China's e-commerce system and industrial environment are as unique as the West. It took China decades to establish its status as the Factory of the World. However, it has a supply chain and manufacturing capability that few other countries can match.Mass production is easy and affordable thanks to China's networked manufacturing hubs and logistics hubs. You can find Chinese manufacturers for everything you need, including electronics, toys and automobiles. They'll even do it cheaper than any other manufacturer in the world.It was only a matter time before an intrepid Chinese entrepreneur with tech backgrounds decided to challenge Coca-Cola & PepsiCo.China also has one of the largest tech and e-commerce ecosystems in the world. There are hundreds of startups scattered across the country, and the amount that is being spent on innovation around China's industrial heft is staggering.It was only a matter time before an intrepid Chinese entrepreneur with tech backgrounds decided to take on Coca-Cola & PepsiCo. However, the tech revolution has not yet had a significant impact on the bottled beverages industry as other industries. If a company can combine China's manufacturing skills and agility with modern tech startup principles of moving fast and breaking things, they could be able to lose a significant amount of market share.Genki Forest is a Chinese direct to consumer (D2C), bottled beverage startup. Since its inception five years ago, Genki Forest's revenue has risen rapidly due to its philosophy of iteration informed and supported by data. It also has quick turnarounds and a focus on China's vast e-commerce market. The company's sugar-free sodas and milk teas as well as energy drinks are sold in 40 countries. In 2020, it generated revenues of approximately $450 million. The company hopes to achieve $1.2 billion in revenue this year.Genki Forests valuation is actually increasing even faster. It just completed its fourth round of VC funding, which valued it at $6 billion. This is triple the amount it received a year ago. The company has raised at least half a million dollars.Genki Forests operations are very similar to a startup. We thought it would be interesting to examine the company's graph and find out what it can tell us about Chinese D2C entrepreneurs looking to dominate the world.Find a bigger wave to rideBinsen Tang, the founder of Genki Forests, didn't initially set out to conquer the bottled beverage market. ELEX Technology was his first startup, a casual and mostly mobile gaming company. Although it was not a record-breaking startup, 50 million people logged onto a few games in more than 40 countries, including Happy Farm, which is a predecessor of Zyngas Farmville. Tang was not satisfied, and in 2014, ELEX Technology was sold to a publicly traded company for around $400 million.Tang would leave with some important lessons. He had learned that Chinese products are already competitive worldwide, regardless of whether people realize it or not. Happy Farm is a perfect example of this. He realized that it was more important to pick the right racetrack, as Chinese entrepreneurs and investors like to say, than to have a great product.The most important lesson was choosing the right race to win. This idea is what sets Chinese entrepreneurs apart. It's also why, regardless of one's previous knowledge, it's worth identifying the largest and most lucrative market. This is what inspired Zhang Yiming and Lei Jun, to create ByteDance.This philosophy inspired Tang to create Genki Forest. Tang never returned to the company that brought him his first gold medal. He felt that the rise in mobile internet was an opportunity for him to build a consumer brand, and apply the lessons he had learned from programming to the manufacturing of tangible products.Challenjers Capital was his first investment fund. He believed that China's next big tech opportunity would be in technology applied to everyday consumer goods. Soon he was investing in everything, from hotpots and ramen to bottled beverages.His decision to sell directly, rather than through traditional channels, would be influenced by China's rapidly expanding e-commerce market and the many D2C businesses that are flourishing on JD.com and Alibaba. To understand his motivations we must look at China's unique D2C environment and how it has changed over time.What is different about Chinese D2C technology?In 2015, Tang stated to his team that China does not need more platforms. However, he said that China needed good products and that it was time to build brands that can take advantage of the extensive distribution network.Others investors also noticed. Albus Yu, principal of China Growth Capital, said that his fund had stopped investing in independent marketplaces or consumer-facing platforms for a while. He said that 2014 may have been the last year when it was financially feasible to start such an entity due to the high cost of acquiring customers, and the strength of incumbents.In 2015, CACs were able to surpass or even rival ARPUs at JD.com and Alibaba.This distribution network was available in both the digital and physical worlds of China. Online, market power was concentrated in two companies: Alibaba and JD.com. They used to hold 80% and above market share.In fact, Alibaba's dominance was so strong that VCs had invested in Taobao brands for years. Taobao was the only channel that one could control to succeed.It was easy to acquire customers by simply advertising on Alibaba's Tmall platform, particularly during Singles Day, its flagship shopping festival. Still today, securing a top spot on one of the category leaderboards is a great way to build brand awareness and investor interest as well as sales records.The Chinese market is also very different from the rest of the West in many ways. The private sector has invested heavily in logistics over many years. This was accelerated by infrastructure development and government support. As a result, delivery costs have fallen significantly, dropping to $0.40 per package wholesale by this year. Return insurance and other innovations have also helped customers adopt.China shipped 30 billion packages per year in 2016, accounting for 44% global shipments. This number is expected to surpass 100 billion in this year's third year, after doubling each three years. China's e-commerce market is the world's largest. Its estimated that it will reach $2.8 trillion by 2021. This is more than three times the size of the No. 2. The U.S.China's present-day advantage also includes the proximity to a flexible, advanced manufacturing network and supply chain that can handle the vast majority consumer products. It also has the ability to outsource nearly everything.Original equipment manufacturers from years ago have evolved to become original design companies. One of the expected outcomes of being the Factory of the World over so many years and producing goods for some of the most prestigious brands in the world is that some of the knowledge was bound for transfer.Outsiders may find it difficult to see how China's networked manufacturing centers are today. The lead times have been drastically reduced by software, robots, and other technological advancements. What was once a lengthy process can now take just days. Shein, a Chinese ultra-fast fashion company that crosses borders from China, has reduced the design-to-ship time to seven days.It's not limited to making crop tops. Even when making completely new goods, the turnaround can be remarkable. BYD, an electric vehicle manufacturer, transformed its factory into the largest face mask manufacturing plant in the world in two weeks after the COVID-19 pandemic.This manufacturing flexibility and agility can be used by companies to increase their speed and efficiency. Perfect Diary, a Chinese cosmetics startup, uses it to launch twice the number of SKUs than foreign competitors. A quick turnaround also allows agile brands to benefit from the most precious of IP, memes.However, foreign entrepreneurs can still access the Chinese supply chain. Zinus, the best-selling mattress manufacturer, was founded by a South Korean. However, its products are made in China and sold mostly via Amazon to U.S. customers.However, very few non-Chinese businesses have managed to tap into the supply chain as well as the new Chinese D2C brands. This can take years of work not only alongside, but also physically inside the factories, building trust, and knowledge. Shein, for instance, is close to factories and monitors what brands are doing.China's opportunityBefore TikTok and other global sensations, copy to China was a dominant description of Chinese startups. This strategy was still relevant in December 2015 when Tang registered the Genki Forest trademark.
