Yuanqi Forest: A year of paying tuition to giants

Yuanqi Forest, a beverage brand that once rose rapidly with Internet thinking, is facing unprecedented challenges. After experiencing rapid growth, it began to encounter sales bottlenecks, especially in offline sales channels in the sinking market. This article explores in depth how Yuanqi Forest fell from its peak and analyzes its difficulties and coping strategies in traditional sales channels.

As a startup company that has been established for less than 10 years, Yuanqi Forest is a very eye-catching existence.

In the "2023 GEI China Unicorn Enterprise List", Yuanqi Forest ranked eighth with a valuation of US$15 billion, surpassing Xiaohongshu that year. In the past 8 years, Yuanqi Forest has incubated 3 products with sales exceeding 1 billion, which is undoubtedly a huge victory.

But problems also exist. The three star products, sparkling water, milk tea, and alien electrolyte water, were launched in 2018, 2019, and 2021 respectively. Since then, Yuanqi Forest has begun to slide sharply from its peak. According to a report by LatePost, its sales have dropped from the previous annual growth rate of 2 to 3 times to about 20% in 2022.

The iron wall that stood in front of Yuanqi Forest was the offline sales channels in the sinking market. There were old giants entrenched there, and Yuanqi Forest products, which were expensive and had no obvious taste differentiation, were labeled as "difficult to sell" and were even abandoned by distributors.

Learn from the traditional big brothers - this is the goal set by Tang Binsen, the founder of Yuanqi Forest.

An employee of Yuanqi Forest told Xuebao Finance that "slowing down" is a phrase often said within the company. After reducing costs and increasing efficiency and going all in on sales, Yuanqi Forest, which has carved out a path with Internet thinking, has to go back to the old path that it cannot avoid.

The story is no longer sexy, and young unicorns have to face the trivial and clichéd daily life. This is a truth that has been confirmed by countless brands: there are no shortcuts in the Chinese food and beverage industry.

1. Coke sells one box a day, while Yuanqi sells one box every 10 days

Within a week, Zhao Chun (pseudonym) from Wuyi County, Hengshui City, Hebei Province, walked into the small grocery store closest to his workplace for the third time, but still could not find the limited edition Green Bamboo Grapefruit-flavored sparkling water launched by Yuanqi Forest this year.

The clerk told Zhao Chun that Yuanqi Forest’s new products were not only not available in their store, but also not in any nearby retail supermarkets. Only chain convenience stores and large supermarkets stocked them.

This is because many grocery store owners in third- and fourth-tier cities have found that their stores are already stockpiling a lot of Yuanqi Forest inventory, and new products will be even harder to sell.

Since last year, Zhengzhou grocery store owner A Cheng (pseudonym) felt that Yuanqi Forest "was not selling well". Various brands launched a variety of sugar-free sparkling water, and Yuanqi Forest's uniqueness disappeared.

This year, almost no one is interested in the Yuanqi Forest products in Acheng's store. The sparkling water, which is usually priced at 5 yuan a bottle, has dropped to 4 yuan, but it still doesn't sell well. He told Xuebao Finance that several of his peers next door have removed Yuanqi Forest from their shelves this year.

In the food and beverage industry, taste homogeneity is inevitable. Young users in first-tier cities are willing to pay for new products and a more fashionable brand image, but in the vast sinking market, pragmatism is the mainstream.

In Acheng's store, there are Master Kong iced black tea at 5 yuan per liter, Coca-Cola at 3 yuan per bottle, and the more popular Oriental Leaves. Almost all of Yuanqi Forest's products are crushed. A small shop owner in Shijiazhuang County told Xuebao Finance that in summer, Coca-Cola can sell a box a day, while it takes 8 to 10 days to sell a box of Yuanqi Forest sparkling water.

In fact, under the joint "encirclement and suppression" of giants, Yuanqi Forest's survival pressure has been increasing day by day in recent years.

Zhao Yuanjun (pseudonym), an industry insider who has researched Yuanqi Forest, revealed to Snow Leopard Finance that Yuanqi Forest used erythritol as a natural sweetener, created a "0 sugar, 0 calories, 0 fat" label and quickly became popular. But then, other beverage brands quickly followed suit, using their scale advantages to sign large orders with erythritol OEM factories, and set "not cooperating with Yuanqi Forest" as a contract condition.

The target of the traditional giants' "strangulation" is not only the upstream raw materials, but also the offline channels. Zhao Yuanjun once visited several distributors in third- and fourth-tier cities and found that large companies firmly controlled the distributors' purchase share and even signed exclusive agreements, allowing only their own products to be placed in the freezer, and Yuanqi Forest's products could not be placed there at all.

As the ice drink season arrives this summer, competition has never been more intense.

Wahaha has accelerated the layout of offline channels and put freezers in some county-level cities. Distributors said that Wahaha hopes that "every customer can buy Wahaha products in major supermarkets and stores." Dongpeng Special Drink, Xiangpiaopiao and others have publicly announced further investment in offline channels. Mengniu, Master Kong, Uni-President and Nongfu Spring have never left the front line of the battlefield.

The price war is also continuing. In June this year, Nongfu Spring reduced its prices across the board. Its newly launched green bottled purified water was placed in the most prominent position on supermarket shelves. The promotional price of a 12-bottle package was as low as 8.9 yuan, or only 74 cents per bottle. In some supermarkets, a 12-bottle package of Yilibao purified water was also reduced to 10 yuan.

In the fierce fighting, Yuanqi Forest can only move forward with difficulty in the internal circulation.

2. “Half of the warehouse is Nongfu Spring”

During the booming years of 2018-2020, Yuanqi Forest's sales maintained an annual growth rate of 2 to 3 times.

The turning point came in 2022.

Yuanqi Forest's Sakura White Grape Flavored Soda Sparkling Water, which was a popular online product the year before, became known as "Deadly Sakura White" by distributors, and other flavors of sparkling water were also piled up in warehouses. This year, Yuanqi Forest's sales growth rate dropped to around 20%. The sparkling water, which had been popular for several years, hit the ceiling and suddenly fell into the dilemma of "not being able to sell".

A series of channel problems that were once concealed by the exciting high growth began to be exposed.

In the past few years, Yuanqi Forest's salesmen often pressed goods on distributors all year round, and distributors had frequent inventory backlogs, multiple regions were flooded with goods, and random price changes. By the summer of 2022, there were too many backlogs of goods, and the accumulated crisis broke out. According to 36Kr, Yuanqi Forest has hundreds of thousands of boxes of products with a shelf life of only one month or directly scrapped, accounting for as much as 20% of the total inventory. In June of that year, Yuanqi Forest's inventory turnover days exceeded 40 days. Under normal circumstances, the inventory turnover number in the beverage industry is generally within 30 days, and it will be as low as 20 days during the peak season.

The chaos in the channels has put Yuanqi Forest's development on hold and dragged its dealers into the abyss.

Li Haitao (pseudonym), a former Yuanqi Forest distributor, told Xuebao Finance that during the years when Yuanqi Forest was selling well, distributors all reaped the benefits, but the inventory crisis in 2022 "hurt" him. A large number of near-expiry products were delivered, but they expired before they were sold. After finally clearing out the inventory, the goods were no longer easy to sell, and the profits were continuously diluted, making it increasingly difficult to make money.

"In the past two years, Yuanqi Forest has indeed made great efforts to regulate its channels, and the processes and rules and regulations are much more standardized than in previous years," Li Haitao said frankly.

In 2023, Yuanqi Forest has attached unprecedented importance to channels and invested more funds in dealer development and market promotion. Founder Tang Binsen publicly stated that he would learn from traditional companies and personally visit dealers in various places.

However, this move also further tightened the dealers' pockets. Third-party audits became increasingly strict, and dealers' voluntary sales and price cuts were controlled. In addition, the sales of Yuanqi Forest in the region declined. After weighing the pros and cons, Li Haitao finally chose to terminate the cooperation with Yuanqi.

Compared with traditional brands, dealers have a colder attitude towards Yuanqi Forest.

Cheng Li (pseudonym), a Yuanqi Forest salesperson in a third-tier city in the south, told Snow Leopard Finance that dealers’ trust in Yuanqi Forest is significantly lower than that of other traditional big brands, and Yuanqi Forest’s voice is not as high as other brands. “There are not many strong dealers who specialize in Yuanqi Forest. Many of them specialize in Yilibao and Nongfu Spring, and sell Yuanqi Forest as a side job.”

In order to achieve sales targets and quickly respond to market demand during peak seasons, almost all beverage brands require distributors to hold inventory. However, distributors are often reluctant to hold too many Yuanqi Forest products in their hands because they sell more slowly in the sinking market.

In contrast, they usually have a lot of Nongfu Spring goods on hand, and even "half of the warehouse is Nongfu Spring."

3. It’s not easy to defeat Big Brother

Founded in 2016, Yuanqi Forest has been regarded by the outside world as an Internet upstart born with a silver spoon in its mouth since its inception, a catfish that has created a sales miracle.

Unlike traditional companies, Yuanqi Forest has adopted a high-profile marketing route from the beginning. Many people first saw the name of this brand in popular TV series, variety shows or huge advertisements on the subway.

In addition, in the early stage of channel layout, Yuanqi Forest paid more attention to major e-commerce platforms and convenience store chains such as FamilyMart, Convenience Bee, and 711 in first- and second-tier cities. This was an "unmanned territory" that traditional giants had not yet focused on.

But in China, the lower-tier markets are the backbone.

The population of the lower-tier cities accounts for 71% of China's total population. According to the "2023 China Lower-tier Market Retail Industry ToB Service White Paper" released by Sullivan, the scale of China's lower-tier retail market will reach 17.6 trillion yuan in 2022, which is about 4 times the retail market in high-tier cities, and the overall growth rate is faster than that of high-tier cities. If you want to expand sales, you can't avoid the traditional retail channels occupied by many giants, especially the retail channels in the lower-tier markets.

The days of running happily in the no-man's land are over, and Yuanqi Forest has to run head-on into a solid wall. In 2022, Yuanqi Forest has more than 1,000 distributors, Nongfu Spring has more than 4,454 distributors, and Master Kong has 36,837 distributors.

Today, Yuanqi Forest is vigorously learning its sales model from Nongfu Spring, which is recognized as a channel powerhouse in the industry.

This gave some dealers the confidence to stay. Hebei dealer Yuan Liwei (pseudonym) told Xuebao Finance that he still has hope for the future of Yuanqi. "This year, Yuanqi Forest has recruited a large number of Nongfu Spring salesmen and managers. The internal employees I have come into contact with all came from Nongfu Spring and are very experienced."

He believes that although the profit margin of Yuanqi Forest is lower than before, it is not much different from brands such as Coca-Cola and Nongfu Spring. "This summer, the sales of iced tea and electrolyte water in the area I am responsible for are quite good." Yuan Liwei believes that given time and by deepening the development of various channels and outlets, Yuanqi Forest will one day become a giant.

Salesman Cheng Li often jokes with his colleagues that Yuanqi Forest is the "passing line" of the beverage industry: those that have developed better than Yuanqi Forest have taken the dominant position; those that are worse off than them are already struggling on the brink of bankruptcy.

The summer heat is gradually fading, but competition in the beverage market has not stopped. Laying out traditional channels is not innovative and requires long-term intensive cultivation. Yuanqi Forest can only learn from traditional giants slowly and clumsily.

Author: Liu Shuhan