Jul 29, 2021 09:22 PM

In Depth: China’s Generation Z Inspires Homegrown Beverage-Makers to Take On Coca-Cola

Nayuki store in Qingdao, East China’s Shandong province, in September 2019. Photo: VCG
Nayuki store in Qingdao, East China’s Shandong province, in September 2019. Photo: VCG

A shift in interest among China’s younger generation toward homegrown products and a desire to lead healthier lifestyles has opened the door for more local brands to challenge big international names such as Coca-Cola and Starbucks, fueling investor interest in startups and inflating valuations.

The change is being driven by Generation Z, or those born in the late 1990s, who grew up during a period of unprecedented domestic economic growth and China’s rise to global prominence. This has instilled in them confidence, national pride and a sense of nostalgia for all things Chinese.

They are also digital natives and, since they account for roughly 15% of the population, represent the engine for growth of domestic consumer spending, according to McKinsey & Co. Inc.

“Most of the new consumption trends have been guided by domestic culture rather than by foreign input,” said He Peibin, an analyst at Ping An Securities Co. Ltd., in a report last month.

The support for domestic companies among the young generation illustrates a phenomenon dubbed “guochao (国潮)” — a term that often translates as “China chic” in English — in which consumers switch back to local brands previously viewed as inferior and lacking in style.

This group has a higher acceptance of domestically made products than previous generations, and their spending power is expected to increase fourfold to 16 trillion yuan ($2.5 trillion) by 2035, according to the latest report by financial advisory China Renaissance.

This has been a boon for consumer startups that have also benefited from more mature domestic supply chains, sophisticated manufacturing and, perhaps most importantly, slick targeted marketing.

 Read more  
In Depth: Can China Overtake U.S. to Become World’s Top Consumer?

Three companies that have seen their valuations soar on expectations underpinned by this shift in tastes are zero-sugar soda and packaged tea-maker Yuan Qi Sen Lin (Beijing) Food Technology Group Co. Ltd., and milk tea chains Shenzhen Meixixi Catering Management Co. Ltd. and recently listed Nayuki Holdings Ltd.

Yuan Qi, which was founded in 2016 and whose products trade under the name Genki Forest, announced in April it had completed a new round of financing that valued the firm at around 40 billion yuan, which according to some reports is a tripling of its valuation from last year. Its perceived potential for growth has attracted high profile investors, who reportedly include IDG Capital, Sequoia China, and tech giant Tencent Holding Ltd.

Its flagship product, a peach flavored soda that claims to have “zero sugar, zero fat, zero calories” along with tea varieties are now sold across China and also overseas, with sales of nearly 3 billion yuan last year.


Yuan Qi, whose products trade under the name Genki Forest, announced in April it had completed a new round of financing that valued the firm around 40 billion yuan. Photo: VCG

High valuations

In terms of price-to-sales (P/S) ratio, which gives an indication of how much investors are willing to pay per dollar of sales, that valuation would give the company a sales multiple of 13, compared to just over 6.7 for The Coca-Cola Co., the world’s largest non-alcoholic beverage maker.

At the end last year, its founder Tang Binsen forecast at a dealers’ meeting his company’s sales would jump 150% this year to 7.5 billion yuan.

Impressive growth forecasts aside, Yuan Qi has some way to go before it can challenge industry leader Coca-Cola. The U.S. giant accounts for 42% of China’s soft drink market, including carbonated beverages, fruit drinks and bottled water, followed by perennial rival PepsiCo Inc. with about 32%, according to data from Daxue Consulting.

High ratios aren’t uncommon in China’s red hot beverage market, with domestic behemoth Nongfu Spring Co. Ltd. earning a P/S ratio of 19.76 after a blockbuster listing last September raised around $1.1 billion, with the company now trading at a market value of about HK$470 billion ($60.5 billion).

Meixixi, which trades under the name HeyTea, has also seen its valuation more than triple to over 50 billion yuan at the beginning 2021, from about 16 billion yuan at its last funding round in March 2020.

“There is no doubt that valuations in the consumer product industry are at a record high,” an executive at Verlinvest S.A., an investment holding company, told Caixin. This has been driven partly by financial relief measures and fiscal stimulus launched in multiple countries in response to the Covid-19 pandemic.

Influx of Cash

These direct measures have ranged from 5% to 24% of 2019 GDP in advanced economies, which for many has contributed to the largest single-year increase in the government debt-to-GDP ratio during peacetime, according to the Reserve Bank of Australia. This in turn has led to huge amounts of money flowing into capital markets.

In the first half of 2021, the aggregate value of venture capital deals in China’s consumer discretionary sector reached $11.9 billion, well on track to top the figures in 2020 and 2019, according to a report earlier this month in Vogue Business citing data and insights platform Preqin.

“Investors are energized by Chinese consumers’ resilience during the Covid-19 pandemic, together with a wave of innovative new ideas and the growing buying power of younger generations,” it said.

 Read more  
In Depth: China’s Long March to Become a Consumer-Driven Economy

Private equity investors are giving such startups the same treatment — and valuations — that were previously the domain of tech companies, a manager at Shanghai Fosun Capital Investment Management Co. Ltd. told Caixin. They are betting that the splash they’re making online will convert into sales and profits.

While some analysts told Caixin that the valuations were too high, given the propensity of consumer startups in China to burn through cash quickly on marketing prior to generating significant profits, others point to their potential as warranting such investor confidence.

“The high valuations for star consumer brands are reasonable, partly because they are in fast-growing niche markets,” Gao Huan, a senior director specializing in the consumer sector at consultancy Alvarez and Marsal Holdings LLC, told Caixin. “You can’t judge a brand’s valuation simply based on its own competitiveness, (you) should consider how far the market can go.”

“Winner takes all”

China’s non-alcoholic beverage market is expected to rise by a compound annual growth rate of 9.6% to 1.9 trillion yuan in 2025 from 1.2 trillion yuan last year, with freshly made and packaged tea drinks only trailing coffee in terms of growth at 14.6%, according to Nayuki’s prospectus, which cited consultancy CIC.

Investors give high valuations to leading startups because they bet on them to come out on top in a “winner takes all” market and to be early to file an IPO, said Gao.

But that isn’t always how it turns out. Despite initial investor enthusiasm for teahouse chain Nayuki, which raised $656 million in its Hong Kong debut last month, it has since seen its market cap dwindle to $2.5 billion, down from an initial $4.4 billion.

A surge in revenue to 2.87 billion yuan in 2020 from 909.5 million yuan in 2018 and expansion from 44 teahouses in 2017 to 562, may have attracted investors. However plans to open a further 1,000 through 2023 despite having yet to record any profits may have cooled interest.

The rise of local beverage brands has also been facilitated by slick online marketing campaigns that emphasize their hip product design, Chinese heritage and health benefits, as well as the ubiquity of online shopping, especially among the younger generation.

Generation Z is viewed as the first generation of truly digital natives, amounting to more than 320 million people by November 2020 and making up 28.1% of all mobile internet users, according to digital marketing firm Croud.

Among this group, 82.3% shop online, according to a survey by QuestMobile and cited by Croud, showing how China’s Generation Z is more reliant on online shopping channels than in other countries.


Consumers line up on the evening of Feb. 8 to buy Lele tea in Changzhou, East China’s Jiangsu province. Photo: VCG  

Slick Marketing

For Genki Forest that means taking their sales pitch online to push the ‘zero calorie’ benefits of its flavored soda water range — which come in Japanese-style bottles popular among young consumers — and packaged teas marketed as “a modern tea experience inspired by ancient tea legacy.”

This message is bolstered by collaborating with top KOLs such as Li Jiaqi (李佳琦) and Weiya (薇娅), who have featured Genki Forest products during their livestream events. This is aimed at Generation-Z consumers who get much of their product information from social media platforms like Weibo, Douyin, the Chinese version of TikTok, and Bilibili.

HeyTea, which was launched in 2012 has also pushed the health angle, uses natural ingredients and sweeteners, milk and fruits to create a robust product portfolio, including its flagship cheese tea range at its estimated 800 directly-operated stores across China.

Despite the strong growth it still trails Starbucks, which was China’s largest operator in the specialist coffee and tea shop market with 36.4% in 2020, according to Euromonitor, a market research provider. The Seattle-based coffee chain operates 5,000 stores in 200 cities on Chinese mainland.

Contact reporter Guo Yingzhe ( and editor Flynn Murphy (

Download our app to receive breaking news alerts and read the news on the go.

Get our weekly free Must-Read newsletter.

You've accessed an article available only to subscribers
Share this article
Open WeChat and scan the QR code
Get our CX Daily, weekly Must-Read and China Green Bulletin newsletters delivered free to your inbox, bringing you China's top headlines.

We ‘ve added you to our subscriber list.

Manage subscription