Wahaha: the Fall of a Beverage Giant

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Source: Jiemian.com

Written by: Xiaojuan Zhao

Edited by: Wilbur ZHU (WeChat ID: aotokuer),Anna HU

Editor’s note: It is a long time since I drank Wahaha for the last time. The entire beverage industry is no longer the world of one single star product. Besides, Wahaha haven’t launched a star product for a very long time.

Qili, based on a high expectation, spent heavily to invite Manchester United to burnish its brand. However, as we all can see, the supermarkets are still full of Red Bull and Hi-Tiger. By the way, Monster is entering into china market recently.

” Sweet and sour, nutritious and good in texture. ” You may still remember the slogan 20 years ago.

AD Calcium Milk, Nutrition Express, and the Wahaha Mineral Water endorsed by Leehom Wang once filled our memory of childhood. Behind those products is Wahaha Group, a successful company built in 1990s with typical Chinese-style. However, most of the legendary companies from that generation can’t get through the fate of being washed.

In 2010, Wahaha’s performance helped the company join the 50 billion club. Zong Qinghou, the founder of Wahaha, declared to reach the goal of 100 billion. However, 7 years have passed, Wahaha not only failed to reach the goal, but also its performance got an inflection point in 2010.

According to Hurun Rich List 2016 released by the Hurun Research Institute, Zong Qinghou Family was ranked the fifth with the wealth of 112 billion, which was shrunken by 23 billion compared with last year’s 135 billion.

Wahaha is facing the unprecedented dilemma.

” Wahaha is really out of style, ” a Hangzhou native said this regretfully when he was asked about Wahaha, the biggest beverage company in his hometown. This young man born in 1992 had drunk AD-calcium milk, a popular milk drink in China, since he was a child. But after he went to college, he started to like Coca-Cola. Wahaha disappeared from his life after that. “No particular reasons, just because it isn’t adrink forbourgeoisie. “

This may be the biggest embarrassment in the 30 years since Zong Qinghou founded Wahaha. Although Zong who works hard now, spends over 200 days on business trip every year to visit dealers and sales site. But many large supermarkets in Beijing, including Yonghui supermarket, in addition to Nutrition Express, bottled water and rice pudding, you can hardly find more Wahaha products in their shelves.

Maoyuan Coffee and Little CoCo launched last year are gone now. Even the green tea beverage of Wahaha is replaced by Master Kong, Tongyi and Nongfu Spring. The situation in convenience stores like 7-eleven and Family Mart is worse. You can only find some new packaging bottled water in most moment.

It is apparently a dangerous situation. When new products emerge endlessly, Wahaha hasn’t launched its new star product. In the meantime, the old star products like Nutrition Express, bottled water and rice pudding, are being catching up by other competitors. It also caused Zong to rethink about the fall of Wahaha in an interview. The lack of new star products is the NUMBER ONE reason.

It is very dangerous to be too dependent on one single product, because it will bring a direct impact on company performance if the product is not popular any more.

Wahaha is on this difficult position now. The old star products are not popular currently, while the new star products haven’t launched yet. Even in its main territory, the market of villages and towns, Wahaha is failed to sell its products.

Yang Xue, a second-generation agency of Wahaha in Sichuan said she would sell Wahaha no longer after she sold the last inventory.

Her father is the first-generation agency. He once took charge of delivery and distribution in Leshan city. In the best-selling time, he sold ￥300,000-worth of goods. When the first loss occured in 2015, Yang Xue did not think its a big deal, but by the year 2016, the momentum is getting worse, more and more inventory left in warehouse.

The profit of agency is low, so she can only earn money by selling more goods. But Yang only dared to restock ￥50,000-worth of goods each month in the past year. As Yang Xue told, the profit for two dozen of AD-calcium milk is 1 yuan, and the profit for a dozen of Nutrition Express is 2 to 3 yuan. ” Even in the Spring Festival, it’s only 0.5 yuan after selling a big bottle of Nutrition Express. “

After being convinced that there is no profit any more, Yang plans to sell all her stocks in next few months before they expire. Otherwise, she would have to pour them and recycle the empty bottles. The Wahaha products on sales include peanut milk, refreshing Pi, Qi Li energy drink and soda drink. After selling these goods, Yang Xue will purchase some popular products of other companies like Yinlu, C’estbon and Mizone.

Yang Xue doesn’t understand why Wahaha is not popular even in villages and towns now.

Most consumers may not know, Wahaha has been lauching new products without stop. It has launched about 300 kinds of products yet. But they are almost designed and promoted in the same way. First, Wahaha finds a popular beverage. Then, it clones a new product quickly with low cost and sells it with Wahaha’s strong sales channels and extensive advertising.

A Zhihu user named Wang Wei once listed some Wahaha’s products cloned from other classic products. He predicted playfully, there is 90% of possibilities that Wahaha would launch a cloned product once a new kind of beverage sells well and tastes well.

Therefore, Wahaha got its nickname ” Tencent in Beverage Industry” , because Tencent is famous for copying ideas in China.

In the 1990s, Chinese market grew very rapidly. The low-cost and rude strategy of cloning brought Wahaha great success.

For example, a children’s nutrient beverage launched in 1987 is what Zong cloned from Guangzhou Apollo. And this beverage sold nearly 100 million yuan within just two years.

Then in 1991, Zong put his eyes on Robust and launched his second product–fruit milk. This time, it only spent one year to sell more than 100 million yuan.In 1996, Wahaha aimed directly at Robust calcium milk and launched AD calcium milk.

” In low-cost, large-scale manufacturing era, this strategy of cloning can quickly grab market share through channels advantage, ” said Li Zhiqi, the chairman of Adfaith Group and the professor of UIBE.

It can’t be denied that Wahaha is has applied this strategy to the maximum extent.

Because it can overtake its target easily by delivering products to every store in villages and towns through the strong delivery chain.

For example, Wahaha launched Nutrition Express in 2005, which is cloned from Miaolian. It became the biggest star product of Wahaha and once sold 20 billion yuan in a year. It was a record for 12 years. In 1998, Wahaha launched Cola, which filled the void of the cola market in villages and towns of China.

However, this strategy has a fatal problem. It always follows behind the competitors rather than the trend of market. When the China retail market began to go gradually out of the wild, towards the brand competition, the consumers who used to drink Wahaha when they were kids have changed too. They require more about the beverages. And what they concern about is not only the taste and the so-called function, but also the lifestyle and status symbol.

In a RT-Mart in Zhaoqing of Guangdong Province, our reporter interviewed five consumers born after 1995 randomly, and one of them who used to drink AD calcium milk in childhood said if she drank AD calcium milk in her college, the other male students would mock her.

Outwardly, Wahaha is trying to be young. It launched Maoyuan Coffee and Little CoCo in the last two years and it is now extolling Jiaosu, an enzyme-contained beverage for female white-collar workers. However, making the brand younger and upgrade is not simply to launch a new popular product that looks like fashionable.

Classmate Xiaoming, the most successful product among the tea beverages launched in last two years is a good example. Before launching Classmate Xiaoming, Tongyi made a survey of young people born after 1995 with the help of Leo Burnett. Then Tongyi finally launched this ACGN-style beverage after studying the taste preference and their language and culture. From the taste to the name, style and design, product development is now becoming more and more important. They are all directly relevant to consumers’ acceptance. That is exactly what Wahaha lacks, the insights of consumer needs.

The essential difference in product thinking between Wahaha and other companies caused the distinction of marketing mode.

Let’s continue this example of Classmate Xiaoming. This product sets its target consumer groups to be young people born after 1995 who like ACGN. It naturally caused this product chose the convenience stores and supermarkets in first-tier and second-tier cities as its primary sales channel. And on the aspect of marketing mode, it keeps strengthening its ACGN-style humor. Recently, for example, its cold jokes with QQ family roles have been displayed on the bottle in cartoon form.

But when you look at Wahaha’s tea beverage, you will find the once popular product with the slogan ” Water in heaven, tea in Longjin” is now disappeared after launches of Jasmine Tea of Master Kong, Oriental Leaves of Nongfu Spring and Classmate Xiaoming of Tongyi. Wahaha’s marketing mode has no special skills but advertising in a crude way.

However, Wahaha hasn’t changed its crude way for 20 years.

A strong and efficient marketing system was also once the core advantage of Wahaha. According to the insider, of Wahaha there are about 3000 salesmen and 2000 relevant stuffs around China. These people are divided into three groups, customer manager (under area manager and province manager) , supermarket manager and development manager. This marketing system allows Wahaha to deliver its products to dealers at all levels in an efficient way.

To manage the dealers, Wahaha implements the 8+4 strategy, which is to focus on eight old products and four new products. It keeps spending much money in exposing its products. To promote the brand, Wahaha also spent a lot of money on advertisement, title sponsorship and products placement. But the thinking is still the same as 20 years ago, emphasizing exposing.

Therefore, Wahaha is becoming a brand that can only see in villages and towns. According to Euromonitor, from 2014 to 2016, the sales of the star product Nutrition Express are 15.36 billion yuan, 11.54 billion yuan and 11.54 billion yuan respectively, cut almost in half.

As more and more products becoming hard to sell, Wahaha’s marketing system begins to be challenged and the conflicts between dealers and sales team begin to appear.

Because province managers failed to finish their job, they constantly shift the burden to dealers, which results in the backlog of stock. ” When a company is trying to do a new product, the more it backlogs, the quicker it fails. It is an industry rule, ” said the insider.

With the pressure of sales assignment, Wahaha is losing its customer managers and area managers, which causes a bigger problem. ” The old customer managers usually know every dealer’s style and ability. They can deliver goods according to their abilities and control the amount of stock. But the fresh customer managers are not familiar with the dealers. They usually deliver goods to the dealers for the performance, which led to the backlog of stock at last. “

Two old employees of Sichuan Wahaha, who offered their service there for 17 years and 11 years, told us they had to leave because they couldn’t tolerate their province manager’s management style and assessment method. There were at least six or seven workers left for the same reason. These old workers played a role in linking Wahaha and the dealers. There were some unsteady cases happened on the dealers in Zigong and Leshan. Only in Leshan, the sales has fallen to millions.

However, the younger and high-end products launched with high expectation are clearly not matched with Wahaha’s marketing system. In first-tier and second-tier cities, Wahaha’s controlling force is not strong enough. But in convenience stores and supermarkets, the pressure comes from competitions among new products and the channel cost is now bigger.

Li Zhiqi told us with Maoyuan Coffee in his hand, ” Most consumers have gotten the impression that Wahaha is a beverage brand in the middle and low-end market. Now Wahaha suddenly wants to enter the high-end market, so it will cost huge capital investment to achieve it.

Unfortunately, it seems that Wahaha isn’t willing to spend too much on one single product. The insider said that Wahaha is too anxious for success so that it launches new products one after another even though the beverage market is very dispersed at present. To advertise in a crude way doesn’t work now.

This is why Maoyuan Coffee ended in failure within two years after launching. Nevertheless, Maoyuan Coffee is not the only new product that failed. Jiaosu launched in this year is still positioned at the middle and high-end market. But if Jiaosu doesn’t sell well. It will be the next Maoyuan Coffee.

Both Wahaha’s success and fall can be owed to the same person who founded it, Zong Qinghou. The first generation of entrepreneurs born between 1940 and 1970 are usually smart, hardworking and brave, but they are also almost conservative, stubborn, lack of consciousness of modern business management at the same time.

Zong Fuli, Zong’s daughter, is believed to be the successor. But in fact, she hasn’t even moved into core yet. Some former Employees told that Zong Qinghou is still in charge of Wahaha, which means Wahaha is a highly centralized company. Someone joked that the board of directors in Wahaha is just an empty shell.

Wahaha is largely still an empire of Zong’s own, but Zong is 72 years old now.

The entire top management is as old as Zong. Wahaha is very outmoded now. The salesmen are aged. They cannot come up with any creative marketing activity. Besides, the company culture is bureaucratic. In fact, Wahaha is continually recruit college graduates to bring some new blood. But the graduates are usually not able to adjust themselves to the company culture, which caused a serious brain drain. Therefore, it hasn’ t resolved any real issue. Zong Fuli who is 35 now has already entered management as early as 2004, but it hasn’ t changed Zong Qinghou’s dictatorship yet.

The outside world once placed great hopes on Zong Fuli. She is now the chairman of Hongsheng Group, and she is also the general manager of Wahaha Export Co. Zong Fuli once said after an interview that she wants to create her own way in beverage industry rather than follow the old way.

However, the products launched by her do not seem to be well – sold. In July last year, for example, she launched a high-end customized brand of fruit and vegetable juice — KellyOne, but it can only be seen in a small scale in Shanghai and Hangzhou.

This product is just in time for the trend of the emerging NFC ( not-from-concentrate juice) beverage. When Lingdu Guofang has already become the success in this field, KellyOne is still unknown to public. Wahaha hardly made any publicity for it.

For a beverage giant who once made 60 billion in sales, it is hard to change its immanent product thinking and marketing system. And Wahaha’s impression of consumers is still staying in the years before. However, as Chinese market gradually becoming matured, the consumers are becoming picky, too. So the products those don’ t understand consumers would be surely selected out by market. Nevertheless, there are always new products and new ideas every day in beverage market, which provides the consumers more and more choices.

Maybe Zong Fuli has finally realized that she cannot change the company built by his father, so she sets her sights on capital market, hoping to bring some new energy and increase by purchasing new brands.

In early April, Chinese Candy (08182 HK), the listed company in Hong Kong, announced that it had signed a letter of intent with a potential buyer, Ever Maple Flavors and Fragrances Holdings Limited, whose actual owner of the company is Zong Fuli. This move is interpreted as the intention of bringing some new growth opportunities from capital market. But Wahaha Group denied it. They said it is just Zong Fuli’s individual behavior.

Behind Wahaha’s rejection of listing, Zong Qinghou is aging day by day, but he is still trying his best to strengthen his position. However, the beverage giant from last era is falling every day.

(Names and identifying information have been altered to protect privacy. )