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  • Bing-Sheng Teng, Xilong Wang

Selected as a case of Cheung Kong Graduate School of Business, what is so great about Chi Forest?

Bing-Sheng Teng, Xilong Wang

In the spring of 2018, a "0 sugar, 0 fat, 0 calorie" soda and sparkling water drink was placed on the shelves of convenience stores and became an instant hit.

The "disruptor" of the beverage industry, Chi Forest, came to prominence.

From 2019 Tmall "618" over Coca-Cola, taking the first place in the water beverage category; to 2020 performance growth of more than 270% year-on-year, annual sales of 2.7 billion yuan; to 2021 annual sales pointed to 7.5 billion ......

Although the beverage industry has never been short of all kinds of growth miracles, but there has never been a new brand and product like Chi Forest that came from nothing in just a few years and continued to grow for several years. The traditional perceptions such as "beverage is a traditional industry", "beverage industry is all giants" and "new brands don't last long" have been overturned one by one.

The success of Chi Forest, a game founder leading a team with no experience in the beverage industry, is like a cross-border impact, a descending blow, and a heroic "self-interpretation". Its success covers entrepreneurship, track, new retail, taste, lifestyle, front and back waves, and even fortune, predestination and values.

Through first-hand interviews with Tang Benson, the founder of Chi Forest, and several team members, Professor Teng Binsheng and Researcher Wang Xiaolong of CKGSB uncovered the many values and principles of Tang Binsenand Chi Forest, as well as the specific roles and reasons for the achievements of these corporate cultures, taking into account the growth history of Chi Forest.

Today's CK case study takes you deeper into Chi Forest to explore its growth core.

1 Before Chi Forest

Before founding Chi Forest, BinsenTang ran JiXingTong, which was the most successful company in the domestic game industry to go abroad and the game company with the most foreign exchange earnings.

In that year, in the list of "Top 30 Chinese brands going abroad" jointly released by Google and WPP, JiXingTong ranked fourth, ahead of Xiaomi, Air China, Haier and other brands.

Such facts and achievements make BinsenTang firmly believe that Chinese culture and Chinese quality can conquer the world.

Based on such knowledge, BinsenTang led the founding of Challenger Ventures. He firmly believes that "China is on the rise, and China is the core driver of global economic growth, and there should be three Chinese companies among the top 10 companies in every industry in the world. Therefore, Challenger Ventures "firmly invests in areas where the Chinese have not yet ventured or lack the confidence to challenge".

According to BinsenTang, if there is no Chinese company in the global top 10 in a certain field, and a young Chinese dares to enter this field, this will be the most interesting project for Challenger Ventures - because the track is mature and the market demand is huge. And before the Chinese brand did not make it into the top ten, not the brand can not, just then the national power is not strong enough.

Today, history has proven that with centuries of accumulated momentum, China continues to rise, while the advantages of foreign companies gradually diminish, and this will not change in time and space as far as the eye can see. China is succeeding and is destined to succeed even more in the future.

The rise of China is a major trend that will have a profound impact on all industries. Don Benson, who sees more details, sees a huge opportunity in the consumer goods sector.

Humanity only rewards companies that are good to their users, and it is these types of companies that have lasted throughout the world over the centuries. According to BinsenTang.

On a micro level, for example, the social media dividend allows good products and bad products to be quickly differentiated by word of mouth, rather than good products and bad products being "the same in a sea of channels". This can explain the rise of Xiaomi, can explain the rise of various "net red" new products and even the rise of the national trend.

From a macro point of view, "supply-side reform" is a macroeconomic to meso-industry knowledge, which is similar to the views of all investment research institutions in the consumer industry, that is, Chinese people's income growth, consumer demand is naturally upgraded, but to buy a house and a car is not everyday, food and drink, from 2 yuan to 4 yuan, from 100 yuan to 200 yuan, as long as Good products, there must be a market - "supply-side reform", is to encourage enterprises to make good products.

"Making a good product is something that can be quickly recognized by users, and such changes determine that companies can make big investments in their products."

In fact, changes and opportunities in many industries come with the growth of a country's GDP.

For example, countries such as Japan, South Korea and Sweden saw dramatic changes in their restaurant industries when their GDP per capita reached $5,000. New formats such as casual dining and theme restaurants emerged, and the chainization of the restaurant industry became increasingly significant.

This is the time for companies providing services to F&B companies to see the changes that are taking place in their clients' businesses and in turn make adjustments to their capabilities and offerings. Although this is a conclusion obtained from retrospective summaries after the fact, it can reveal and guide the business behavior in the present.

BinsenTang said, "The recognition of good ingredients is written into the human genes."

2 Cold Start

After having a judgment on the general trend, in 2014, BinsenTang began to brew extensive investments in the consumer goods sector. The venture capital team has invested in hundreds of projects, focusing on themes such as food and beverage and new consumption of old brands.

However, after all, the team had no experience in related industries, and the "digital thinking" and "Internet spirit" mentioned by the media were difficult to be applied at this time.

Foggy and foggy

At the beginning, Chi Forest invested in a team in the beverage industry, "but our values and perceptions were very different, we thought investment was the starting point, they thought getting investment was the end point, and the end need not be said."

The team members recalled, "After that, we tried to make the first product by ourselves, what we didn't expect was that when the product came out, people didn't want to drink it because it didn't meet the expectations within the team.

However, instead of selling the product at a low price, we decided to destroy the 5 million yuan shipment, who wanted to spend another 1 million yuan to destroy it. Watching the workers load the shipment onto the truck, the young man in charge of the site almost cried out."

This failure sent the Chi Forest team back to the starting point. For a long time, Chi Forest raised money from Challenger Ventures in the form of "loans".

Team members said, "The hardest thing at that time was, should we continue to do it? Who should we ask to do it? Due to financial constraints, we couldn't even afford to rent a decent office, so we had to share the office with other companies.

Everyone wants to go to financial investment banks, IT giants, Internet companies, no one wants to come to a small company with no products."

Make the tea drink you want to drink

When Chi Forest was at a low point, the assistant who had been following Tang Binsenvolunteered to lead Chi Forest out of trouble.

Everyone in the team likes to drink tea, but they can't find a product in the market that meets their needs. Burning tea was born from the team's very simple desire - to make a good and healthy tea drink. Balancing "good taste" and "health" became an important consideration for the team at Chi Forest.

They chose oolong tea because it is good for weight loss.

Erythritol, a sugar substitute, was chosen because it does not produce calories, does not participate in the body's glycogen metabolism, and does not increase blood sugar levels.

Adding juice concentrate and dietary fiber, the team created a new tea drink with a variety of flavors such as mellow, genmaic, peach, strawberry and jasmine, which not only retains the health and taste of tea, but also has very low calories and sweet taste.

For the burning tea this product, the team gave the pricing is 6 yuan, such a high price in the beverage industry at the time is not common.

A question arises, why other manufacturers do not do such a tea drink?

Pricing backwards cost is likely one of the major reasons why it has been so difficult for the beverage industry to have a uniquely competitive new brand come out for many years.

We don't consider cost when developing, have you ever heard of Google designing a product with server costs in mind first?

Traditional beverages are priced at about the same level as several giant brands to work backwards in cost and then design the product. The price set by mature brands after the scale effect is pressed in there, new brands use this to anchor the price, only likely to do worse and worse.

We are a comprehensive screening of raw materials and production processes, to make their own good products, and finally superimposed on a reasonable profit margin, set a price.

You have to believe that consumers can now afford to drink a $6 bottle, as long as it is really good.

When Burning Tea was launched, Chi Forest did not have any promotion budget. Fortunately, microblogging crowdfunding was particularly hot at the time, so the team used this platform to officially launch Burning Tea.

According to the relevant team leader recalls, because of inexperience, in the product packaging carton did not add extra protection measures, resulting in the process of shipping many boxes broken, received an overwhelming number of complaints, the team of all people on line as customer service, the whole network to apologize one by one.

"At that time, the team was only a few people, each shouldering a very large amount of work, hate to have 48 hours a day. It is difficult to imagine that one person can be 3 to 4 kinds of job content."

The person in charge said: "For example, a product designer is not only responsible for the design of product packaging, but also responsible for e-commerce pages, promotional posters, and even during the promotion period to help the store to do the event page. These things in today's view, in a company is to be divided into 3 to 4 people to do, but at that time we made it alone."

Of course there were a large number of people who didn't stick around during the process. When communicating with many entrepreneurial teams, their cases point to a statement that it is best for the founding team to go through trials and tribulations at the beginning, and only those who remain after the experience will be the core members, if everything starts smoothly and the team continues to expand, it is definitely a "building will fall" irreversible situation when it really encounters difficulties.

The so-called "mainstay" is the group of people who have experienced difficulties, still persevere, and finally solve the difficulties.

Air bubble water a flight of fancy

After burning tea market, the team began to think about the next goal of the forest. In addition to drinking tea, they usually also love to drink carbonated beverages such as cola.

We knew that carbonated drinks were a very mature market, basically monopolized by the two giants, but we didn't really think too much about it, we still wanted to do our own favorite, healthy drinks," recalls the product manager of Chi Forest. We then decided to make a sparkling water next."

After a series of attempts, in the spring of 2018, four flavors of Chi Forest soda sparkling water were officially unveiled. Unlike Burning Tea, which gradually went up after a slow burn, soda sparkling water was favored by young people as soon as it was launched.

Chi forest sparkling water

Moreover, on social media such as Xiaohongshu, Zhihu, Jieyin and B station, a large number of users spontaneously recommended, commented and forwarded, constantly pushing up the voice of soda sparkling water. In just a few months, the sales of soda bubble water reached the sales level of Burning Tea for more than a year.

The success of sparkling water has allowed Chi Forest, which originally only had burning tea, to break out of the tea beverage category, proving that companies can expand in multiple tracks and categories, thus amplifying the value of the brand and the growth space of the company.

In first- and second-tier cities, Chi Forest's sales are rapidly approaching those of traditional beverage giants.

In Shanghai, Chi Forest's sales reached 67% of Coca-Cola's in 2019 and climbed to 92% in 2020, demonstrating Chi Forest's ability to reach the mainstream consumer population in first- and second-tier markets.

The marketing and promotion of Chi Forest has also formed a momentum, and every move has become a hotspot and aroused attention.

For example, Chi Forest implanted in the variety show "Our Band", appeared in the Golden Rooster and Hundred Flowers Film Festival, cooperated with B station to open the secondary market, and signed Zhang Yuqi as the image ambassador of Chi Forest soda and sparkling water, etc., continuously expanding the influence of the brand.

The product manager of Chi Forest said, "We may also take some detours now, but it's so much better than before. For example, our product concept, including packaging design, will take various combination elements, through modern marketing measurement technology, in interaction with fans to obtain market feedback, and then step by step towards the finished product, which makes our future products more likely to become explosive."

3 Tamping and advancing

The two products, Kindle Tea and Sparkling Water, have allowed Chi Forest to gain a firm foothold and a place in the highly competitive beverage industry.

However, for the overall big market, Chi Forest in 2019 is still a "new brand" and has a long way to go before it can compete with the industry giants.

Believe in young people

According to BinsenTang, the FMCG industry is similar to the game industry and the movie industry in that there are innovative organizations behind it.

Unlike operational organizations that are good at making things especially solid, the core competence of innovative organizations lies in innovation, and the main behavior is to make products, do R&D, and capture user needs.

For innovative organizations, organizational mechanism is a core issue, the most important of which is consensus, or principles. If a company lacks consensus or principles, employees will not know what the company encourages, what it opposes, what it values and what it does not value, and they will have to speculate when they do something.

BinsenTang said,When everyone needs to guess what the boss is really thinking, the efficiency of the whole enterprise will be particularly low, and there will be no way to talk about innovation.

Therefore, Chi Forest is very concerned about turning "subtle rules" into "obvious rules".

Take one of the things that BinsenTang is most concerned about - talent selection. In Chi Forest, there is an interesting analogy called "selecting Africans". Africans often have a good athletic base, "select Africans" is to select a good base of talent.

Don Binsensaid, if you are a coach and want to organize a group of athletes, you must look at his base, rather than how many years he has been in the business.

This explains the core staff of the Chi Forest team, although no previous experience in the FMCG industry, but a hit, the development of the best-selling products such as burning tea, soda fizzy water.

Following the logic of the selection, a value emerged, which BinsenTang summarized as "believe in young people".

In his opinion, young people's taste, passion, learning ability, responsibility, motivation, and the desire to succeed and prove themselves are the most valuable and difficult to obtain scarce resources in a successful business.

When the team was first established, there were not many people in Chi Forest, and each person was responsible for multiple tasks.

For example, the product designer was not only responsible for the design of product packaging, but also for designing e-commerce pages and posters, and even helping to make activity pages for online stores during sales.

The person in charge said: "At that time, we hate to have 48 hours a day. So many things in today is divided into three or four people to do, but at that time we made it alone."

Meanwhile, most of the team members are young people, who come from all walks of life, but few have a background in the traditional beverage industry.

Moreover, most of the members are women, who often have a unique taste, are "picky" about taste, and are somewhat "paranoid" about health or good drink. Many of them do not know chemistry, formulation or nutrition, but they can quickly and deeply research all kinds of details related to "healthy, good-drinking drinks".

For example, what ingredients are healthy and have no side effects, why erythritol is the best choice, and so on.

They then work with the chemistry and lab expertise on the team to "collide" with each other to come up with a great product.

By mid-2020, Chi Forest's team has grown from 30+ people in 2016 to over 3,000.

Self-built factory

Prior to 2020, Chi Forest adopted an asset-light model, entrusting the production of products to OEMs such as Toyo, Jianlibao, Unity and Oriflame.

However, for many years, the major domestic beverage production capacity has been controlled by a few leading brands. As Chi Forest's market share continues to expand, it is increasingly feeling the torment of "stuck neck" in terms of production capacity guarantee.

For this reason, in 2019, Chi Forest decided to build its own factory. This is not an easy decision for an Internet-born team, an innovative organization that focuses on discovering ideas and capturing user needs.

Chi Forest's factory layout

In October 2019, Chi Forest broke ground on its first factory, Chuzhou Factory, which will be completed and put into operation in June 2020.

The first phase of the Chuzhou plant covers an area of 100 acres, with three high-speed production lines, all using the industry-leading "aseptic carbonic acid mixed ratio filling" production technology, which can produce combustion tea, soda fizzy water, milk tea, energy drinks and other products.

Since then, the second phase of Anhui production base, Guangdong production base, Tianjin production base, also started construction one after another. 2021 September, Chi Forest's fifth factory in Sichuan Dujiangyan laid the foundation stone; October, the fourth Hubei Xianning factory into the equipment installation and commissioning stage.

So far, in 2 years' time, Chi Forest has basically completed the layout of self-built factories, forming the production capacity pattern of East China, South China, West China, North China and Central China, covering the key markets of Beijing, Tianjin and Hebei, Yangtze River Delta, Pearl River Delta, Guangdong, Hong Kong, Macao and Greater Bay Area, Southwest Sichuan and South Central of the two lakes, with significantly improved delivery capacity. By the time the self-built factories are all in operation, Chi Forest's annual production capacity will exceed 5 billion bottles.

From light assets to heavy assets, Chi Forest, on the one hand, is to get rid of the restricted capacity dilemma, on the other hand, is also to better adhere to the "user first".

Chi Forest's self-built factories all use higher-cost aseptic carbonic acid production lines to ensure that each bottle of Chi Forest beverage is free of chemical preservatives such as sodium benzoate and potassium sorbate. In the past, most beverage manufacturers generally ignored this point under the traditional business concept of pricing backwards to cost and static market.

Channel expansion and upgrade

For a long time, leading brands in the beverage industry have established a channel system that reaches into the countryside. In terms of consumption scenarios, the consumption of beverages is also characterized by being available everywhere and at hand. In other words, the offline channel is still the main consumption touch point for beverages.

However, for Chi Forest, which started in the online channel, it is not easy to cut a hole in the traditional channel, which is "heavily guarded" by leading brands.

Fortunately, around 2016, new retail models that integrate online and offline began to emerge.

For the new retail channels, they need new, high-quality products to differentiate themselves from the "kiosks" on the streets, and they also need high-margin products to realize their business models. Chi Forest has seized the opportunity to achieve a breakthrough in sales channels.

Without the emergence of new retail channels, Chi Forest only focuses on e-commerce channels, or scattered goods in the boundless traditional channels, I am afraid it is difficult to achieve the current results.

The current annual sales volume of billions of dollars, so that the Chi Forest has a certain brand appeal and sales potential, especially after the construction of its own factory, the cost is significantly reduced, more stable production capacity, so that the Chi Forest to develop other more sales channels will also become easier.

Even if it has to go through an "alley war" in the process of development, at least it has the troops and ammunition that can be invested. For the channel "alley war", in Tang Benson's opinion, is another great opportunity for Chi Forest.

"Can you imagine? In the traditional channel of operation, the store freezer inspection is done by hand, a person responsible for some stores, so tens of thousands of people. And these are the costs, and in the end, all by the consumer to pay for." Tang Binsensaid.

"Chi Forest has laid 150,000 freezers, and we do unmanned inspections through the intelligent cameras we developed, which reduces both labor costs and management costs, and all these savings can be used to improve product quality. So, the whole cost model is completely different."

In addition, Chi Forest has shopped its vending machines into a large number of Internet startups.

For the conventional store channel, Chi Forest also developed an intelligent store patrol app according to the needs of the front line, which can realize various operations such as visiting, ordering, store patrol and adding online.

In terms of channel construction, in addition to constantly improving efficiency and product cost structure through technological innovation, Chi Forest has also recruited a large number of professionals with industry experience to work on channel construction, sales management, factory construction and management, supply chain management, etc.

Remove the "beauty" to see the marketing

The various marketing activities and advertisements organized by Chi Forest always attract a lot of attention and reports. It is as if Chi Forest's marketing has a "beautiful face" and is analyzed from all angles every time it is launched, so people overlook the "same" things.

In the interview, we did not know that Chi Forest was putting a lot of effort in promoting these marketing activities, but they always emphasized the quality of their products.

The impression and evaluation of Genki Forest from the outside world is mostly focused on its Japanese packaging. It is undeniable that Genki Forest has incorporated "Wabi-sabi" design elements into some of its products.

Take the most eye-catching word "気", it is considered as the evidence of Japanese imitation.

However, if we look into it, the Japanese word "気" itself is borrowed from the Chinese word "气", but its connotation extends to the spiritual level, referring to a person's spiritual or mental state, similar to the Chinese word "心". It is similar to the Chinese word "心".

"In fact, we should be more confident. Why can Coca-Cola sell to China, but China can't sell its own drinks to the world?" Tang Binsenasked rhetorically.

In the field of FMCG or food and beverage, if China's national power increases, the power of culture is the biggest driver. So, our first product was Burning Tea, with the Chinese character '燃' enlarged as the main visual of the packaging.

At that time, no one dared to enlarge the Chinese character, what we enlarged was not the product packaging, but the trend behind it. We were borrowing the trend, borrowing the momentum of the culture formed in the past five thousand years, and borrowing the momentum of China's development. Many people did not understand the logic behind it.

At the beginning of the business, Chi Forest had no marketing expenses, and Weibo became its main position. The team opened an official Weibo account, and their daily job was not to send out advertisements, but to search for the keywords "Chi Forest" and "Burning Tea" and pay attention to what people were discussing and whether they were satisfied with the product. Then, in response to different feedback, Chi Forest made the whole network to apologize, the whole network to thank, the whole network emoji package, etc., to keep interacting with users.

On the contrary, in the traditional FMCG industry at that time, the main contact point with consumers was the cold shelves in hypermarkets and supermarkets, and the only communication between brands and consumers was sales and overwhelming promotion.

Until today, many product iterations of Chi Forest have come from user feedback.

For example, the hard-to-twist bottle cap is a problem that almost all beverages encounter. After the Chi Forest team fed this problem to the factory, the research came down to finding that the torque had to be balanced between safe and easy to unscrew, and it would also be affected by thermal expansion and contraction, making the problem seem insurmountable.

Still, the team worked with the equipment manufacturer to make technical improvements to the capping machine, reducing the torque required to open the cap while keeping the product safe, thus dramatically improving the capping experience.

Now, in the feedback from users, there are no more "girls who can't open the cap".

Product and marketing are not separated, the product is marketing, product design is to be the value of the information contained in the message, consumers "understand the natural understanding", this process will achieve the value of the brand creation, value communication, value transfer.

However, this process is not innovation, which is a typical paradigm we all know, and Chi Forest just does what it knows.

4 The Future of Chi Forest

In 2021, Chi Forest launched another new product - Alien Energy Drink. It is understood that the sales of this product are growing rapidly and there is a great possibility of replicating the success of soda fizzy water.

Recently, Chi Forest also launched a mineral water product, named "mineral". This is quite a "net sense" of the name, but also reflects the qualities of the product, and the taste is also like the name, "drink the mineral content".

Like "Chi Forest", the names of these products were all thought up by "Africans" after the 90s while eating. Currently, there are over 8,000 people on the Chi Forest team, 60% of whom are post-90s.

For Chi Forest, 2022 will be a critical year. Based on the sales of about 7 billion yuan in 2021, if it can exceed 10 billion yuan in 2022, Chi Forest will be able to challenge the giants in 2023.

If a year ago, the industry still regarded Chi Forest as a "new brand". Like many new brands in the beverage industry that have flashed like meteors, the inverted U-shaped growth curve can also predict the future of Chi Forest.

But after experiencing the continuous growth from 2 billion in 2020 to 7 billion in 2021, after experiencing the endless imitators but no impact on Chi Forest, after experiencing the giant's entry but still unable to change the trend or even failing to return, Chi Forest has made the industry realize that the beverage industry may be becoming a microcosm of national growth and national rejuvenation.

Talking about the future, BinsenTang said "We hope to become the company with the highest human efficiency and the largest investment in R&D in the FMCG industry worldwide.

Whether it's product development, channel development, customer service, market research, sales management, we want to build all kinds of capabilities that can stand the test of time.

Change is everywhere, and it is subtle. The only thing that remains the same is to take the initiative to change ourselves and work toward a more valuable place."

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