such as white peach flavor account for the majority. The entire market for sparkling water is estimated to be only 10-20 billion yuan, and it is probably a bit difficult to achieve the sales target of 7.5 billion yuan in 2021 by relying on a single category. This requires Yuanqi Forest to further accelerate the process of explosive product development and expand its product line.

However, from a global perspective, Yuanqi Forest never seems to have walked on one leg. According to Tang Binsen, he wants to be "China's Coca-Cola" and even build "a consumer goods empire", so expanding the product line is something that Yuanqi Forest has been doing.

Yuanqi Forest is currently divided into multiple business units, including beverages, functional beverages, dairy products, etc., and has been laying out the sub-brands of Yuanqi Forest - for example, since 2018, Yuanqi Forest has started selling yogurt (Beihai Ranch).

In addition, Yuanqi Forest and Challenger Capital have already laid out more tracks through investment. For example, we found that 51% of Guanyun Liquor's shares are actually controlled by Yuanqi Forest, and in 2020, Yuanqi Forest also launched a number of sales channels dedicated to the use of liquor.

Can Yuanqi Forest play a finite game into an infinite game? Let's wait and see!

Author: yolo, John, Tingdan

Source: Growthbox