Master Kong is about to take a stake in Wanglaoji, which is good news for both parties. Why Master Kong? Why is Wanglaoji selling now? What changes will the beverage market see? Is this a conspiracy or an open scheme? Listen to Laona's analysis.
Early this morning, someone tipped off Laona: Master Kong has confirmed it will take a stake in Wanglaoji, and the progress is such that everything is ready except the announcement. They asked Laona what I thought. What do I think? Of course, I'm sitting in front of my computer watching. Every JDB employee knows that Wanglaoji's sale is only a matter of time, just a question of when and whether it will be sold to Coca-Cola or Master Kong.
- Looks Good on the Surface
Many will say that the cooperation between Master Kong and Wanglaoji is a strong alliance. Master Kong has rich product promotion experience and a huge marketing system, while Wanglaoji has a strong brand and has captured considerable market share through its low-price strategy over the past three years and its ten consecutive legal victories. Such a partnership naturally makes people optimistic about both sides. But is that really the case?
If this had happened three years ago, when JDB and Wanglaoji split, and Master Kong had taken a stake in Wanglaoji then, Laona would have been very optimistic. At that time, Master Kong was the industry leader, with annual sales growing, and its new product, Iced Rock Sugar Pear, swept the market. Wanglaoji, nurtured by JDB for over a decade, had a strong reputation, with a retail price of 3.5 yuan per can, standing out in a market where most drinks were below 3 yuan. With such strong profit margins and Master Kong's marketing prowess, they could have strangled JDB in its cradle.
But everything is three years too late. Too much has changed in the past three years. First, Master Kong has been hit by a series of negative news: first, its Japanese capital background was exposed, then the gutter oil incident, and recently a "roof collapse" video caused its market value to evaporate by 30 billion yuan. In new product launches, Master Kong has had few successes in recent years, basically relying on copying and low prices. In its 2015 sales report, both sales and profits declined. In contrast, Uni-President has been launching new products continuously, succeeding everywhere, and successfully raising prices to the 4-5 yuan range. Wanglaoji hasn't fared much better. It hastily formed a so-called 3,000-person marketing team, then outsourced production to various contract manufacturers, compromising product taste. To grab market share from JDB, it kept lowering prices. Although the retail price still claims 3.5 yuan, the wholesale price per case has dropped from 105 yuan to 40 yuan. In the short term, it has indeed taken some market share from JDB, but in the long run, this is like drinking poison to quench thirst. If you can sell at 40 yuan per case now, you might sell at 50 or even 100 yuan in the future. What about distributor profits? Originally, a case could guarantee about 15 yuan, but now it's only 2-4 yuan. As Wanglaoji's competitor, JDB hasn't been idle. Over three years, despite losing lawsuits, JDB has been winning in marketing, successfully telling consumers that "JDB" is the former "Wanglaoji" and that JDB is the authentic herbal tea.
- Capital Market Needs
Why is Master Kong taking a stake in Wanglaoji now? In Laona's view, it's all about capital market needs. The stock market is in a slump, and Master Kong has been hit by repeated scandals, causing its stock price to fall continuously. A single limit-down in the stock market would require selling countless bowls of instant noodles and bottles of water to recover. Although Wanglaoji now firmly holds the second position in the herbal tea market, it increasingly resembles Pepsi-Cola of yesteryear. The data looks good (first-half earnings report showed a profit of 266 million yuan), and market share is rising, but marketing costs are also increasing. Most importantly, as a pharmaceutical company, it is not strong in FMCG operations. Apart from relying on low prices through channels, it has no other sales methods, so it can only raise funds from the market by issuing new shares. In January 2015, Yunfeng Capital invested 4 billion yuan in Guangzhou Baiyun Mountain, and Wanglaoji immediately touted "Jack Ma is my uncle." But it was useless. In the past seven months, we haven't seen any changes in Wanglaoji's marketing strategy. It launched a so-called "attitude can," but this trend of writing two sentences on cans is outdated this year. Even your imitated Coca-Cola's "slogan bottle" is performing poorly, so what future does a copycat have? It sponsored the web drama "The Lost Tomb," but was heavily criticized, and then sponsored "Surprise!" but by the time it aired, the peak sales season had passed. These marketing moves are one-off purchases, like jumping on every trending topic with a piece of copy to gain exposure, but they have no real significance for the company's marketing.
"All marketing that doesn't convert to performance is hooliganism." As a pharmaceutical company, achieving such performance in the FMCG industry is commendable. In terms of sales alone, Wanglaoji far exceeds Yunnan Baiyao's toothpaste and Jiangzhong's monkey mushroom biscuits. But while others go high-end, Wanglaoji has turned mid-to-high-end into low-end. Currently, no pharmaceutical company in China has succeeded in beverages. Whether it's Taiji Group's high-end water or Jiangzhong's blue goji berry drink, they've all drowned in the red ocean of FMCG. Wanglaoji has persisted for three years, which is not easy. Moreover, with the painful precedent of Huiyuan refusing to sell to Coca-Cola for 18.3 billion yuan, Wanglaoji should sell now rather than later.
Of course, besides Wanglaoji's herbal tea category, Master Kong is mainly attracted by its state-owned enterprise background. After all, Wanglaoji has maintained a ten-win streak against JDB in lawsuits. But Master Kong, in the Taiwan gutter oil incident, lost its boss and sold the Taipei 101 building without resolving the issue. Any slight disturbance causes its stock market value to evaporate by hundreds of millions. Whenever there's a man-made or natural disaster in China, it faces pressure from netizens to donate. Despite donating water and instant noodles during the Tianjin fire, it was still accused of being stingy. In contrast, Wanglaoji, by building a factory and acquiring land, can boast of donating 300 million yuan. That's the difference between having a "father" (state support) and not having one.
Furthermore, besides the positive news of acquiring Wanglaoji boosting stock prices, the first major decoration case in China (referring to the red can lawsuit) should also be nearing judgment. With Wanglaoji's strong background, winning is only a matter of time. This will inevitably bring several limit-ups, and the money invested in Wanglaoji will be recouped. Additionally, the compensation from JDB will offset part of the acquisition cost. So the capital market looks at the big picture, not just one city or one piece of land.
As a distributor of Wanglaoji, Laona's advice is: instead of hoarding goods, invest in the stocks of Baiyun Mountain and Master Kong. To increase bargaining power, Wanglaoji will inevitably increase wholesale promotions to raise distribution rates. Your speed of hoarding goods can't keep up with Wanglaoji's marketing changes. It's better to invest steadily in Wanglaoji's stock and wait for the good news. One limit-up will earn you more than selling many cases of Wanglaoji.
- Will Wanglaoji Become the Next Pepsi-Cola?
The Kang-Wang cooperation (sounds like a shampoo company) is a slap in the face for copycats and low-price enterprises, and an encouragement for those who focus on R&D and solid marketing. Both imitate, but Uni-President's Sea Salt sells at 5 yuan, while Master Kong's Sea Crystal Lemon sells at 3 yuan, yet it can't outsell Sea Salt. Wanglaoji has brand, low price, and marketing staff, but still can't outsell JDB. Marketing isn't about copying; it requires innovation, and the market must be built step by step.
So the question is: what impact will the Kang-Wang cooperation have on JDB? Laona believes there will be a short-term impact, as Wanglaoji will further lower prices to grab market share. But the future market belongs to JDB. Haven't you seen that when Master Kong acquired Pepsi China in 2011, all media shouted that Coca-Cola would give up its leading position? Four years later, Coca-Cola is still the leader, while Pepsi has disappeared.
Laona believes this acquisition is a double-edged sword for Wanglaoji. First, beware that Master Kong may periodically expose food safety issues. Second, will people again bring up Master Kong's cooperation with Japan's Sanyo? In the words of netizens, Wanglaoji is "rather give to a friendly nation (and not even a friendly one) than to a domestic slave." Finally, it will be a blow to Wanglaoji's current team. Look at what happened to Pepsi-Cola's employees. Those with spirit resigned upon hearing the acquisition, while those who stayed were laid off indirectly by Master Kong. In the FMCG industry, Master Kong's low wages are well known. Master Kong has always preferred hiring fresh graduates because they are easy to indoctrinate, cost less, and are more loyal. Wanglaoji, in its rush to capture the herbal tea market, poached many from the FMCG industry, especially from JDB, with promises of high pay. Besides regular employees, there are many contracted through third-party companies. Most of these are veterans with high salaries, outdated marketing ideas, and impossible to indoctrinate. For Master Kong, they are dead weight. When Wanglaoji was state-owned, corruption among employees was rampant, adding hidden costs. Master Kong, being half-Taiwanese and half-Japanese, has strict controls; it's said that even regional sales managers have expense limits not exceeding 5,000 yuan. This will inevitably cut off some people's income, so post-merger turmoil is inevitable. Wanglaoji's marketing team will definitely disband, and the distributor network will face a massive purge.
- Strategic Planning – JDB Should Thank Wanglaoji
JDB should thank Wanglaoji. No product can be made big by a single company. In fact, if they hadn't split, JDB would face more pressure now. Because the herbal tea category's pie is too small. Although JDB stands out, a single tree doesn't make spring. After the split, both sides started fighting, and in the process, more people learned about herbal tea, making the pie bigger. Their fight was about who is authentic and who should be red. It didn't harm the herbal tea industry. This quarrel was like a neighborhood debate, attracting more onlookers. While debating, they gave gifts to consumers, raising awareness of herbal tea. Both sides also engaged in public welfare, enhancing product reputation, and jointly promoted the herbal tea industry.
For example, when news broke that Guangyao's Vitamin C Yinqiao tablets had problems, suspected of using mountain silver flower instead of honeysuckle, JDB didn't kick them while they were down or exploit the negative news. Instead, it let the bad news fade quickly, not affecting the herbal tea industry. Unlike the dairy industry's fights, where one day you expose my product for melamine, the next day I say yours is recycled milk, and the day after, yours has cows on antibiotics. That's a blow to the entire industry, like national hatred. It was only after Niu Gensheng was kicked out of Mengniu that Yili, Mengniu, and Guangming, the three state-owned enterprises, formulated a strategy of not digging each other's graves – not harming the dairy industry. At most, you copy me, I copy you, a harmonious and friendly scene. It's because of this realization that Red Bull, when coconut juice wasn't selling well, began learning from the JDB-Wanglaoji fight, launching a "find the difference" campaign between Chinese Red Bull and Austrian Red Bull, with the sole purpose of expanding the functional drink market.
Wanglaoji, through competition with JDB, also mobilized the entire JDB team's enthusiasm, eliminating the old "bossy attitude" and getting more people into the market. Most importantly, Wanglaoji is like JDB's sub-brand. Although this sub-brand has impacted the main brand, we see that Wanglaoji is more of a protective circle for JDB. It used low prices to grab significant market share from Six Walnuts and Wahaha, and even killed Heqizheng. Laona has analyzed before that any company's main profit product should not be exposed directly to competitors; it must form a protective layer to prevent direct attacks.
Low prices are never the path to product survival. Products must be upgraded. JDB's gold can is the upgraded herbal tea, while Wanglaoji's red can is the old product. With low prices, it grabs the gift market from Six Walnuts and Wahaha, while the main profit product continues to grow stronger. So the JDB-Wanglaoji fight is a scene of mutual destruction and love.
In the future, Wanglaoji will return to the capital market, but it has already done enough for JDB. I believe future competition will be more benign, and JDB will miss this little partner.
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