19 August 2019

Wahaha has bigger troubles than just an ailing mall

Beverage king Zong Qinghou {宗慶後}, once China’s richest man, is not quite finished making money from yoghurt but he has already put together an enterprise that looks nothing like his core business — shopping malls and wine.

The chairman and chief executive of Wahaha Group launched his first mall project in November 2012 to house quality high-street European fashion. The reviews have been mostly negative.

Still, Zong is not letting any of that interfere with his plans. Last month, Wahaha announced a venture to make baijiu, a kind of wine favored by the Chinese for all occasions. It said it will work with partners in Maotai, a town in southwestern China renowned for baijiu.

Wahaha is tapping hundreds of thousands of individual and household retailers in low-tier cities and rural areas to help sell the wine to the remotest market.

Zong’s strategy is to ship the product quickly to these vendors to give them time to promote it, helping them improve sales. By doing it aggressively and consistently, Zong hopes to catch his competitors off-guard. He will be happy to come from behind in a crowded market.

To offset shipping and warehousing costs — something many of his competitors are able to avoid by focusing on urban centers — he is constantly rolling out new offerings with higher margins.

That keeps his distribution network humming. Baijiu joins an eclectic collection of products from soda and energy drink to powdered formula and children’s wear in the Wahaha supply chain.

In this market segment, Wahaha competes with supermarkets and convenience stores which are increasingly crowding out its mom-and-pop vendors.

One of the biggest players is China Resources Enterprise (00291.HK), whose Vanguard unit owns convenience stores and mini supermarkets in more than 150 counties and townships. If Wahaha wants to sell its products through these outlets, it will have to pay a hefty licensing fee.

Wahaha is planning to revamp its marketing and distribution unit to make it better able to compete with these retail chains, a senior executive said.

That, in turn, will depend on how quickly the company can revitalize the brand. Unlike Coca-Cola, Pepsi, Uni-President or Master Kong, Wahaha has been slow to sustain buyer appetite for the brand. Also, it may have lost its way in the younger, trend-spotting market. 

Wahaha sales fell 6 percent last year, the first decline in decades, on revenue of 64 billion yuan (US$10.44 billion). It is nowhere near the 100 billion yuan goal it set for itself in 2016.

Failure of the mall experiment won’t cause Zong any material damage but if the baijiu venture were to fail, it would raise some serious questions for Zong. Has he lost his business touch? Can he engineer a comeback?

– Contact the writer at [email protected]



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