---
title: "Wahaha Plans to Go Public? Insiders Say All Employee Shares Have Been Bought Back"
description: "This early spring, Wahaha was once again questioned by the industry due to a 'price adjustment notice' of unknown authenticity. Whether it's going public or other matters, the 30-year-old company's situation is hard for outsiders to fully understand."
author: "淮纯菊"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2018-03-05"
language: "en"
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# Wahaha Plans to Go Public? Insiders Say All Employee Shares Have Been Bought Back

> This early spring, Wahaha was once again questioned by the industry due to a 'price adjustment notice' of unknown authenticity. Whether it's going public or other matters, the 30-year-old company's situation is hard for outsiders to fully understand.

This early spring, due to a 'price adjustment notice' of unknown authenticity, Wahaha was once again questioned by the industry. As the saying goes, 'the warmth is yet to come, but the cold lingers.' Whether it's going public or other matters, the 30-year-old Wahaha's situation is hard for outsiders to fully understand.

The Truth Behind the Price Increase

The calm surface was broken by a 'price adjustment notice,' and the waters around Wahaha (Hangzhou Wahaha Group Co., Ltd.) began to stir again.

This notice, widely 'circulated' in the industry, ostensibly came from the sales company of Hangzhou Wahaha Group. Its main content was to inform distributors and cooperative units of price adjustments for several major product series, stating: 'The new prices will take effect from March 1, 2018.'

Normally, product price adjustments are a routine matter for a company, but as industry insiders 'verified' and media exposed the issue, 'a small matter gradually turned into a storm,' said a veteran FMCG practitioner to New Financial Observer.

The mainstream view is that Wahaha's price increase for some products is a natural response to the times. Since the beginning of 2018, the food industry has seen a wave of price increases, from beer to baijiu to Master Kong and Uni-President. Price hikes are nothing new. Moreover, with rising costs of raw materials, packaging, logistics, and labor, if Wahaha raises prices, it's just following the trend.

More importantly, 'the whole industry is raising prices, channel profits are insufficient, distributors lack motivation, and sales continue to decline... To some extent, it's fair to say Wahaha was forced to raise prices,' said a former Wahaha employee to New Financial Observer.

At this point, it wasn't yet a storm. But this 'price adjustment notice' pushed Wahaha to the peak of public opinion. While the media was hotly analyzing that price increases couldn't solve the company's difficulties, Wahaha officially responded.

According to media reports, a spokesperson for Wahaha's publicity department stated that the document was forged, and the company only adjusted promotional policies for a few products, mainly canceling some promotional policies for Nutrition Express, tea, and juice products. However, Wahaha did not deny that the cancellation of some promotional policies might lead to market price increases.

At this, the public was in an uproar. What puzzled people most was: who would 'forge' a 'price adjustment notice'? Even more puzzling, according to media reports, this 'forged' notice had already been 'passed down' in some regional markets of Wahaha.

'This is a problematic notice,' said the former Wahaha employee after reviewing the notice. He noted that in many regional markets, the retail price of Nutrition Express was already above 5 yuan, yet the 'notice' still stated that the retail price should not be lower than 4 yuan. Moreover, price adjustment notices usually only specify supply prices, not retail prices, because market conditions are complex and restrictions may not be enforceable.

If all this counts as a storm, what's heartbreaking is that this feigned 'price increase' has already hurt Wahaha. Public reports say that a media outlet initiated a poll asking 'Nutrition Express price increase, how does it affect you?' Nearly 60,000 people participated, and 61% said they never drink beverages like Nutrition Express.

Perhaps those who participated in the poll were not the target audience for Nutrition Express, but such a 'result' is still disheartening. The most interesting comment about the price adjustment was: 'Wahaha wants to make its financial reports look good before going public.' However, this claim was quickly denied by insiders familiar with Wahaha.

In the insider's view, a price increase not only fails to improve the financial reports but also fails to solve Wahaha's current predicament, and it could bring bigger problems—like unsold inventory.

Prelude to Going Public

Alongside the 'price increase' matter, news about 'employee shareholding' also emerged.

The news said: 'Recently, Wahaha bought back all employee shares at 2.6 yuan per share, reportedly to prepare for going public.' Comparatively, this should be a major event, as it involves 'all employees' and Wahaha's listing plans.

After verification by New Financial Observer, the share buyback has been completed. Current employees said it was 'for going public,' as outsiders guessed.

As for news about Wahaha going public, it was already buzzing last year. Whether it's a backdoor listing or an IPO, the industry is quite concerned. Besides Wahaha's declining performance in recent years, more importantly, in the early years, Wahaha Group Chairman Zong Qinghou publicly expressed his determination 'not to go public' and repeatedly emphasized the importance of employee shareholding.

In 2012, Wahaha's performance declined for the first time. Although it achieved nearly 80 billion yuan in sales in 2013, it has been on a downward trend in subsequent years, and 2017 was no exception.

Public information shows that 2016 was the third consecutive year of declining performance, with annual sales dropping to 52.9 billion yuan. An unconfirmed report says that in 2017, Wahaha experienced its fourth consecutive year of decline, with annual sales falling below 50 billion yuan, 'achieving sales of over 40 billion yuan.'

'Wahaha's performance has indeed been deteriorating in recent years, so the boss wants to take the opportunity to go public; otherwise, if delayed further, it might be too late,' said the aforementioned insider. 'Boss' is how Wahaha employees refer to Zong Qinghou, and over time, industry insiders have adopted the term.

Going public is not inherently right or wrong; what makes the industry sigh is the helplessness of Zong Qinghou and Wahaha at different times. Whether it's the benefits of employee shareholding or the determination not to go public, when they become contradictory, the 'boss' chose to adapt to the times.

In November last year, Wahaha celebrated its 30th birthday. It was also at that birthday celebration that Zong Qinghou publicly stated: **'The capital market is beneficial for a company's rapid development. We will consider going public at an appropriate time in the future.'**

To the outside world, this was a 'loosening up.' For Wahaha Group, which is not short of cash, Zong Qinghou might be making some compromise.

What contradicts Wahaha's listing plan is precisely the employee shareholding. Although Zong Qinghou once said: 'I work for Wahaha employees and will continue for another 20 years.'

Public information shows that as early as 1999, Wahaha employees entered the era of full employee shareholding.

According to the former employee, Wahaha was his first job after graduation. After working for a full year, he became eligible for share allocation, and at that time, he was allocated 20,000 shares at 1 yuan per share. These shares paid dividends annually, usually 0.8-0.9 yuan per share, with the highest being 1.2 yuan per share. Later, when he left the company, the shares were returned.

Zong Qinghou has expressed the benefits of employee shareholding on many occasions. During one 'Two Sessions,' he emphasized to the media that employee shareholding can first accelerate the income doubling plan; second, after holding shares, employees truly become owners of the enterprise, truly masters. Only when personal interests are tied to corporate interests will employees have stronger motivation and responsibility.

But now, as Wahaha chooses the path of 'going public,' employee shareholding becomes less favorable.

Zong Qinghou once disclosed that Wahaha has 15,000 shareholders, a number that could potentially hit the red line for listed companies' shareholder count.

People in the capital circle say that domestic listing requires the number of shareholders to be limited to 200, and legal person shareholders must be traced back to natural persons, which is a red line for the China Securities Regulatory Commission (CSRC) in approving listings. If Wahaha forms a company with 15,000 shareholders to participate, integration would be difficult and could become a major obstacle to listing.

'Now it seems Wahaha has resolved this obstacle, and the listing work has been put on the agenda,' said the aforementioned insider.

Cold and Warm, Only Oneself Knows

Zong Qinghou attributes the initial intention of Wahaha's listing to the need for rapid development. In 2018, Wahaha turns 31. As the saying goes, 'at thirty, one should stand firm,' but often, to 'stand,' one must first 'break.' Besides changing its 'listing attitude' and actively preparing for listing, this spring, Wahaha also completed a round of personnel adjustments.

According to the aforementioned insider: 'Both the marketing department and the sales company heads have changed, and this change is the departing ones paying for last year's performance.' But in reality, 'those familiar with Wahaha know that no matter who becomes the sales head, it's unlikely to boost Wahaha's sales performance; the boss is the real sales director. The key point is that Wahaha's current predicament cannot be solved by price increases or personnel changes.'

In recent years, the Wahaha empire has been facing doubts. And the doubts come not only from performance but also from its diversification, second-generation succession, and even the rumors that are frequently brought up.

In the view of the former Wahaha employee, although the decline in performance is a fact, it cannot be denied that Wahaha is still the largest food and beverage enterprise in China, with high profits and scale. Its products span both beverages and dairy, requiring it to compete with companies like Kangshifu, Coca-Cola, Nongfu Spring, Yili, and Mengniu. 'It's no exaggeration to say that Wahaha's annual sales decrease is equivalent to one or two Nongfu Springs, or nearly ten Huiyuan...'

Furthermore, against the backdrop of overall industry decline, Wahaha's competitive pressure is even greater, and achieving such performance is not easy. If it were another company, there might even be a risk of overall collapse. Although Wahaha's diversification has been controversial, it must be admitted that whether in baijiu, milk powder, or commercial real estate, Wahaha has braked in time to stop losses, and relatively speaking, the company's development is still stable.

Regarding Wahaha's controversial 'failure in launching new products,' he also has another interpretation.

Nutrition Express has been Wahaha's biggest 'contributor' to performance in recent years, but after Nutrition Express, Wahaha failed to create a new product that could 'turn the tide' in over a decade. This is a fact, but looking at the entire beverage market, during this period, few companies have successfully created a 'Nutrition Express.' Whether it's Coca-Cola, Nongfu Spring, or Uni-President, they all launched many new products, but none became big.

At the same time, the big single products that the industry loves to talk about, such as Red Bull, JDB, and Six Walnuts, all took years of market cultivation and are all at the forefront of trends. 'More importantly, what used to be Wahaha's strengths are becoming weaknesses affecting the company's development,' said the aforementioned insider.

In his view, the power of Wahaha's channel alliance lies in the opaque price differences for new products, where high gross margins drive channel enthusiasm and achieve high growth. But in recent years, channel differentiation has been severe. Channels like supermarkets, convenience stores, and special channels cannot be driven by high gross margins of new products, and the impact of e-commerce on offline channels needs no further elaboration. However, the alliance is interlocking; once new products fail to sell, this driving force fails, exacerbating the problem and leading to a vicious cycle.

Additionally, in recent years, big brands with mere brand awareness can no longer drive product sell-through. For consumers, products must not only be safe and reasonably priced but also enjoy a certain brand reputation, recognition, and even brand scenario association, which are exactly what Wahaha lacks.

Over the years, its brand management has been somewhat rough, and this cannot be solved in the short term. Furthermore, Wahaha's failure to handle 'rumor' crises promptly and properly has also affected its sales to some extent.

'It cannot be denied that Wahaha's cash flow has always been good, and it indeed has no debt. Profit margin and cash flow have always been the boss's bottom line, unshakable. In other words, even if Wahaha's performance declines year after year, it won't lose money; it just earns less than before.'

Crucially, 'We must also note that Zong Qinghou is 73 this year. And this food empire, Wahaha, is still moving forward under the control of such an elder, even a grandfather-like figure,' said the aforementioned practitioner.

Regarding the 'price adjustment notice,' personnel changes, share buyback, 2017 performance, and 2018 development strategy, as of press time, Wahaha officially had not responded. However, in previous phone communications, the other party did not deny the personnel changes and share buyback matters.

**For Wahaha, in 2018, anything is possible.**

Source: New Financial Observer
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