The internet is trendy and the new economy is tempting, but they may not be the dish for traditional enterprises! On one side is the sea, on the other is the flame; this is the best of times and the worst of times. On one hand, new economy giants like Alibaba, Tencent, Google, and Amazon see their stock market values repeatedly hitting new highs, with sustained strong performance—even elephants can dance continuously. On the other hand, traditional giants like P&G, Coca-Cola, and Master Kong are struggling, with revenues either stagnant or continuously declining, making even single-digit growth a luxury. Wahaha, the giant of China's food and beverage industry, under the leadership of Zong Qinghou, a three-time richest person in China, has seen its performance become particularly dismal. In 2016, its performance was only half of its most glorious period, and in the first half of 2017, it continued to decline year-on-year. Should it sit and wait for death, or open a new battlefield to turn the tide? At the end of June 2017, Zong Qinghou, an old steed with unyielding spirit, announced: embrace the new economy and enter the unmanned store new retail industry, which is at the forefront! This is another cross-industry venture for Wahaha after repeated failures and attempts in children's clothing, milk powder, Wahaha Mall, and liquor. Why does Zong Qinghou repeatedly attempt cross-industry transformations? Is it because his beverage main business is beset with internal and external difficulties, showing signs of decline, and he judges it beyond redemption? New products are weak, old products are fading. In the past, Wahaha launched major new products every 1-2 years, such as children's nutritional liquid, fruit milk, AD calcium milk, eight-treasure porridge, purified water, Future Cola, tea drinks, fruit juices, Wowoy, and Nutri-Express, leading to successive waves of high performance. In recent years, the once-popular products like Nutri-Express, Wowoy, and purified water have entered the decline phase of their product life cycles, with no way to revive them. Former key new products like Beer Tea Shuang, Qili, Gevas, oxygen-rich water, Xiao Chenchen, and Kelly One fresh juice (a brand under Zong Fuli) have all failed, whether due to overly segmented markets, vague positioning, conceptual gimmicks, or poor channel development. In 2017, the launch of MIAO yogurt, Wahaha fruit and vegetable yogurt, and Jiaosu enzyme drinks across 7 series and 18 items barely made a splash before being submerged in the beverage sea. Channel changes, the united sales system declines. Wahaha's proud united sales system was built on the strong radiation capability of traditional food wholesale markets, but now wholesale markets are shrinking, chain supermarkets, convenience stores, and hypermarkets are everywhere, and online supermarkets like Tmall and JD.com are rapidly developing. Wahaha's united sales system has in fact disintegrated, existing in name only, with its advantages gone. In the new media era, traditional advertising is almost ineffective. Once, with the rapid development of authoritative television media, Wahaha, which used TV advertising as its core marketing communication tool, also advanced triumphantly. Now, with the decline of TV and the spread of the internet, and the flourishing of Weibo, WeChat, and self-media, Wahaha's old tactics of TV advertising bombardment are outdated, and integrated marketing communication, interactive marketing, and topic-based event PR are not Wahaha's strengths. Zong Qinghou publicly admitted: "Now, we old-timers don't even know how to do advertising." Product, channel, and advertising—Wahaha's former three axes—have all failed. Combined with the disappearance of the demographic dividend, stagnant beverage market size, and consumption stratification and upgrading (young people are less sensitive to beverage prices, making Wahaha's price weapon increasingly useless), Zong Qinghou, perhaps at the end of his tether, may have judged that his beverage main business is doomed. Objectively rational and striving, he has to continuously pursue cross-industry transformation and upgrading. This time, with another transformation, will unmanned stores succeed and bring Wahaha back to its peak? On June 25, 2017, Wahaha signed a "3-year 100,000 units, 10-year 1 million units" Take Go unmanned store payment technology system agreement with Shenlan Technology, which develops unmanned retail store technology, planning to invest 2 billion yuan, causing a stir in the beverage and retail industries. In fact, a year earlier, Wahaha had already announced the development of its vending machine business, with Zong Qinghou's younger brother Zong Zehou establishing Zongsheng Intelligent Technology Co., Ltd. to take the helm, planning to deploy a total of 100,000 vending machines to build Wahaha's own national intelligent retail terminal network. By mid-2017, over 5,000 Wahaha-branded vending machines had been deployed. This unmanned store project is actually an upgraded and expanded version of Zongsheng's vending machines. Vending machines are already familiar to the domestic public. Coca-Cola, Master Kong, Nongfu Spring, Ubox, and various other beverage vending machines/cabinets are already densely distributed on streets and alleys. Wahaha's vending machines can only find gaps, struggling to compete, so will unmanned stores with larger areas, more products, and higher technology have a better chance? Unmanned stores, fully known as unmanned convenience stores, have the core of self-checkout plus unattended operation: self-checkout eliminates cashiers and digitizes the store, which is a key direction for convenience stores in the new retail era; unattended operation reduces labor costs but tests national quality and morality. At this stage, unmanned store technology is gradually maturing, but the overall quality of the public is hard to improve quickly. Think of the chaos of shared bikes being randomly parked and damaged in large and medium cities. How to prevent the human risks of "theft, robbery, and vandalism" to the greatest extent? This is the biggest drawback of the unmanned store business model at this stage. Limiting to specific groups and circles, targeting middle-class, young white-collar workers, and college students who are receptive to new things and have high quality, while isolating low-quality groups, in closed places like high-end residential areas, high-end office buildings, and universities—these are ideal locations for unmanned stores. However, the number of such "three-high" places nationwide is limited, making it difficult to reach the scale of 100,000 or 1 million. The market size is relatively limited, far smaller than the industry imagines. Wahaha's advantages are relatively limited. Apart from certain capital and brand advantages, there are few other highlights. In terms of unmanned store technology, Wahaha, which excels in traditional manufacturing, clearly lacks its own technological advantages and must rely heavily on third-party technology companies like Shenlan Technology. However, whether the company's payment system, where "consumers can regret after payment," addresses customer pain points is debatable; whether its high-end technology based on "machine vision, biometric recognition, deep learning" and the "grab and go" experience is a necessity for consumers is doubtful. In terms of sales channels, Wahaha claims to have nearly 7,000 distributors, but can these distributors be interested and capable of developing unmanned stores? Most of these distributors are in third- and fourth-tier cities and rural towns. Are these areas ideal for unmanned stores? Can customers get used to cashless payments? Can they prevent the human risks of "theft, robbery, and vandalism"? In one year, Wahaha deployed only 5,000 vending machines, averaging less than one per distributor. It is hard to imagine that unmanned stores, which require larger investments and carry greater operational risks, would receive support and endorsement from these distributors. In terms of operational talent, Zong Qinghou has appointed his younger brother Zong Zehou to lead, showing strategic high regard. However, unmanned stores require an organic combination of high technology and retail operations. High technology can be outsourced, but the core capabilities needed for deploying unmanned stores—site selection and supply chain management—are areas where Wahaha people and their channel partners are novices. Wahaha urgently needs to introduce professional convenience store retail management talent, and must not rely solely on the transfer and training of its beverage industry personnel. Years ago, relying on beverage employees to manage cross-industry operations was a major reason for the failures in milk powder, Wahaha Mall, and liquor transformations. Of course, Zong Qinghou also recognizes his own shortcomings and is actively embracing internet companies. He met with JD.com's Liu Qiangdong to discuss cooperation possibilities in channels, technology, and supply chain, hoping for a strong alliance and complementary advantages. Unmanned stores are at the forefront, with various players entering: Bingo Box and F5 Future Store have secured huge financing and are rapidly expanding; Alibaba's Hema Fresh and Taocafe are practicing Ma Yun's "online-offline new retail"; traditional supermarket giants Auchan, RT-Mart, and Walmart have also launched self-service grocery kiosks... Heroes with technological, financial, and site advantages are entering the unmanned store industry. Although their models and purposes differ, they are competing for nearly the same target groups and retail locations. In summary, based on the limited applicability of the unmanned store business model, Wahaha's limited advantages and obvious disadvantages, the background and strength of competitors, and Wahaha's traditional corporate culture genes, whether in the short or long term, I am not optimistic about the future of Wahaha's unmanned stores. Zong Qinghou's hope to occupy the retail market with unmanned stores primarily selling FMCG products, thereby driving Wahaha beverage sales to expand market share, is likely to be dashed. The possibility of this cross-industry venture bringing Wahaha back to its peak is minimal. Of course, with the gradual improvement of national quality and the continuous expansion of applicable scenarios for unmanned stores, based on my judgment of Zong Zehou's capabilities (Zong Zehou was an extremely important contributor in Wahaha's early days, with operational abilities not inferior to Zong Qinghou), Wahaha's vending machines and unmanned stores should carve out a place in the market, at least more successful than previous cross-industry ventures into milk powder or liquor, but far from the goal of 100,000 in 3 years and 1 million in 10 years. Even if Zong Zehou's unmanned store business succeeds by chance, in fact, the property rights have nothing to do with Wahaha Group, which claims to be employee-owned, and Wahaha employees will not share any profits. The national enterprise credit information system shows that the core shareholder of the vending machine and unmanned store operating entity (Zongsheng Intelligent Technology Co., Ltd.) is Zong Zehou, and Zhejiang Wahaha Venture Co., Ltd., holding 20% shares, has only Zong Qinghou and his wife Shi Youzhen. The golden age of the real economy has quietly passed. Where to go from here? This is Wahaha's confusion, and also the confusion of many traditional enterprises. On the road of enterprise growth, there will always be bottlenecks. Should one choose a sustained strategy or a sustained growth strategy? Should it be a specialization strategy or a related diversification or unrelated diversification strategy? Should it focus on the main business or pursue cross-industry transformation? These are core questions for any company's top decision-makers. Life is endless, and the struggle continues. The super-confident and willful Zong Qinghou of Wahaha resolutely chose continuous cross-industry transformation and an unrelated diversification strategy. However, due to the lack of core competitive advantages in talent, technology, management, and corporate culture, continuous cross-industry ventures have led to continuous failures. Moreover, because the transformations excessively dispersed energy and consumed corporate resources, they ultimately dragged down the beverage main business, leading to continuous performance decline. Looking globally, there are few successful cases of diversified cross-industry operations; specialization is what creates century-old enterprises. Take Yili, another FMCG giant. For years, it has focused on the dairy industry, with four product lines—ambient milk, cold chain milk, milk powder, and ice cream—meticulously cultivated and advancing in parallel, continuously innovating. Just one yogurt brand, Ambrosial (launched in 2014), sells nearly 10 billion yuan. Since its public listing 21 years ago, it has grown steadily, either with small steps or rapid progress, achieving continuous annual growth. It is recognized as a blue-chip stock and an industry benchmark. Another traditional enterprise in Hangzhou, Yangshengtang, initially diversified into health products, pharmaceuticals, leisure foods, and beverages with limited success. In recent years, it has gradually focused on the beverage industry. Its subsidiary Nongfu Spring has achieved double-digit growth against the trend, with sales of 15 billion yuan in 2016, a year-on-year increase of 19%. "Nongfu Spring is a bit sweet" and "Nature's porter"—Nongfu Spring's bottled water market share has risen year by year to the top (while the former overlord Wahaha purified water has retreated to third place). Its water-soluble C100 launched a few years ago and tea π in recent years have continuously surprised the market; its newly launched ambient NFC 100% pure juice this year caters to the health consumption needs of the consumption upgrade era, with promising development momentum. The internet is trendy and the new economy is tempting, but they may not be the dish for traditional enterprises! Traditional large enterprises, the backbone of the real economy, should not belittle themselves or blindly pursue cross-industry transformation! The internet, artificial intelligence, and big data can help traditional enterprises improve production and marketing efficiency and achieve industrial upgrading, but traditional enterprises should not and cannot transform into internet or intelligent technology companies. Stick to the main business; the survivor is the king; professional focus is the true path! (Author: Luo Jianxing, Associate Professor at Zhejiang University of Media and Communications, author of "Zong Qinghou and Wahaha: An In-depth Study of a Famous Chinese Enterprise") Source: Sales and Market (ID: cnmarket) -END-