---
title: "The Glory and Decline of Wahaha's Joint Distribution System"
description: "China's beverage industry is transitioning from the 'Silver Age' to an 'Oligopoly Era,' with leading brands growing while mid-tier ones decline. Wahaha's innovative 'Joint Distribution System' (联销体) once propelled it to the top, but its rigidity and changing market dynamics have forced a major channel reform under new leadership, yielding mixed results."
author: "Silas"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2025-10-13"
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citation: "Silas. “The Glory and Decline of Wahaha's Joint Distribution System.” New Distribution, 2025-10-13. https://xinjignxiao.com/en/articles/the-glory-and-decline-of-wahaha-s-joint-distribution-system-9d00560e/"
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---

# The Glory and Decline of Wahaha's Joint Distribution System

> China's beverage industry is transitioning from the 'Silver Age' to an 'Oligopoly Era,' with leading brands growing while mid-tier ones decline. Wahaha's innovative 'Joint Distribution System' (联销体) once propelled it to the top, but its rigidity and changing market dynamics have forced a major channel reform under new leadership, yielding mixed results.

### **Source** | DrinksSHOW Observer **ID** | DrinksSHOW Author | Silas

The "Silver Age" of China's beverage industry is slowly closing its doors.

In 2014, companies such as Wahaha, Uni-President, Master Kong, Huiyuan Juice, and Want Want generally experienced declining performance, ending years of widespread, high-speed growth. This marked the industry's fall from the "Golden Age" to the "Silver Age."

In the first half of this year, leading beverage brands like Nongfu Spring, Dongpeng Beverage, and Uni-President still maintained near-double-digit growth in revenue and net profit (excluding non-recurring items). On the other hand, mid-tier brands such as Liziyuan, Chengde Lulu, and Junyao Health saw varying degrees of decline. The Matthew effect of differentiated development is becoming apparent, racing toward an "Oligopoly Era."

The thirty turbulent years of China's beverage industry have spanned the vibrant "Golden Age" of flourishing diversity, the low-growth "Silver Age," and the differentiated "Oligopoly Era."

Despite the industry passing through different eras and multiple cycles, the ultimate challenge for all Chinese beverage companies remains: how to efficiently and accurately deliver a bottle of water or a drink from the factory to hundreds of millions of consumers. In response, Chinese beverage companies have made relentless efforts.

In the wave of channel transformation in China's beverage industry, Wahaha and its pioneering "Joint Distribution System" (联销体) have left a significant mark. The birth, rise, and fall of this channel model profoundly reflect the changing times of the industry.

"In sales models, sticking to the same approach regardless of changes is not viable." A new era calls for new channel strategies, closely tied to the development of manufacturers and distributors. As a living fossil of local beverage companies, Wahaha's channel strategy changes are still worth examining, even though the company's future remains uncertain amid current turmoil.

**The Triangle Debt That Gave Birth to the Joint Distribution System**

The famous "Joint Distribution System" originated from the triangle debt issue in the FMCG industry.

Similar to the plot of "Blossoms Shanghai," by the 1990s, China's individual economy was sprouting rapidly. Wahaha seized the opportunity to actively recruit emerging small individual wholesale merchants, in addition to large state-owned stores and other market players.

This move brought both good and bad news. The good news was that Wahaha's number of distributors grew significantly, and products penetrated the market faster.

The bad news was that bad debts increased. Like other peers, Wahaha's cooperation with distributors was based on "credit sales": distributors took goods first and paid later. However, once downstream distributors failed to collect payments (in 1993, Wahaha had 100 million yuan in outstanding payments in the circulation chain), Wahaha also lacked funds to pay factories, creating a triangle debt. Capital was blocked downstream, severely hindering Wahaha's national expansion.

In 1994, at the annual distributor conference, Wahaha proposed an unprecedented deposit system, which became known as the Joint Distribution System.

Wahaha divided distributors into three tiers: first-tier/special first-tier distributors, second-tier wholesalers/special second-tier wholesalers, and third-tier wholesalers. The model stipulated that first-tier wholesalers/distributors must deposit 10% of their annual sales as a deposit into Wahaha's account by the end of each year. Subsequently, before each monthly shipment, distributors had to settle payments in full before Wahaha would deliver goods.

The model also defined the sales system. It stipulated that only one first-tier wholesaler could exist in a region, and cross-regional sales were prohibited. Wahaha set different wholesale and retail prices for each tier to fully protect the interests of wholesalers at all levels. First-tier wholesalers were responsible for warehousing, capital, and delivery to terminals, and they had to manage second-tier wholesalers in their area, who in turn were responsible for third-tier wholesalers, and so on. Most importantly, distributors had to undergo regular assessments by Wahaha.

◎ Image source: Wahaha official website

While requiring channel partners to fulfill obligations, Wahaha also created an attractive profit pool for them. On one hand, Wahaha guaranteed interest on the "deposits" of first-tier/special first-tier distributors, paying interest at or above bank deposit rates.

On the other hand, Wahaha offered substantial year-end rebates to wholesalers who met set targets, and regularly launched various promotional policies based on market conditions, providing a certain percentage of promotional expenses and dispatching sales personnel to help distributors with market segmentation, positioning, shelf placement, inventory management, and advertising promotions.

◎ Image source: Xiaohongshu user @午马行空的随记📝

**The Two Sides of the Joint Distribution System**

In essence, the Joint Distribution System created a new contractual relationship between manufacturers and channel partners—no longer a zero-sum game of debt, but a partnership with aligned interests.

Thus, an incredible phenomenon occurred: despite the large deposits and heavy obligations, Wahaha still attracted about 8,000 channel partners to sign contracts. Even more incredible was that the system received widespread industry recognition after its inception. The reason lies in its unparalleled advancement at the time.

First, it provided ample and stable cash flow for rapid corporate development. Under the system, prepayments from thousands of first-tier wholesalers gave Wahaha sufficient cash flow for new product development, corporate and product promotion, thereby continuously expanding the brand's competitive advantage and boosting wholesalers' product sales.

Second, it effectively curbed industry chaos such as cross-regional selling and channel conflicts. The system established strict and detailed regional sales responsibility divisions and reward/punishment mechanisms, ensuring substantial profits for all channel levels and the manufacturer, fostering more harmonious channel relationships and effectively preventing wholesalers from engaging in cross-regional selling and disputes over interests.

Third, it greatly enhanced control over the channel. Thanks to a comprehensive incentive system combining rebate incentives and indirect incentives for distributors, the Joint Distribution System invigorated the channel, transforming Wahaha from a solo fighter into a force of tens of thousands of enterprises competing collectively. With strong control over hundreds of thousands of wholesalers and over 3 million retail terminals, Wahaha could distribute products nationwide within a week, even to every small shop in remote rural areas.

The Joint Distribution System was like a sharp sword that cleaved a path to the summit for Wahaha. By 2003, Wahaha's sales exceeded 10 billion yuan, reached 50 billion in 2010, and peaked at 78.3 billion yuan in 2013, making it China's largest private beverage company.

However, the Joint Distribution System was a product of the Golden Age when supply was less than demand. As the industry entered the more competitive Silver Age, distributors gradually realized that selling beverages was not a guaranteed profitable business.

Distributors' calculations were pragmatic: AD calcium milk was an immediate "cash cow," while new products were uncertain "gambles." Under the deposit system, any risk of slow sales was amplified. They preferred to earn thin margins on old products with certainty rather than risk their cash flow for uncertain high profits.

This made it difficult for Wahaha to promote new products. According to "Times Weekly," Wahaha launched over 300 new products, but the vast majority faded away. Since the launch of Nutri-Express in 2005, Wahaha has not had another blockbuster new product. For years, it has relied on the "old three"—AD calcium milk, purified water, and Nutri-Express—to compete.

◎ Image source: Xiaohongshu user @月牙儿

The three-tier channel model of "manufacturer-distributor-secondary wholesaler-terminal" also laid the groundwork for channel loss of control. In the early days of the Joint Distribution System, the relatively simple circulation form allowed sufficient profit margins for all channel levels.

But as marketing became more difficult and costs along the channel rose, the price differences for some products could no longer provide good profit margins for channel partners. Terminal loss became a new crisis plaguing Wahaha.

Thus, Wahaha began reforming the Joint Distribution System, with one core direction being "channel flattening"—compressing the traditional distribution chain from the three-tier model of "manufacturer-distributor-secondary wholesaler-terminal" to a two-tier model of "manufacturer-distributor (or terminal)."

It encouraged original secondary wholesalers, salespeople, and terminal store owners to transform into distributors, even supporting them to "build parallel distribution networks," aiming for higher efficiency and lower costs, getting closer to consumers, and responding faster to market changes.

**The Joint Distribution System "Fails," and Wahaha's Channel Strategy Makes a Sharp Turn**

But the rigid Joint Distribution System seemed like a golden headband on Wahaha, making its "patchwork" reforms inadequate. Shortening channel levels meant Wahaha would face more distributors and terminal operators, imposing higher demands on the manufacturer's market management and service capabilities.

◎ Image source: Weibo @Wahaha

However, Wahaha failed to keep up in backend services. Compared to companies like Master Kong and Nongfu Spring, which provide refined services with a dozen salespeople per region, Wahaha's salesperson services were relatively rough. As China's beverage industry entered the more intensely competitive "Oligopoly Era," Wahaha needed a thorough channel overhaul.

Regardless of the considerations, after Zong Fuli took the helm, Wahaha indeed initiated a "bone-deep" channel transformation.

In 2024, Wahaha vigorously promoted terminal channel reform. At the organizational level, it restructured a 12,000-person professional terminal team, focusing on strengthening distribution and maintenance capabilities in modern channels such as convenience stores and supermarkets.

It also added the "Modern Channel Business Department" and "Special Channel Business Department" to promote refined operations, shifting the channel strategy from "passive distribution" to "active expansion."

◎ Image source: Xiaohongshu user @红果果

In an interview with Interface News, Zong Fuli emphasized that the essence of terminal channel reform is to let consumers buy products anytime, anywhere. To this end, Wahaha launched a plan to place 100,000 smart freezers in 2024, setting a record for annual equipment placement, to build a terminal network for new products.

This strong dose of terminal channel reform is one of the reasons Wahaha achieved its best results in nearly a decade: annual revenue returned to 70 billion yuan, a year-on-year surge of 40%; bottled water sales doubled; AD calcium milk soared 70%, marking the best performance in ten years.

But Zong Fuli's reform also sparked controversy. Channel reform starts with organizational change; Wahaha's first cut was to performance assessments.

Internally, it broke the "iron rice bowl" by linking dividends to performance. However, according to Wahaha insiders, nearly half of employees received C or D ratings, causing dissatisfaction and concern among some staff.

Externally, Wahaha adjusted distributor policies, eliminating distributors with annual sales below 3 million yuan. The new distributor policy stipulates that if a distributor fails to meet sales targets, experiences consecutive negative growth, or fails to meet configuration standards within a certain period, it constitutes a breach of contract and may face termination.

Wahaha aims to achieve an upward "blood transfusion" from "large distributors" to replace "small distributors" through "last-place elimination."

This policy has caused widespread dissatisfaction among distributors because Wahaha's performance requirements have become extremely stringent, with sales tasks in some regions nearly impossible to complete. Under the iron-fisted push of the large distributor integration model, a large number of distributors were eliminated.

Wahaha stated: "The number of new distributors far exceeds those terminated, proving that the optimization is a virtuous cycle of 'in and out.'" As for the results, time will tell.

As a living fossil of local beverage companies, Wahaha, now nearly 40 years old, is like a mirror. The rise and fall of the "Joint Distribution System" clearly reflects the trajectory of channel reform in China's beverage industry: from channel dominance to terminal dominance to scenario dominance, with channels becoming increasingly granular and closer to consumers.

Wahaha's channel development history profoundly reveals that only by continuously promoting channel flattening and digitalization, and building an agile channel ecosystem around consumption scenarios, can a company win the competitive initiative in the new era of "scenario dominance."


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## Citation metadata

- Publisher: New Distribution
- Author: Silas
- Published: 2025-10-13
- Canonical: https://xinjignxiao.com/en/articles/the-glory-and-decline-of-wahaha-s-joint-distribution-system-9d00560e/
- Original source: https://mp.weixin.qq.com/s/io6ub68AZsOpHMJktV-HDA

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