After completing diversification into football, agriculture, health, culture, and finance, Evergrande Group Chairman Xu Jiayin announced at the 20th anniversary celebration on June 26, 2016, that the company would formally enter its seventh "three-year plan" phase, shifting from "scale + brand" to "diversification + scale + brand." How will this diversified real estate company, which started from a 100-square-meter residential unit and grew from scratch, carry out its seventh "three-year plan"? China Business Journal | Edited by Yingxiaoli Perhaps its biggest trump card is the six listed companies at home and abroad and the completed layout in six major fields: real estate, finance, internet, health tourism, culture and sports, and agriculture. Undoubtedly, from the overall situation, Evergrande is an excellent company with large scale, rapid development, and numerous outstanding achievements. However, this does not mean that every business segment of Evergrande is flawless. This issue of China Business Journal's business case focuses on the full story of Evergrande Spring Water's operations, hoping to offer some rational reflection for this rapidly growing company from another perspective. Part One: Reviewing Evergrande Spring Water's Unlucky Years After the 20th anniversary celebration frenzy, Evergrande should reflect. Recently, public opinion has been increasingly critical of Evergrande Spring Water. On one hand, it marks the first anniversary of Evergrande's seventh "three-year plan," and the outside world expects Evergrande, which has been strong for a long time, to deliver a brilliant report card; more importantly, it is also approaching the third anniversary of Evergrande Spring Water's official launch, and the outside world's questioning of its future is equally urgent. Evergrande Speed To the outside world, the launch of Evergrande Spring Water was sudden and frenzied. Public reports show that on November 9, 2013, during the AFC Champions League final, the Evergrande football team quietly wore new jerseys with the words "Evergrande Spring Water" printed on them. During the broadcast breaks on CCTV-5 and Guangdong TV, a 5-second Evergrande Spring Water advertisement was frequently played. After the match, at the celebration performance, the "Evergrande Spring Water" billboard became the stage backdrop, appearing in the most prominent position. After gaining attention, on November 10, Evergrande Group quickly held a press conference to announce the launch of Evergrande Spring Water, with a 350ml bottle priced at 3.8 yuan. For most employees within Evergrande Group, the launch of Evergrande Spring Water was equally sudden. According to media reports (Times Weekly), from September 2013, when Evergrande Group signed a cooperation agreement with Baishan City in Jilin Province in Changchun, to October, when the Evergrande mineral water business department began recruiting talent within the group, only a few dozen people knew about this news. Importantly, it was not until the eve of the launch that the Evergrande Mineral Water Group was formally established, and its senior management was hastily assembled. Its chairman, Pan Yongzhuo, was a veteran of Evergrande Real Estate and had served as a regional head in multiple areas. The water source in Baishan City was managed by General Manager Shi Junping, who also had a long career in real estate. The group then hired Yang Huafeng from outside at a high salary as deputy general manager to oversee logistics. Despite the haste, the development of Evergrande Spring Water and the Evergrande Mineral Water Group still reflected "Evergrande speed." According to media reports at the time, the mineral water group began recruiting in October, and by the end of November, it had 31 regional offices nationwide, with nearly 1,000 employees. A review of past materials by China Business Journal reporters noted that after officially starting operations, Evergrande Spring Water continued this "Evergrande speed." For example, just two months after entering the market, Evergrande Real Estate held a 3,000-person distributor ordering conference at its Qingyuan Evergrande Tourism City. It was reported that the event attracted over 800 institutions and more than 3,000 people from first- and second-tier cities such as Beijing, Shanghai, Guangzhou, Shenzhen, Sichuan, and Hubei. Evergrande Group Chairman Xu Jiayin told the media that they set up 8,000 sales points in one day and over 200,000 in a month. Within 100 days of establishment, the water business department had distributed products nationwide and established sales branches in 332 prefecture-level cities. External analysts believe that Evergrande seized the opportunity of the AFC Champions League victory through rapid action, achieving great promotional success. But it also meant bearing a series of risks arising from the hasty launch. Thrilling Steps And the risks came. According to media reports (Chongqing Youth Daily), by January 2014, Evergrande Spring Water had an imbalance between production and sales of 125,000 tons. The cause of this result can be traced back to the agreement signed between Evergrande and Jilin in September 2013 for two water plants. It is understood that in September 2013, Evergrande Group decided to enter Changbai Mountain to develop high-end mineral water, acquiring the Gold Drink Company under Wutai Pharmaceutical and its water source, Yinlong Spring, for 280 million yuan. According to information published on the Jilin Provincial Government website, Gold Drink Co., Ltd. was registered in Baishan City in August 2006. The first phase of the project had a total investment of 500 million yuan, with a building area of 22,455.30 square meters, and had three German Krones bottled water production lines with an annual design capacity of 400,000 tons. Later, Wu Shili, head of the Science and Technology Section of the Jingyu Water Source Protection Area Management Bureau, confirmed that Evergrande Spring Water had only three production lines with a capacity of 400,000 tons. From the AFC Champions League appearance in November 2013 to January 12, 2014, Evergrande Spring Water had received orders worth at least 5.7 billion yuan. According to industry estimates at the time, 5.7 billion yuan meant producing 1.5 billion bottles of water, equivalent to 525,000 tons. According to media reports, to increase capacity, Evergrande quickly imported German Krones mineral water production lines at a cost of eight figures, deploying them at the Changbai Mountain plant. These lines could have multiplied capacity several times before the summer sales peak, but due to initial involvement in the water industry and technical debugging, the replacement of the original lines was delayed. Insiders in the Changbai Mountain area added that during the upgrade and debugging process, the new lines were unable to produce Evergrande Spring Water that met hygiene inspection standards for a long time. According to media descriptions, by August 2014, due to insufficient supply, some places experienced stockouts of Evergrande Spring Water. At that time, distributors began complaining that "the manufacturer kept urging us to pay, but new goods were not shipped." Evergrande, on the other hand, claimed that the stockout was due to "good sales during the peak season." Xu Xiongjun, a marketing strategy expert in the food and beverage industry, told reporters that in market operations, the initial launch is crucial. For Evergrande Spring Water, it had already missed the first summer of launch. According to media reports, in the first year of Evergrande Spring Water's official operation, Nongfu Spring stocked up heavily at the terminal, preparing for a PK battle during the beverage sales peak season. They also widely promoted their water sourcing and long-term construction in Changbai Mountain, showing clear signs of defense in both communication and terminal. For Evergrande Spring Water, the harsh reality was that the production gap disrupted its advertising investment. After August 2014, Evergrande stopped advertising for mineral water, shifting resources to grain, oil, and milk powder as new diversification ventures. Doubts about Diversification Strategy After the stalemate, Evergrande delivered a report card of three consecutive years of losses in 2015. In 2015, Evergrande planned to spin off Evergrande Spring Water for a separate listing. According to audit data from PricewaterhouseCoopers at the time, Evergrande Spring Water's revenues for 2013, 2014, and January to May 2015 were 34.8022 million yuan, 968 million yuan, and 284 million yuan, respectively, with net profits of -552 million yuan, -2.839 billion yuan, and -555 million yuan, totaling losses of 4 billion yuan. Interestingly, on September 9, 2015, Evergrande Spring Water held a press conference to announce a comprehensive price cut. This was interpreted by the industry as Evergrande admitting the failure of Evergrande Spring Water. However, reflecting on the beginning and end of Evergrande Spring Water's defeat, the story seems not over. Because both Evergrande Spring Water and Evergrande's seventh "three-year plan" tell a core story: Evergrande's diversification. Reporters found that diversification was formally unveiled at the mid-2014 meeting. At that time, Xu Jiayin first proposed a diversification development strategy, aiming to become a Fortune 500 company. Xu Jiayin said that from that day forward, they would enter the "diversification + scale + brand" strategy phase, planning to enter 200 more cities by 2017, bringing the total to 350 cities, and accelerate internationalization, entering 10 to 20 countries. Our reporters found that Evergrande's diversification was not proactive but formed from initial connotative layout to current denotative expansion. As early as 2009, Evergrande initially tried the "real estate + hotel" model, with its first flagship hotel opening at Evergrande Yujing Peninsula in Guangzhou; in October 2010, the opening of Chongqing Evergrande Hotel kicked off Evergrande's investment in cultural complexes; in June 2011, Evergrande built a benchmark tourist resort—Guangdong Qingyuan Evergrande Century Tourism City. Its initial foray into sports and culture was also to support real estate expansion. Investments in cinema chains and animation carnivals in the cultural industry could serve as effective supporting facilities for its commercial real estate. Industry analysts previously believed that Evergrande's diversification lacked thought and was hasty. For example, the fields Evergrande entered were not traditional high-profit industries, such as grain and oil as primary industries, and photovoltaics, which are heavily affected by international energy prices. Moreover, the synergy between these industries was not obvious, especially lacking synergy with real estate. However, according to a report by Caijing National Weekly, in the words of Evergrande Group Vice President Liu Yongzhuo, Evergrande Grain and Oil, Evergrande Dairy, and Evergrande Animal Husbandry are major livelihood projects built by the group. This foray into new industries was not a whim but an important step in Evergrande's "diversified development" strategy. Liu Yongzhuo also revealed that after a year of investigation and research, Evergrande decided to invest over 100 billion yuan in grain and oil, dairy, and animal husbandry. But even so, Evergrande's preparations in talent reserves, market promotion, and quality control were still questioned by the outside world. Our reporters attempted to interview Evergrande about its diversification issues but repeatedly called the official website contact number without anyone answering. Part Two: Analysis: Real Estate Mindset Hard to Adapt to FMCG Market Even in retreat, Evergrande Spring Water, with its strong financial resources, staged a "capital counterattack" for all "marketing technicians" who lack funds and try to win through marketing. In July 2013, Evergrande established a mineral water company. In the following two months, Evergrande expanded in Changbai Mountain and began marketing Evergrande Spring Water at the AFC Champions League in November 2013. Like its investment in football, Evergrande's mineral water business expansion used a "golden policy" approach: basic staff recruitment with monthly salaries above 6,000 yuan, huge advertising to build awareness, hiring large numbers of students for summer sales, and using Evergrande real estate sales offices for direct sales... According to Xu Jiayin, within less than two years, Evergrande Spring Water had set up 1.3 million supermarket and convenience store points nationwide, with a sales team of nearly 20,000 people, and established 767 mineral water sales branches in 2014. All this was built on Evergrande's strong capital support. According to Xu Jiayin, the first wave of all-media advertising invested 1.3 billion yuan (in 20 days), most of which went to CCTV and several major provincial satellite channels, and over 40 million yuan on Sina for Evergrande Spring Water. A large-scale product operation with sufficient financial firepower, product strength, and communication firepower ultimately resulted in a loss of 2.37 billion yuan in one year and cumulative losses of 4 billion yuan. Why? Industry analysts previously pointed out that Evergrande Spring Water's biggest mistake was a psychological misalignment: operating in the FMCG market with a real estate mindset. The real estate industry examines a company's capital operation ability, while the FMCG industry examines market operation ability. In essence, the real estate industry is similar to the financial industry. Competition in this industry is not pure market competition. The FMCG industry, on the other hand, is a more mature market behavior. "If this mindset is not corrected, successful cross-border transformation is impossible," Xu Xiongjun told our reporter. Market Positioning Deviation Earlier, Xu Jiayin announced targets: Evergrande Spring Water sales should reach 10 billion yuan in 2014, then increase by 10 billion yuan each year for the next two years, reaching 30 billion yuan in 2016. It is understood that China's mineral water market, like many markets, is mainly concentrated in the mid-range and mid-to-low-end segments. The high-end market is not easy to do, with relatively small scale. In 2013, the entire high-end water market in China was only 5 billion yuan, while the mid-range and mid-to-low-end segments were larger than the high-end market, but the total sales of several major players like Nongfu Spring, C'estbon, and Master Kong were only around 30 billion yuan, and they had been operating for many years. According to Evergrande's product positioning at the time, it was mid-to-high-end, and the entire mid-to-high-end market sales were only 5 billion yuan. According to external data forecasts at the time, by 2015, the high-end water market sales could only reach 10 billion yuan. Evergrande Spring Water's target positioning was clearly off. Zhu Danpeng, a researcher at the China Brand Research Institute's food and beverage industry, told reporters that Evergrande Spring Water's strategy was a "high-profile, high-investment" strategy. Many of Evergrande's senior executives had never been involved in the FMCG industry, so their understanding of FMCG was relatively shallow. They believed that in the Chinese market, as long as you have a good product and big investment, you will definitely get big returns. But in reality, this is not the case. Furthermore, Xu Xiongjun believes that from the perspective of communication rules, Evergrande Spring Water's promotion also had the suspicion of "indiscriminate bombing and not understanding the market." According to the communication method for high-end brands, it is generally to first cultivate a group of consumers to build loyalty, then use the first group for word-of-mouth communication. Without word-of-mouth, "high-profile, high-investment" is often seen as wasting ammunition. Vague Brand Image Evergrande Spring Water's advertising theme changed nine times in ten months, causing an uproar in the marketing community. Some analysts speculated that the main reason for the frequent changes in Evergrande Spring Water's ads might be sales problems and poor sell-through. Evergrande's internal analysis attributed sales problems to the ads being wrong, so they kept changing them. Xiang Yi, a marketing professor at CEIBS, believes that there may be many reasons for the frequent changes in Evergrande Spring Water's ad themes, and sales pressure might be one, but the fact that Evergrande Spring Water dared and could change ads nine times a year is largely due to Evergrande Group's real estate operation thinking. From Evergrande Group's 2013 financial report, the group's annual revenue was 93.67 billion yuan, of which real estate development revenue was 92.23 billion yuan, accounting for 98.5%. As a new industry of the group, Evergrande Spring Water was easily influenced by the dominant real estate marketing team in its marketing thinking. Xiang Yi analyzed that the real estate marketing approach is to position different properties in different regions separately, and even ads in the same period rarely have continuity or relevance, and can even be completely unrelated. This original real estate advertising positioning approach provided the soil for Evergrande Spring Water to frequently change its advertising slogans, allowing the marketing team to ignore positioning, focus, continuity, and other communication laws and change ads nine times a year. In addition to the ever-changing ads, the revolving door of spokespersons was also a point of criticism. Before the Spring Festival in 2014, Evergrande Spring Water simultaneously launched new ads featuring Jackie Chan and Fan Bingbing, resulting in two heavyweight stars endorsing the same product at the same time. Later, it signed Kim Soo-hyun and Jun Ji-hyun, two hot first-line idols. In half a year, four first-line celebrities filmed different ads for the same product, which is rare in Chinese corporate marketing. However, big-budget celebrity endorsements were one of Evergrande Real Estate's common marketing tactics. During the 2007 Golden Week, when Guangdong Evergrande Yujing Peninsula opened, the marketing hype with Jackie Chan and Fan Bingbing on the rooftop brought in 1 billion yuan in sales. In April 2008, when Wuhan Evergrande Huafu opened, celebrities like Nicholas Tse, Fan Bingbing, Joey Yung, and Wang Han helped the project exceed 280 million yuan in sales on the first day... It is not hard to see that in Evergrande Real Estate's past marketing cases, the presence of various stars quickly boosted sales and triggered buying frenzies, and each property's spokesperson was almost completely different. This simple and crude marketing of "celebrity support + advertising bombardment + cost price" seemed to work repeatedly in the real estate market, always achieving surprising results. Evergrande Spring Water, entering the FMCG market for the first time, clearly wanted to replicate the successful model of real estate marketing. Xiang Yi believes that in real estate operations, celebrity endorsements often have an immediate effect on sales. Because different projects have no necessary connection, it is common in real estate marketing to change spokespersons for each property, and previous spokespersons do not affect consumers' perception of new projects. But for a long-term brand, the spokesperson must fit the brand. Sometimes the spokesperson's influence on brand image can be deep-rooted and hard to change. However, for the four spokespersons Evergrande Spring Water used, their styles were so different that there was no consistency, and even their fan bases rarely overlapped, almost targeting different audiences, making people feel that Evergrande Spring Water's marketing strategy lacked overall coherence and did not clarify what kind of consumers it wanted to attract. "This directly led to consumers having no impression of Evergrande Spring Water, only remembering the name Evergrande, which is precisely a taboo in cross-industry operations," Xu Xiongjun told reporters. Part Three: Observation: Mid-to-High-End Beverage Market Needs Cultivation Evergrande Spring Water made a questionable decision at the right time. In September 2015, Evergrande Spring Water announced a comprehensive price cut, with the main 500ml product adjusted from 4 yuan to 2.5 yuan. This meant that Evergrande Spring Water would move from the domestic mid-to-high-end water market to the second tier, benchmarking against brands like Nongfu Spring and Ganten. However, this may not be a wise choice. Public data shows that 2012 was a year of full explosion for high-end water. That year, the retail sales growth rate of high-end water reached 42.6%, nearly three times that of mid-to-low-end water. Our reporters reviewed the drinking water market data of the past three years and found that domestic companies began to gradually lay out the high-end drinking water market around 2013. For example, in 2014, Wahaha launched Wahaha Oxygen-rich Water on the basis of its original purified water. In 2015, Nongfu Spring also launched three high-end drinking waters. At the beginning of this year, China Hobin Group, the parent company of Red Bull, was confirmed to have acquired just over 50% of Norwegian premium bottled water VOSS for approximately $105 million to enter the high-end water market. According to industry analysts, a fixed high-end water consumer group has already formed in China. In addition, high-end water has huge profit margins. With the improvement of living standards, when people pursue high-quality and healthy lives, they will choose higher-quality water. High-end water generally contains different trace elements beneficial to human health. The bottled water industry has grown at a rate of 20% in the past two years, and high-end water has grown at several times the rate of ordinary water. It can be foreseen that with consumers' increasing attention to water quality and health and rising per capita income, the high-end water consumer group will continue to expand. In other words, when Evergrande Spring Water entered and laid out the high-end market, it coincided with the initial development of the mid-to-high-end water market. Looking back at its exit last year, it is very likely a mistake. However, it is worth reflecting: since Evergrande Spring Water's thinking was correct, why did it suffer a Waterloo? Xu Xiongjun analyzed to China Business Journal reporters that China's current industry leaders, at the beginning of their rise, often adopt similar practices (spending money) to quickly awaken a huge market through large-scale investment. But this market is limited to rigid demand markets, and for drinking water, the rigid demand market corresponds to the low-end market. For the mid-to-high-end water market, it needs to form slowly; the market is not awakened but is the result of gradually upgrading purchasing power and consumption taste. This process may be extremely long and requires sufficient patience from the enterprise. In March 2013, data from the China Industry Enterprise Information Center under the National Bureau of Statistics showed that Kunlun Mountain Natural Snow Mountain Mineral Water won the 2012 national high-end water sales championship with a market share of over 41%. At that time, Kunlun Mountain, which held 40% of the national high-end water market, was not profitable. Industry analysts previously pointed out that Kunlun Mountain mineral water officially started production in 2008, with large-scale promotion in 2010, and it would take more than five years to truly become profitable. What Evergrande Spring Water lacked was precisely the patience to cultivate high-end consumers. "When Evergrande Spring Water was first launched, it was ahead of its time for the domestic drinking water market, and consumers were still price-sensitive. Although bottled water had successfully become a daily necessity, consumers' consumption habits and psychology had not reached the point of necessarily drinking high-end water at 4 yuan, and high-end consumption might be less than 5%. Therefore, mid-to-high-end water should basically adopt a 'penetration strategy,' slowly participating in cultivating a market. In addition, when distributing, it should first lay out the mid-to-high-end market. I have never seen a model where consumption points are everywhere nationwide; this is essentially not understanding marketing strategy," Xu Xiongjun commented. -END- The best learning platform for FMCG distributors in China Focusing on providing professional, practical, and applicable tutorials for enterprises and distributors Committed to helping Chinese FMCG distributors grow rapidly The most professional and practical knowledge base in the FMCG industry Reply with the red number below to get the corresponding content Reply with number 1 to view the complete knowledge base | 001 Excellent Article Selection | 002 Distributor Market Operations | 003 Terminal Visit Management | 004 Sales Supervisor Skills | 005 Sales Improvement Techniques | 006 Channel Expansion | 007 Managing Distributors | 008 Distributor Development | 009 Distributor Internal Operations Management | 010 Team Management | 011 Efficient Distribution Techniques | 012 Sales Manager's Skills | 013 KA Operation Methods and Strategies | 014 First Lesson for New Salespeople | 015 Internet, Brand | 016 Distributor B2B Transformation | [Long press QR code to follow]