It is both the best and worst of times. On one side, new economy giants like Alibaba, Tencent, Google, and Amazon see their stock market values hit new highs with sustained performance growth—even elephants can dance. On the other, traditional giants like P&G, Coca-Cola, and Master Kong stumble, with revenues stagnating or declining, making even single-digit growth a luxury. Wahaha, the behemoth of China's food and beverage industry, led by Zong Qinghou, a three-time China's richest man, has seen its performance turn dire: its 2016 performance was only half of its peak, and the first half of 2017 continued to decline year-on-year. Will it sit and wait for death, or open a new battlefield to turn the tide? At the end of June 2017, Zong Qinghou announced: embrace the new economy and enter the unmanned store new retail industry, which is on the trend! This is another cross-industry venture for Wahaha after repeated failures and comebacks in children's clothing, milk powder, Wahaha Mall, and liquor. Why does Zong Qinghou keep venturing into new fields? Is it because his beverage main business is beset with internal and external troubles, showing signs of decline, and he judges it beyond saving? 1 / Product Strategy and Promotion Methods Lack Innovation In the past, Wahaha launched major new products every 1-2 years: Children's Nutritional Liquid, Fruit Milk, AD Calcium Milk, Eight-Treasure Porridge, Purified Water, Future Cola, Tea Drinks, Juice Drinks, Wowoy, Nutri-Express... The company's performance surged wave after wave. In recent years, former blockbusters like Nutri-Express, Wowoy, and Purified Water have entered a decline phase with no hope of recovery. Once-key new products like Beer Tea Cool, Qili, Kvass, Oxygen-Rich Water, Xiao Chenchen, and Kelly One fresh juice have either targeted overly niche markets, had vague positioning, played with concepts, or failed in channel development—all have lost. In 2017, new launches like MIAO Yogurt, Wahaha Fruit-Vegetable Yogurt, and Jiaosu Enzyme Drinks (7 series, 18 items) barely made a splash before being drowned in the sea of beverages. This may be the biggest embarrassment in the 30 years since Zong Qinghou founded Wahaha. Even though Zong still insists on traveling over 200 days a year to visit distributors and sales sites, in many large supermarkets in Beijing, including Yonghui Superstores, you can hardly find more Wahaha products beyond Nutri-Express, bottled water, and Eight-Treasure Porridge. Over the years, Wahaha has continuously launched new products, producing over 300 types. However, most of their product strategies and promotion methods are nearly identical—find a successful beverage in the market as a benchmark, then quickly replicate it at low cost, distribute it through Wahaha's strong and stable distributor channels to the end of the channel, supplemented by large-scale advertising. Thus, Wahaha has earned the nickname "Tencent of the beverage industry." In the 1990s, when China was in a phase of barbaric growth, this low-cost, rapid-development "copycat" product strategy brought Wahaha tremendous success. For example, in 1987, Zong Qinghou founded Wahaha's "Children's Nutritional Liquid," benchmarking against Guangzhou Apollo. Within just two years, sales of this drink approached 100 million yuan. Wahaha can be said to have used this strategy to the extreme. Through a powerful joint-distribution dealer model, it could quickly spread new products to every small shop in rural areas, easily surpassing the imitated targets. However, the biggest problem with such a product strategy is that it is not based on insights into consumer needs and consumption trends, but rather follows competitors. China's retail market has begun to move away from barbarism toward brand competition. Consumers who grew up drinking Wahaha AD Calcium Milk have changed. Their demands for beverages have become diverse; they care not only about taste and so-called functionality, but also about the lifestyle and identity that the brand represents. For example, among the tea drinks that have become popular in the last two years, Uni-President's "Xiaoming Classmate" is one of the most successful new products. Before its launch in the summer of 2015, extensive research was conducted on the post-95s generation, from taste preferences to their language and culture, leading to the creation of this anime-style drink. Not just taste, but the product's name, personality, packaging design, etc., are all part of product development, and this part is becoming increasingly important—it directly relates to whether consumers can develop emotional identification. But such consumer-insight-based product development capability is clearly what Wahaha lacks most. The fundamental difference in product thinking led to completely different marketing approaches later. For example, "Xiaoming Classmate" targeted the post-95s anime crowd, choosing convenience stores and supermarkets in first- and second-tier cities as main channels. In marketing, it continuously reinforced its anime humor style. Recently, it put cold jokes with QQfamily characters on bottle labels in comic form. In contrast, Wahaha's tea drinks, launched in 2002 with the slogan "Heaven's Water, Longjing Tea," quickly became popular in the tea drink market, with Stephen Chow and Feng Xiaogang endorsing the series. But after Master Kong Jasmine Tea, Nongfu Spring Oriental Leaf, and Uni-President Xiaoming Classmate successively became hits, Wahaha Green Tea was discontinued around 2013. In marketing, Wahaha tea drinks had no distinctive features, merely bombarding consumers' ears with simple, crude advertising. And this approach has remained almost unchanged for over 20 years. 2 / Channel Changes and the Decline of the Joint-Distribution System Wahaha's proud joint-distribution dealer 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 Tmall and JD.com online supermarkets are developing rapidly. Wahaha's joint-distribution system has in fact fallen apart, existing in name only, with no advantage left. As more and more Wahaha products become hard to sell, the once-strong sales system is also being challenged, and various contradictions are emerging between distributors and the sales team. Under the pressure of sales targets, in the past year or two, Wahaha's customer managers and regional managers have been leaving at an accelerating rate, which has created even bigger problems. "Old customer managers knew each distributor's strength and style; when new products came down, they knew how to ship according to the distributor's strength, even when pressing inventory, they had a measure. But new customer managers are unfamiliar with the situation, and more often push the company to ship goods to distributors for their own performance, leading to overstocking and losses for distributors, and they can't earn commissions either." The younger, high-end products that Wahaha pins hopes on are clearly even more mismatched with the company's existing marketing system. In first- and second-tier channels, Wahaha does not have strong control. In convenience stores and some high-end supermarket channels, competitive pressure and channel costs for new products are increasing. Wahaha seems unwilling to invest too much time and energy in a single product; if one new product fails, it immediately pushes another. Today's beverage market is increasingly segmented. The era of simply relying on heavy advertising and distribution for new products is over. 3 / Management System Faces Challenges Wahaha's success and its decline are both attributed to founder Zong Qinghou. Like many first-generation Chinese entrepreneurs born in the 1940s-1960s, they are smart, diligent, and brave, but also conservative, stubborn, and lacking modern business management awareness. Zong Qinghou's daughter, Zong Fuli, has long been considered the successor, but she has not actually entered the core of management. Wahaha's operational decisions are still made by Zong Qinghou himself; this is a highly centralized company. Some even joke that "Wahaha's board meetings are just a formality." To a large extent, Wahaha is still Zong Qinghou's personal empire. And he is already 72 years old this year. Aging along with Zong Qinghou is the entire senior management. Although Wahaha continuously recruits college graduates to inject fresh blood, they cannot adapt in many places, cannot solve substantive problems, and have a high turnover rate. Even the 35-year-old would-be successor Zong Fuli, who entered Wahaha's management as early as 2004, has failed to change the practice of her father's sole dominance. The outside world once had high hopes for Zong Fuli. Currently, Zong Fuli serves as Chairman of Hongsheng Beverage Group Co., Ltd. and General Manager of Wahaha Import & Export Company. In previous interviews, Zong Fuli expressed that in the beverage industry, she hopes to follow her own path rather than adhere to the original Wahaha model. However, the products led by Zong Fuli seem to have not shown results. For example, in July 2016, Zong Fuli launched the high-end customized juice brand Kelly One, which is currently only available in a small scope in Shanghai and Hangzhou. For such a beverage empire with sales of nearly 60 billion yuan, Wahaha's inherent product thinking and sales system make it very difficult to turn around. Its understanding of consumers is still stuck years ago. As China's consumer market matures, people become picky about brands, and products that don't understand consumers will naturally be eliminated. Moreover, in the ever-changing beverage market, new products and concepts emerge daily, and consumers have more and more choices. In the new media era, traditional advertising is almost ineffective. Wahaha, which relied on TV advertising as its core marketing communication tool, also advanced triumphantly. Now that TV is declining, the internet is widespread, and Weibo, WeChat, and self-media are thriving, Wahaha's old tactic of TV advertising bombardment is outdated, and integrated marketing communication, interactive marketing, and topical event-driven 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 once three axes—have all failed, compounded by the disappearance of the demographic dividend, stagnant beverage market size, and consumption stratification and upgrading (young people's sensitivity to beverage prices has decreased, making Wahaha's price weapon increasingly useless). Zong Qinghou, at the end of his tether, may have judged that his beverage main business has lost its momentum, and as an objective, rational, and striving person, he has to continuously pursue cross-industry transformation and upgrading. Source: Manufacturing Circle (ID: baixiu01) -END-