Nowadays, Wahaha's development is hitting a ceiling. Zong Qinghou once publicly told the media that the beverage industry is facing a downward trend, with Wahaha's growth rate dropping from over 20% in previous years to over 4% last year, and only over 2% in the first half of this year. China's beverage market has entered a cold winter, and slowing growth is an indisputable fact. Hangzhou Wahaha Group (hereinafter referred to as "Wahaha"), which has dominated China's beverage industry for decades, faces challenges in the mobile internet era that traditional store operation models cannot solve. With weak internal innovation and fierce external competition, Wahaha attempts to restructure its channels, but can this change become a breakthrough? Zong Qinghou, founder and chairman of Wahaha Group Growth Ceiling Zong Qinghou, founder and chairman of Wahaha Group, who single-handedly created the "joint sales system" model, made Wahaha's development a stunning success. Its beverage and milk channels were fully sunk down, steadily winning the third- and fourth-tier markets and creating a beverage empire. During interviews, reporters learned that the "joint sales system" operation model requires Wahaha's first-tier distributors to deposit 10% of their annual sales as a guarantee into Wahaha's account at the end of each year. Wahaha pays interest higher than or equivalent to bank deposit rates. After that, distributors must settle payments before each monthly shipment, and only then does Wahaha deliver goods. First-tier distributors mainly play the role of logistics providers, responsible for warehousing, capital, and delivery to terminals, managing second-tier wholesalers in each region. At the same time, Wahaha's branches in 29 provinces across the country send personnel to help distributors manage shelf stocking, shelf arrangement, and advertising promotions. Each year, the company also implements a comprehensive incentive system combining rebate incentives and indirect incentives for distributors. Currently, Wahaha has over 70 production bases, more than 170 subsidiaries, over 30,000 employees, and total assets exceeding 40 billion yuan. But now Wahaha's development is hitting a ceiling. Zong Qinghou once publicly told the media that the beverage industry is facing a downward trend, with Wahaha's growth rate dropping from over 20% in previous years to over 4% last year, and only over 2% in the first half of this year. Apart from the impact of the overall beverage industry environment, the homogenization of beverage channels and network construction will also weaken its distribution advantages and terminal competitiveness. In addition, under the mainstream channels of internet-based e-commerce, supermarkets, and convenience stores, Wahaha's reliance on its joint sales system model seems increasingly difficult. The most intense competition in the FMCG industry is at the sales terminals. Take Kangshifu, which also sells water, as an example. It has long invested in strong channels of large supermarkets and convenience stores, including Tesco (acquired by Tesco) and FamilyMart, which is growing rapidly. In addition, China Resources C'estbon and Nongfu Spring are also expanding aggressively in channels. The eight-treasure porridge production line at Wahaha's factory "Testing the Waters" of Online-Offline Integration Although Zong Qinghou has repeatedly publicly stated that he insists on developing the real economy, he has actually been paying attention to the booming mobile internet field. Not long ago, Wahaha's holding subsidiary Shanghai Wahaha Fuli Network Co., Ltd. (hereinafter referred to as "Fulihui") hosted an OAO summit at Shanghai Jiao Tong University to explore new business models integrating online and offline. It is understood that "Fulihui" was jointly founded in April this year by Zong Qinghou, Zheng Yonggang, chairman of Shanshan Holdings, and Wang Hongxin, former dean of the School of Overseas Education at Shanghai Jiao Tong University. In May this year, Shanshan Group, Shanghai Evergrande, and Lanweile Group led a 100 million yuan strategic investment in this internet OAO platform, aiming to subvert the traffic acquisition model of traditional internet companies. The so-called OAO (Online And Offline) model is an integrated "dual-store" operation model that merges offline physical stores and online stores. Wang Hongxin, now chairman of Fulihui, told China Business News: "The OAO business model we advocate, as a new marketing model, its emphasis on customer experience begins to subvert the original ecological model on the internet. This model has the natural attribute of deep dialogue and interaction with users, truly breaking the capital dilemma of O2O and achieving the organic integration of 'store commerce' and 'e-commerce'." Wang Hongxin believes that the next decade's trend is OAO. This does not mean every enterprise should think about challenging BAT, but rather that each enterprise should think about how to use internet technology for deep integration with industry in their respective fields, then form differentiation and competitiveness. In the next 30 years, the internet, as infrastructure for every enterprise, will integrate into enterprise development like water and electricity. Whichever enterprise uses it well will take the lead in the industry. During interviews, reporters learned that besides wanting to change traditional marketing models, Wahaha has also begun to pay more attention to first- and second-tier markets. This involves adjustments in sales and marketing team staffing, as well as product positioning, taste, and packaging. Wahaha also recognizes the complexity of this work and stated that it will increase new product promotion and R&D efforts to adapt to the new normal and new mainstream consumption changes. Diversification Detours In his speech at the summit, Zong Qinghou also stated that the current development of China's real economy is facing a slowdown in growth. On the one hand, after more than 30 years of rapid development, the low-end, extensive model no longer meets the requirements of China's economic development, and it has reached the stage where structural adjustment and transformation are needed. As a platform and means, the internet can promote the development of the real economy and improve its management and quality levels. In the beverage industry, many enterprises are undergoing transformation and upgrading to escape the previous low-end, extensive business model. Nongfu Spring launched glass-bottled mineral water priced at 35-40 yuan/750ml in February last year, and JDB is using its Kunlun Snow Mountain water to seize the mid-to-high-end water market. Shen Guilong, deputy director of the Institute of Economics at the Shanghai Academy of Social Sciences, told China Business News: "Looking at the overall macroeconomic background, external demand is very weak, and domestic demand growth is also weaker than expected. Especially, general national consumption is not as good as imagined, making it difficult to profit from investing in the real economy. Much money flows into the stock market and real estate. In such an environment, the development of the real economy is indeed not easy. Enterprises doing well in the circulation link is an important topic, but whether online or offline, consumption upgrading should focus more on product upgrades themselves, avoiding the disconnect between production and demand." In the past few years, Wahaha has taken some detours in diversification, trying categories including children's clothing, dairy, and liquor, as well as heavily investing in commercial retail. Zong Qinghou's approach is to use the brand and channel advantages accumulated in the past, graft them onto newly entered industries, to quickly achieve diversification breakthroughs, but it has not achieved the expected results. Although main business revenue growth is in trouble, Zong Qinghou said Wahaha's average profit margin remains above 20%, and it has no bank loans. It seems that Wahaha, with a large amount of bank deposit cash flow, has ample capital for trial and error. Speaking of Fulihui, Zong Qinghou praised it as an innovation, a cross-industry promotion that makes it possible to get discounts on other products by buying Wahaha products. On the one hand, it promotes the sales of Wahaha products; on the other hand, it allows consumers to know other product brands. Currently, Wahaha has already used the internet to integrate everything from order placement to production scheduling, cost control, and even traceability. In addition, it has implemented automation in production equipment to reduce labor and ensure production quality. As for the OAO model, it is still an unknown new term for most internet startup companies. Whether Wahaha's trial can find a breakthrough path in the new market environment remains to be seen. Source: China Business News